Subbarao hints at further rate hike



Central Bank Cannot Support Growth Without Fiscal Consolidation



Mumbai: In an indication that it has not yet finished with interest rate hikes, the Reserve Bank of India has said that it will continue to remain aggressive in its monetary policy in so far as the government continues to push for growth in its fiscal policy. “The Reserve Bank has been battling inflation for the last 20 months. Monetary tightening, as is well known, works by restraining demand. Inasmuch as the fiscal stance is supportive of demand, the monetary stance has had to be more aggressive than otherwise,” said RBI governor D Subbarao. The governor was speaking at the Stern School of Business, New York, on Monday. He added that for RBI to support growth (through lower interest rates) it will be necessary for fiscal consolidation to take root more firmly. Bond prices fell upon the governor’s comments as many perceived it as a signal that the central bank would continue to hike rates.  On September 17, RBI had announced its 12th rate hike in 18 months, a period in which it raised rates by 350 basis points. It is now expected to increase rates again in its monetary policy review on October 25. The governor pointed out that while it was the intent of the government to curb fiscal deficit by enacting the Fiscal Responsibility and Budget Management Act, meeting even the postcrisis revised roadmap would be a “challenge” for the centre. “The largest component of discretionary expenditure is on subsidies—on food, fertilizer and petroleum products. In reducing these subsidies, there is inevitably a tension between democratic compulsions and economic virtue,” he added. In his speech, Subbarao hit back at critics that RBI was hurting growth by raising rates. While admitting that there was a trade-off between growth and low-level inflation, he said that above a certain threshold level of inflation, this relationship reverses. “The trade-off disappears, and high inflation actually starts taking a toll on growth. Estimates by the Reserve Bank using different methodologies put the threshold level of inflation in the range of 4-6%,” he said. “With WPI inflation ruling above 9%, we are way past the threshold. At this high level, inflation is unambiguously inimical to growth; it saps investor confidence and erodes medium term growth prospects. The Reserve Bank’s monetary tightening is accordingly geared towards safeguarding medium term growth even if it means some sacrifice in near term growth,” he said.  The governor also rebutted the argument that inflation was largely a supply-side issue. He pointed out that crude oil prices recorded an annual average increase of around 17% during the 2000s as against only a modest increase of 2% during the 1990s and a decline of 3% during the 1980s. “This obviously is the outcome of structural changes in supply and demand for oil. Monetary policy has to recognize these underlying trends and respond to them,” he said.

TOI

High inflation will hurt growth, says Subbarao

Subbarao said the monetary policy stance of the central bank is aimed at restraining demand and anchoring inflation expectations

Mumbai: Reserve Bank of India (RBI) Governor D. Subbarao has justified the central bank’s hawkish monetary stance, arguing that India’s high inflation is not only driven by supply bottlenecks but also domestic demand pressures and that the current rate of price rise is “unambiguously inimical” to growth. Subbarao, who was talking on monetary policy dilemmas at the Stern School of Business, New York University, on Monday, negated the views of the critics who say monetary policy has no role to play in a situation where inflation is driven by supply side factors. “The argument...of our critics that monetary policy has no role because inflation is a result of imported commodity prices would have been valid if the increase in commodity prices was a pure and transient supply shock or if there were no demand pressures. That clearly was not the case in India,” Subbarao said, according to a text of the speech posted on the central bank’s website.  He also reiterated that RBI is willing to sacrifice some of the short-term growth to protect medium-term growth.  Subbarao argued that if inflation is above 4-6% level in India, growth inevitably gets sacrificed. At the present level of 9%, India is way past that threshold level. “At this high level, inflation is unambiguously inimical to growth; it saps investor confidence and erodes medium- term growth prospects,” Subbarao said, adding that RBI’s stance is “geared towards safeguarding medium-term growth even if it means some sacrifice in near-term growth.”

RBI on 16 September extended its record interest rate increases to tame the fastest inflation among the so-called Bric (Brazil, Russia, India and China) economies. India’s benchmark wholesale price inflation accelerated to a 13-month high of 9.78% in August, and higher food and fuel costs and weakness in the rupee may further boost prices. The central bank has raised its key policy rate 12 times starting mid-March 2010, from 3.25% to 8.25%, the fastest round of increases since RBI was established in 1935, Bloomberg data show. It has done mostly through baby steps or a quarter percentage point hike at a time. Subbarao said the baby steps were necessary to allow time for the banks and the private sector to adjust to a higher interest rate environment.  “Our baby-step approach during 2010 was accordingly a delicate balancing act between supporting recovery at home amidst growing global uncertainty and containing inflation pressures,” Subbarao said, countering any argument that RBI should have been more aggressive in its rate hikes initially, instead of hiking rates sharply—like the half a percentage point hike in the first quarter policy—and miss the bus on inflation management.  India’s stance contrasts with other Asian nations from South Korea to Malaysia, which kept borrowing costs unchanged this month as Europe’s debt crisis and a faltering US recovery cloud the outlook for expansion. India’s benchmark wholesale price inflation of 9.78% in August compares with consumer price gains of 7.2% in Brazil, 8.2% in Russia, 6.2% in China and 5.3% in South Africa last month from a year earlier. Subbarao said the monetary policy stance of the central bank is aimed at restraining demand and anchoring inflation expectations.  “Given the nature of the inflation drivers and their combined impact, clearly there is a significant role for monetary policy in combating inflation,” Subbarao said, indicating that the central bank still sticks to its stated objective of reversing its stance of rate hikes only when inflation comes under control. Analysts tracking RBI are divided on what will the central bank do when it announces its monetary policy for the second quarter on 25 October. While most of them expect that there can be one more quarter of a percentage point hike in policy rates before RBI pauses, some expect that it has already reached the peak and RBI may opt for a pause.  RBI had made it clear previously that it will not change its stance unless inflation is under control as that would be “premature” to do. Most expect inflation to continue to remain high at least till November, and, even after that, it may not come down sharply.

Mint 

RBI defends policy action to check inflation

Amid criticism that frequent interest rate hikes are hurting economic expansion, RBI Governor D Subbarao said policy tightening was necessary to contain inflation and preserve medium-term growth prospects. "At this high level, inflation is unambiguously inimical to growth; it saps investor confidence and erodes medium-term growth prospects. The RBI's monetary tightening is accordingly geared towards safeguarding medium-term growth even if it means some sacrifice in near term growth," he said while speaking at the New York University. The central bank's decision to increase interest rate for the 12th time since March 2010 to check high inflation has evoked sharp reaction from industry. Even Chief Economic Adviser Kaushik Basu recently said that RBI should do some "out of box" thinking to deal with elevated inflation level in the country. Despite the short-term borrowing (repo) rate going up by 3.5% since March 2010, inflation has remained stubbornly high at near 10%, much above the Reserve Bank's comfort level of 4-5%. However, the tight monetary policy is affecting the economy. The data shows that GDP growth during the April-June quarter of 2011-12 moderated to a 18-month low of 7.7% from 8.8% in the corresponding period a year ago. Industrial output growth during July was at 3.3%, the lowest in 21 months. On the impact of monetary policy on growth, Subbarao said, "a much more nuanced evaluation of our policy stance is necessary. Evidence from empirical research suggests that the relationship between growth and inflation is non-linear... high inflation actually starts taking toll on growth." While pointing out that RBI's anti-inflationary stance was being criticised as hawkish by some and soft by others, Subbarao said, "both the critiques cannot obviously be right at the same time." Given the nature of inflation drivers, which includes rising wages in rural areas, he said that the monetary policy stance has been "aimed at restraining demand and anchoring inflation expectations." Defending the "baby step" approach to deal with inflation, the RBI chief said it was necessary "to allow time for the banks and the private sector to adjust to a higher interest rate environment." He further said, "our baby step approach during 2010 was... a delicate balancing act between supporting recovery at home amidst growing global uncertainty and containing inflation pressures." Baby steps refer to the calibrated approach followed by the RBI to combat inflation; it then hiked interest rates by 0.25% at a time. 

Moneycontrol

Maximum customer complaints against SBI, ICICI: Ombudsman

NEW DELHI: Maximum customer complaints were received against State Bank of India, ICICI Bank and HDFC Bank during 2010-11, said Banking Ombudsman of New Delhi region. Of the total 10,508 complaints received in 2010-11, about 4,500 cases were against SBI, ICICI Bank and HDFC Bank, RBI Chief General Manager and Banking Ombudsman (New Delhi) M Rajeshwar Rao said here today. "The reason for these many complaints against these banks is due to their large number of transactions because of their size," he said.  Pointing out the maximum customer complaints (32 per cent) are card related, Rao said 41 per cent are against the public sector banks in the New Delhi region, which includes Jammu and Kashmir, Haryana (excluding Panchkula, Ambala city and Yamunanagar) and Ghaziabad and Noida in Uttar Pradesh.  As much as 36 per cent of the complaints were against private sector lenders, followed by foreign banks at 15 per cent, he added. The number of complaints received during 2010-11 have come down by 13 per cent from 12,613 in the previous fiscal. Most complaints are received from Delhi, followed by Haryana. Banking Ombudsman Scheme, an alternate disputes resolution mechanism appointed by the RBI, deals with deficiency in the services by the bank and 27 services are part of the scheme. 

ET

Burden to combat double-dip recession on central banks : RBI

NEW YORK: Reserve Bank Governor D Subbarao has said that fears of double-dip recession have resurfaced and monetary authorities will have to deal with the global economic problems. The burden of combating recession through monetary stimulus will fall on central banks, Subbarao said while addressing the Stern School of Business, New York University here. "Over the last few months, fears of double-dip recession have resurfaced, and governments in advanced countries are locked in a policy logjam over the balance between short-term fiscal stimulus and long-term fiscal consolidation." "This has willy-nilly pushed central banks to the fore once again as monetary stimulus is having to bear the burden of being the first, and in some cases, possibly the only line of defence against recession," he said. Pointing out that the crisis has been an intellectual challenge in many ways, Subbarao said, "My own experience has been the real world problems are too complex to fit template solution of text books."  Earlier speaking at the IMF meeting, Subbarao had said that "we are rapidly running out of time, and may therefore be running out of solutions".  Fears of renewed economic crisis has been haunting the US, while in the eurozone the sovereign debt seems to be deepening, sending shock waves across the world economy.  He said that both were a big risk by themselves. If both the crises developed simultaneously, it could have a considerable impact through trade, finance and confidence channels. Subbarao is in the US to attend meetings World Bank and International Monetary Fund (IMF) meetings. 

ET

IBA likely to submit comments on pre-payment by Sep-end: RBI

The Reserve Bank (RBI) today said the Indian Banks' Association (IBA) is expected to submit comments by the end of this month on the proposal to do away with pre-payment charges on home loans. "IBA is expected to submit comments on pre-payment by the end of this month," RBI Chief General Manager and Banking Ombudsman (New Delhi) M Rajeshwar Rao said here. After receiving the comments, the RBI will go through it and take a final call on the pre-payment charges on loans taken under floating rates by customers, he said. Earlier this month, the Banking Ombudsmen Conference suggested banks should not impose pre-payment charges on loans with floating rate of interest. It had said banks may also offer long-term fixed rate housing loans to customers. The conference said lenders may address their asset liability mismatch (ALM) issues by taking recourse to the Interest Rate Swaps (IRS) market. "Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it, to borrowers and, thus, banks only substitute interest rate risk with potential credit risk," the Ombudsmen had noted. The banks will, however, be free to recover or charge appropriate pre-payment penalties in the case of fixed rate loans, it had suggested. Meanwhile, Rao pointed out that the maximum complaints received from customers were card related. He said as much as 41 per cent of total complaints by customers are against the public sector banks in the New Delhi region which includes Jammu and Kashmir besides Haryana. In the region, he said the Ombudsman received maximum complaints against State Bank of India followed by ICICI Bank and HDFC Bank. The total complaints received during 2010-11 stood at 10,508 which is 13 per cent less than in the previous fiscal (12,613). Most complaints are received from Delhi followed by Haryana. Banking Ombudsman Scheme of the RBI deals with any deficiency in the services by the bank and as many as 27 services are part of the scheme.

DH

That’s the Dedicated Spirit..................

RBI to release new series of coins

Chandigarh : The Reserve Bank of India (RBI) will shortly put in circulation new coins of 50 paise, one rupee, two rupees, five rupees and ten rupees denominations. The coins of these denominations shall conform to new dimensions, designs and compositions, an official release said here today. These coins will be legal tender as provided in the Indian Coinage Act, 1906. However, the existing coins in these denominations shall also continue to be legal tender, Vinod Kumar, Assistant General Manager, RBI, Chandigarh, said.

DH

What slowdown? Banks on a recruitment spree

Most banks appear to be on branch expansion overdrive

At a time when most other industries fear a grim future and possible recruitment freezes, banks in India appear to be on a branch expansion and recruitment spree. Most banks in the country, specifically public sector banks and small, private sector banks appear to be on a branch expansion overdrive. For large public sector banks, the expansion appears to be an effort to achieve financial inclusion by having branches in un-banked regions while for smaller banks it seems to be an attempt to move out of their region of origin and acquire a more pan-India presence. But why do banks want to expand at a time when there are signs of a possible slowdown and when costs are going up. “Any bank branch takes about two years to contribute to the growth of the bank and if banks want to be prepared for a higher rate of growth they need to start setting up new branches now. Also branch expansion is not as big a burden when compared to the benefit that they acquire. What is more important is, if the business from the new branch will help meet their capital adequacy ratio requirements,” says Vaibhav Agarwal, banking analyst at Angel Broking. The Reserve Bank of India (RBI) in its branch expansion regulation mandated that at least 25 per cent of the new branches opened by public sector banks should be in rural areas. For public sector banks, apart from meeting financial inclusion targets, the need to catch up in terms of branch addition is also another reason to expand aggressively. Over the past few years, public sector banks spent most of their time and funds on establishing core banking solutions in their branches. Now that the systems are in place, these banks had to do some catching up in terms of branch expansion, experts say. “Since most of these branches are in rural and semi-urban regions, they help the banks tap low cost deposits, while the urban branches could be used for lending services,” points out Rikesh Parikh, banking analyst at Motilal Oswal Securities. Small private sector banks too expand to shed their image of being a ‘regional bank’ and acquire a more pan-India presence. This explains why a Kumbakonam-based City Union Bank wants to expand to Varanasi and Khammam and Thrissur-based Dhanlaxmi Bank wants to expand to Ghaziabad and Bareilly.

WSJ 

To take on new banks, finmin to monitor PSB promotions

...Public sector bankers in their forties may soon begin moving across banks as a churn mechanism to make decisions faster and take on competition from new and foreign banks. This will mean the finance ministry will have a greater say in the promotion policy of these banks. The common promotion policy for all officers will begin from the grade of assistant general managers. Officers from this grade will be made to switch .....

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Bankers in a Fix Over RBI’s BCG Ruling

The finance ministry’s latest diktat that all public sector banks should adopt the Boston Consultancy Group’s banking report has come as a big surprise. The report talks about ways to improve efficiency and productivity. Top bankers are juxtaposing the latest development with an instruction issued by former finance secretary Arun Ramanathan. Back in 2007-08, Mr Ramanathan had told banks to steer clear of consultants. In fact, he had written to all bank chiefs saying that they have plenty of internal talent and, therefore, do not require advice from an external agency on how to run a bank. 

ET

RBI tightens norms on securitization deals

The practice common among finance companies and microlenders to originate loans and then quickly sell them off to commercial banks through securitization deals could take a hit, with the Reserve Bank of India (RBI) tightening the screws on such transactions. In its second draft guidelines announced on Tuesday, RBI said banks extending loans to clients should mandatorily keep them on their books for a minimum period and keep a portion of such loans, depending on their maturity. The public can submit comments for this draft till 14 October. Securitization was one of the villains of the global financial crisis, with lenders selling housing loans to subprime borrowers and then packaging these loans into marketable securities that were sold to investors around the world. “The recent crisis in the credit markets has called into question the desirability of certain aspects of securitization activity as well as of many elements of the ‘originate to distribute’ business model, because of their possible influence on originators’ incentives and the potential misalignment of interests of the originators and investors,” RBI said, announcing the guidelines. The central bank’s concern stems from the fact that some of the companies, especially non-banking financial companies (NBFCs), originate such loans and sell them off immediately to other institutions to make profits within a short period. This increases the risk of such transactions as many times the buyers are unable to ascertain the risk of the original investor. “While the securitization framework in India has been reasonably prudent, certain imprudent practices have reportedly developed, like origination of loans with the sole intention of immediate securitization and securitization of tranches of project loans even before the total disbursement is complete, thereby passing on the project implementation risk to investors,” RBI said. As per the new norms, for loans with a maturity of two years, the originator should hold the loans for a minimum period of one year. Also, the originating institution has to retain at least 10% of the loan portfolio in its books, which, according to the central bank, will ensure that the project implementation risk is not passed on to investors and a minimum recovery performance is demonstrated prior to securitization to ensure better underwriting standards. Banks are also required to carry out regular stress tests and monitor the portfolio on an ongoing basis, the central bank said. Experts say the new rules are intended to control securitization transactions primarily done by NBFCs, which have increased risk. “The entire guidelines have been framed to strengthen the securitization market from any kind of unhealthy practices, which had led to the 2008 global financial crisis,” said Vaibhav Agarwal, vice-president, research, at Angel Broking Ltd. According to the guidelines, originating firms need to hold loans below two years of maturity for a minimum period of nine months and need to retain 5% of the portfolio in its books. This could impact loan flow to microfinance institutions (MFIs), which are reeling under a crisis due to a state law enacted by Andhra Pradesh government, last year. “This would virtually mean that the securitization loan deals in the microlending space will take an immediate hit, as most of the MFI loans are for one-year maturity and holding it for a long period will be difficult,” an executive with an Andhra Pradesh-based MFI said, requesting anonymity. According to the apex bank, the total exposure of banks to the loans securitized in certain categories, such as in the form of investments in equities, should not exceed 20% of the total securitized instruments issued. If a bank exceeds this limit, the excess amount would be risk-weighted at 1,111%, RBI said.

Mint

PVNSB penalised for violating RBI guidelines

The Reserve Bank of India (RBI) today penalised Gujarat-based co-operative sector lender -Porbandar Vibhagiya Nagarik Sahakari Bank (PVNSB)- for violation of its guidelines. A penalty of Rs 1 lakh was imposed on PVNSB for violating RBI guidelines on 'Know Your Customer (KYC)' norms as well as Anti Money Laundering (AML). The RBI had issued a show-cause notice to the bank, in response to which, the bank had submitted a written reply. "After considering the facts and the bank's reply in the matter, the RBI came to the conclusion that the violation was substantiated and warranted the imposition of penalty," an official statement said. Over a dozen co-operative banks from Gujarat have been fined by RBI in the past for violating its guidelines on AML and KYC. 

Moneycontrol

RBS-HSBC deal likely to miss September 30 deadline

Royal Bank of Scotland’s (RBS) efforts to sell its retail and commercial banking businesses in India to Hongkong and Shanghai Banking Corporation (HSBC) is likely to miss its deadline of September 30, as the Reserve Bank of India (RBI) is yet to approve the deal. Sources said both the banks were reworking on the structure of the deal and, hence, it was unlikely to be closed by the end of this month. “We are working closely with HSBC and the regulators to complete the deal,” an RBS spokesperson in India said in an e-mailed response, without detailing further. The HSBC spokesperson was not available for comment. The deal, announced in July 2010, was part of RBS’ plan to retreat from some of its businesses in overseas markets. HSBC had said it would pay a premium of up to $95 million over the tangible net asset value of the businesses when the deal was completed. The actual price will depend on the quality of assets. According to sources, the banking regulator is not comfortable with the deal, as it involves part-selling of RBS’ businesses to HSBC. “The main issue is with the branch network. RBI is not convinced with the proposal of RBS selling its branches to HSBC and still continuing with wholesale banking operations in the country,” a source familiar with the development said. HSBC currently has 50 branches in India, the second-largest among foreign banks in the country. RBS has 31 branches. RBS has so far maintained that India would continue to remain a “core market”, even as it was exiting retail and commercial banking businesses. The principal businesses for RBS in India will be global banking and markets, global trade and transaction services and private banking. “It is a complex transaction, hence, it is taking time. RBI has raised some points with regard to the number of branches and priority sector requirements, and these have to be addressed before the deal is closed,” said another banker. In an earlier interview with Business Standard, Naina Lal Kidwai, country head for HSBC in India, said the nature of the deal was unprecedented. “RBI is looking at it cautiously, because anything it does would set precedence for the future. Frankly, we always thought it (securing approval from the RBI) would take time,” she said.

BS

Reliance Bank after RBI finalises guidelines: Anil Ambani

Reliance Capital, the financial services arm of the Anil Dhirubhai Ambani Group (ADAG), will consider setting up a bank after the necessary regulatory changes are made by the central bank, besides unlocking the value of other businesses. Anil Ambani, chairman, Reliance Capital, told shareholders at the annual general meeting of the company in Mumbai on Tuesday that it would consider making a foray into the banking sector, after the Reserve Bank of India (RBI) finalises the guidelines pertaining to licences to be issued to new banks. The new venture would be called Reliance Bank, he added.

http://www.domain-b.com/companies/companies_r/Reliance_Capital/20110927_anil_ambani.html

Banks Smell Profit on RBI Arbitrage Window

Banks borrow from central bank and invest in higher yielding short-term instruments

Banks are seeing an arbitraging opportunity by borrowing from the Reserve Bank of India and investing in higher yielding short-term instruments like one-month certificate of deposits and one-month commercial papers. In the current market, onemonth certificate of deposits are now traded at 9.20% while onemonth commercial papers are being traded at 9.50%. On the other hands, banks can borrow from RBI’s repo window at 8.25% on an overnight basis against government securities. The traded volumes in the CD market also jumped to . 12,434 crore on September 23 from . 6,480 crore on September 13. In the last few days, banks on an average have borrowed . 67,000 crore from the Reserve Bank of India’s repo window. This is despite the fact that the banking system is flush with incremental deposits worth . 3,14,000 crore (6%) so far this year, compared with a fresh loan disbursal of . 1,32,000 crore (3.4%). “Banks which hold surplus SLR of 2-3% can avail funds from the repo facility(8.25%) and utilise the funds for short-term investment in commercial paper or certificate of deposits and earn a clean spread of above 1%,” said Roy Paul, DGM, Federal Bank. The excess SLR, or statutory liquidity ratio — the portion of deposits that needs to be parked in government bonds, in the system is about 7%. The entire banking sector has invested about 31% of its deposits in bonds against the stipulated 24%. “As the quarter end approaches, money market instruments such as certificate of deposits factor in the quarter end in a premium because credit demand picks up and banks need to shore up their interest income,” said a senior treasury official with a private bank, requesting anonymity. The amount borrowed by banks from RBI’s repo window, indicates the liquidity situation in the banking system. The repo borrowing has risen steadily in the past one week, in spite of robust deposit mobilisation. Banks borrowed Rs. 78,565 crore on Tuesday from the central bank. This is partly because it is the beginning of the reporting fortnight. Another reason, traders point out is that banks, with excess holding of government securities, are using funds borrowed from RBI to invest in high-yielding certificate of deposits and commercial papers. 

ET

RBI cautions NBFCs on fake bank guarantees

Mumbai: The Reserve Bank of India (RBI) on Tuesday cautioned non-banking finance companies against dealing with about ten individuals and firms who have allegedly faked bank guarantees to do certain transactions. In a notification, the RBI said it has noticed instances of wherein bank guarantees purportedly issued by a couple of bank branches in favour of different entities were presented for confirmation by other commercial banks/individuals representing some beneficiary firms.  A scrutiny of the said BG revealed that these bank guarantees were fake and the signatures of the bank officials appearing on the BG were forged, the RBI said. According to the RBI notification, the beneficiaries of these transactions include SFT Exports, Sumsh Infrastructure Pvt Ltd, Tulip and Co and Alka Hotel Pvt Ltd amongst others.  

Mint

Spandana, Share Microfin, Asmita to seek merger nod

Microfinance institutions (MFIs) Spandana Spoorty, Share Microfin and Asmita are planning to approach the Reserve Bank of India with a merger proposal. “There is in-principle consensus among the three of us that the merger will be a win-win situation in the present context of challenging environment of microfinance,” Ms Padmaja Reddy, Managing Director of Spandana Spoorty Financial Ltd, told Business Line here. The three MFIs are among the top five such institutions in the country, along with SKS Microfinance and Bharatiya Samruddhi Financials Ltd of Basix Group. “We are planning to make a presentation before the Reserve Bank of India as its permission is needed for merger as a regulator of non-banking finance companies,” Ms Reddy said. The merger will create a mega conglomerate with a portfolio of over Rs 6,000 crore, making it the largest NBFC group in the country with around 30,000 employees. According to the plan, three NBFCs would be created, including one for Andhra Pradesh portfolio which is under “complete stress now”. “The remaining two will focus on building non-Andhra Pradesh microfinance portfolio and non-micro loans, respectively,” she said. The basic idea behind the proposal is to segregate ‘toxic portfolio' from other business operations in the three MFIs. “This will benefit all of us in terms of significantly improved capital adequacy ratio. In addition, securing loans will also not be a problem,” Ms Reddy explained. Apart from RBI approval, there is also a need to take permission from the consortium of banks that extended corporate debt restructuring packages, which, however, were ‘hinted' at the likelihood of the merger. But this would be done only after ascertaining RBI's view on the proposal, she added. The promoters of Spandana, Share and Asmita are tight-lipped about the valuations and other financial aspects of the merger plan.

HBL

Fahim for Pakistan-India fast track opening of bank branches

ISLAMABAD : Federal Minister for Commerce Makhdoom Amin Fahim on Tuesday stressed that Pakistan and India should fast track the process of opening of bank branches to facilitate the business community and to increase the trade volume between the two countries.Makdoom Amin Fahim, who is currently visiting India, said this while talking to Dr. Subir Vithal Gokaran, Deputy Governor, Reserve Bank of India who called on him in Mumbai (India), says a message received here on Tuesday. Dr. Gokaran expressed his optimism and agreed for increased cooperation between the two regulators.  Senior Minister is currently on an official visit to India, to discuss trade issues with India stressed the need for the opening of bank branches on reciprocal basis. It is also expected that a high-level delegation of RBI will visit Pakistan in the first half of October 2011 to discuss the modalities for opening of branches.  Secretary Commerce, CE TDAP, Pakistan High Commissioner to India and a representative of State Bank of Pakistan were also present in the meeting.

Associated Press of Pakistan

L&T Finance likely to apply for new banking license

L&T Finance, the non-banking finance arm of the infrastructure major Larsen & Toubro has hinted at applying for RBI's new banking license. The Reserve Bank of India has already charted out the draft guidelines for it in August. Amongst top prviate players, L&T Finance is perceived to be a major contender to start a fresh bank. "Being a dominant player in finance sector, we cannot ignore this option," N Sivaraman – president and whole time director, L&T Finance Holdings told Moneycontrol.com on the sidelines of a fund launch conference.  "We have expertise in finance and should look forward at banking business. We are waiting for final guidelines to come out. At this point of time, we cannot give any definite details. We will be closely watching each and every development relating new banking license," he said.

Even as India Inc awaits the final guidelines for new bank licences, the L&T Group, which has been a serious contender for the same, today expressed the feasibility of the strict entry norms that has been put forth in the draft paper by the RBI. The main issue of contention seems to be the 25% mandatory rural presence, as stipulated in the draft guidelines, issued by the Reserve Bank last month. "It is not easy to say that rural branches are viable or not. Is there any other mode of servicing the rural clients without the normal brick and mortar banks? These are areas that we really need to work on," L&T Finance Holdings President and Whole-Time Director N Sivaraman told reporters here. He was replying to a question whether the 25% stipulation for rural branches would deter for the new players. "All those evaluations will have to be completed. We definitely need to do a thorough evaluation on whether it will be worthwhile at this point of time," he added. However, Sivaraman was quick to add, "I will not say that we are not interested. Definitely, as a financial services player that is of great interest to us, and we will actively consider the prospect. "I think, it is an opportunity that is important for a financial services player. So we can not ignore it. We will have to wait for the final guidelines to come out. Once RBI announces its final guidelines we will definitely work on it," he said replying to a query on whether the group will pursue entering the banking space given the strict entry norms. The Reserve Bank last month had issued the draft guidelines on new bank licences, pegging the minimum required capital for the holding company at Rs 500 crore, and limits the foreign shareholding at 49 percent. At present, the minimum capital requirement for the banking sector is Rs 300 crore and the foreign shareholding in private sector banks is allowed up to 74% of the paid-up capital. 

Moneycontrol

One Has to Learn New Competencies: Kumar Mangalam Birla

I think financial inclusion is a very big part of issuing licences for the new bank. Given the fact that we have physical presence across so many points within the country, across the country and we do very significant CSR work across the country, for us to kind of get started in terms of the inclusion part of it would be very kind of easy and sots of fits in with our philosophy of doing things. Fits in with our social conscience. Clearly it is very important for RBI and the government as I understand it to have inclusion as a very big criteria for selection.

Business Today

Monetary Policy Dilemmas: Some RBI Perspectives

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Was RBI’s monetary policy too hawkish or dovish? RBI has been criticised both ways recently. Some say it has been too dovish as it took baby steps to rising inflation in 2010. Some say it is too hawkish as it has raised rates sharply leading to slowdown in the economy. Subbarao says both need to be assessed given the context RBI was in......

Indian microfinance credit bureau: Why is it not fully operational yet?

.... hope that the proposed Microfinance Bill drafters, key regulators and the RBI take these aspects into account while formulating a strategy for implementing a microfinance credit bureau........

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