In public interest

''The public has a right to know the details.''

The Central Information Commission’s directive to the Reserve Bank of India to disclose the names and other details of the top 100 businessmen and industrialists who have defaulted on repayment of loans from banks gives yet another boost to the right to information. Though the right is now considered as part of the most important citizenship entitlements, it is not without a fight that it finds acceptance in new areas. The CIC has, through a number of orders in the past, expanded the scope of the right and taken it to areas which were considered beyond the limits for citizens. In the process, the definition of public interest has also undergone a change and the territory of confidentiality has steadily shrunk. The RBI had refused to furnish information relating to default in loans taken from public sector banks and the names of defaulters on the argument that such information was fiduciary in nature and disclosure would amount to a breach of trust between the banks and customers. But the CIC’s view that public interest overrides fiduciary obligations strengthens the spirit of the RTI. It is when tested against actual cases that concepts like public interest or a fiduciary relationship get clearly defined and acquire new meaning. It is also possible to look at the issue from a different angle. Though the relationship is fiduciary in nature, is a client entitled to protection under it after he has defaulted on loan obligation? If tax defaulters’ names can be published loan defaulters have no reason to claim special privilege and banks have no reason to hold them back. The need to maintain confidentiality is based more on commercial than moral considerations. Both considerations should subserve greater public interest, as the CIC has noted. It is known that large amounts of public funds are caught in delays and loan defaults and big business has a major share in them. The public has a legitimate right to know the details. This can even act as a deterrent against default. The CIC’s ruling has come in the wake of another ruling which asked the RBI to make public the audit reports of co-operative banks. The RBI had rejected this demand also. It is surprising that the apex bank considers the financial position of even public entities confidential. The CIC has done well to expand the scope of the RTI in both cases, but efforts are on to undermine it.

DH

RBI to make corporate loan pricing transparent

Reserve Bank of India (RBI) is working towards bringing in transparency in pricing of corporate loans that banks extend to companies. The central bank is of the view that there should be a methodology for changing the premiums that banks use effectively for hiking lending rates. This follows banks' move to increase tenor premiums and risk premiums to get higher rates for their lending without changing the base rate. A senior RBI official told Financial Chronicle that this method of arbitrarily changing the lending rates when the rating remains the same and other variables like the financial position and other fundamentals of the company remain the same is unfair to the corporate client. "In our inspection of banks, we have discovered that two entities who come with the same rating get two different rates. There should be a uniform rationale in pricing these loans.” Senior bankers who did not want to be quoted said the loan is priced depending on risk perception of the client. "They may have the same rating, but in our perception, we could take a view that their revenues could be impacted because projects are going on stream, etc. Company pays the rating agency that rates it and so may have a vested interest. For a bank, it is a business decision,” said a senior banker. Subir Gokarn Deputy Governor of RBI, said on the sidelines of a banking conference last week, “Though the base rates of banks have not changed, banks have been increasing the premiums over the base rate. So lending rates are rising.” RBI is of the view that banks should bring down their net interest margins (NIMs) but improve profitability by improving operational efficiencies. According to an RBI report, which was released last week, on the trend and progress of banking in India, “Maintaining profitability is a challenge, especially in a highly competitive and high interest environment. However, a detailed analysis showed that NIM that is already high in India compared with some of the emerging economies increased further. Thus, there is a need to reduce NIM increase other income and reduce operating expenses in the interest of efficiency and profitability.” RBI has already set up a working committee to look into the pricing issues for retail customers specially on floating rate home loans and prepayment clauses for retail loan like auto or home loan. But an RBI official confirmed that even large ticket loans extended to companies will be extensively evaluated for fair pricing. From July 2010, RBI brought in the base rate concept fixing a floor under which no loan can be priced. But now, banks try to keep the base rate low to meet the short term funding requirements of companies, which otherwise could have migrated to the debt markets in the form of commercial papers. It was to bring in greater transparency that RBI did away with the BPLR (benchmark prime lending rate) for customers as banks kept high BPLR and continued to lend much below that for large corporate clients while the smaller clients and retail customers were charged at higher rates of interest. "In a deregulated environment, transparency in pricing assumes greater significance in ensuring that the risk is priced adequately and borrowers are charged interest in a fair manner," the central bank said in its second quarter policy statement released on October 24. As per Capitaline Neo data, the current 12 constituents of Bank Nifty index had collective interest income from advances to the tune of Rs 1,34,145 crore in the first two quarters of FY12, up 37 per cent from the corresponding aggregate of Rs 97,388 crore in FY11. The Bank Nifty constituents are Axis Bank, Bank of Baroda, Bank of India, Canara Bank, HDFC Bank, ICICI Bank, IDBI Bank, Kotak Mahindra Bank, Oriental Bank, PNB, SBI and Union Bank.

FC

Banks in JK flout RBI norms

Despite consistently increasing their business in Kashmir, most of the banks operating in the Valley don’t adhere to RBI instructions on priority sector lending. Interestingly, some top-notch banks including HDFC Bank, ICICI Bank, Yes Bank, Axis Bank and IndusInd Bank also come in the list of banks that are flouting the Central Bank norms laid down for lending to the priority sector including agriculture and loans to weaker sections. Interestingly, the HDFC Bank is planning massive expansion in the state, even as targeting to increase its branch strength to 50 by March. According to the latest RBI norms, all domestic banks have to disburse 40 per cent of the net bank credit to priority sector, out of which18 per cent should represent agricultural advances. The net bank credit is the figure reported in the fortnightly return the banks submit to the RBI. The RBI norms further provide that the banks should cater to the weaker sections of the society, particularly small and marginal farmers with five acre land holding and landless labourers, tenant farmers and share croppers.  For artisans, village and cottage industries, the banks, according to RBI guidelines, should extend individual credit limit up to Rs 50,000. Around 10 per cent of the Net Bank Credit has to go to weaker sections of the society and the Target Credit to women beneficiaries should be five per cent. The loans applications of the priority sector, RBI rules say, can be rejected by the branch manager, provided the rejection is later ''verified by the Divisional Manager or regional manager''. Figures reveal that most of the banks fail the guidelines. “The ICICI Bank only provides basic banking facility like deposits and ATM services while credit cards, loans and mandatory priority sector credit exposure are not being taken seriously,” sources said. Figures reveal that the Yes Bank, with deposits of around Rs 40 crore in the state, has not a single case of lending in J&K in any sector. “Both Axis and IndusInd banks have no lending facility at all and have restricted to customer deposits and banking services, thus making only profit with no credit exposure to contribute to the state’s economy,” sources said. However, a senior HDFC Bank executive said the HDFC Bank was aggressively advancing in the state. “We are here for the last five years only. During this brief period we have made around Rs 280 crore advances in J&K with about Rs. 100 crore to priority sector alone.” He said the Bank in the state has appointed entire staff as well as the top management from J&K alone. About maintaining 40 per cent credit target to priority sector, he said: “Although we may not be covering the 40 per cent target, but still our priority sector lending in J&K won’t be less than 35 per cent,” he said, adding that the RBI guideline for priority sector is not state or region-specific. Despite repeated attempts, officials of other banks could not be contacted for their comment.

Greater Kashmir

Allahabad Bank celebrates 147 years

 

'State cooperative banks up to snuff'

... He added that institutions like NABARD are not supporting the cooperative sector because of the policy changes of the RBI. "The RBI policies have affected the service attitude of the NABARD, which was compelled to enter the financial market when it didn't get sufficient fund from other operations. The move to commercialise NABARD adversely affected the cooperative sector," and claimed that all these moves are the result of globalization............

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Maharashtra Co-op Bank launches International Banking Division

Another Ponzi scam hits investors

... The duo also showed Memon certificates for trading and accepting funds from Reserve Bank of India," said sub-inspector of Navrangpura police station R N Gadhavi.....

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“Beyond Core Banking” at South Indian Bank

IFCI, DCB pull out of corporate debt recast model

.......State-run IFCI and the Development Credit Bank have pulled out of the corporate debt restructuring (CDR) model blessed by the Reserve Bank of India to bail out distressed firms, as the structure is lopsided and favours big lenders.........

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Wrong inflation forecasts hurt India's integrity: Ahluwalia

... The RBI has taken a number of steps. It's too early to say its not having an impact," Ahluwalia said. "All the research shows that monetary tightening takes at least 3-6 months.".....

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Private banks like ICICI Bank and HDFC Bank have better asset quality than state-run lenders

.... "The more important factor would be indication from the Reserve Bank of India that monetary tightening is nearing a pause and if we see some meaningful correction in global commodity prices and reforms on the policy front those could be triggers for a re-rating of markets,"........

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Should you invest in the banking sector?

.... The economy is slowing down and hence RBI may pause. But at the same time, inflation continues to remain high and if there is further spike, RBI may continue its tightening policy. In crux, how the interest rate cycle pans out is uncertain and so would be the movement in banking stocks.....

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For customers, interest rate plays key role in decision-making matrix

...“When the liquidity is tight or when we see the interest rate scenario pointing northwards, as we are seeing at this point in time, may be, the customer would be able to get a better return on his savings from the banking system. However, the reverse would happen when the liquidity is surplus and the overall interest rate scenario is different from what it is today,” said Mr Mallya, who is also the Chairman of the Indian Banks' Association. .........

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NBFCs feel the pinch

...Over the past few months, NBFCs have had to accept stricter rules and appear to be on even keel with banks on how they classify assets and bad loans. The double whammy has come in the form of the nervous macro environment in India where sustained tightening and rise of rates by the Reserve Bank of India (RBI) stymied credit growth....

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Should you invest in the banking sector?

...The economy is slowing down and hence RBI may pause. But at the same time, inflation continues to remain high and if there is further spike, RBI may continue its tightening policy. In crux, how the interest rate cycle pans out is uncertain and so would be the movement in banking stocks. But if country has to grow 7-8% in the future, banking sector would have to grow by 20%. Thus for long-term investors, the time is perfect to take exposure to banking stocks....

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Inflation to remain high till Dec,fall to 7.8% by Mar'12: Citi

...The RBI had last month revised its growth projection for the Indian economy in 2011-12 downward to 7.6% from the earlier estimate of 8%. Citi had also similarly revised its Gross Domestic Product growth forecast for India this fiscal to 7.6%.....

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Gold makes govt richer by over Rs one-lakh cr in 2 years

..Value of gold in the government's kitty has grown by over Rs 1,00,000 crore in about two years, helped by a sharp rally in the bullion price and a 200-tonne purchase from IMF in November 2009.......

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MFI sector needs regulation: Kidwai

Pitching for early enactment of the Micro Finance Bill, HSBC India Chief Naina Lal Kidwai has said the MFI sector has huge potential but needs regulations for growth. "The MFI sector has a lot of potential. But it needs to have a defined set of rules to function in a proper way...The Micro Finance Bill needs to get cleared at the earliest to achieve this," Kidwai told PTI. The government has already drafted the Micro Finance Sector (Development and Regulation) Bill, 2011. The Bill seeks to make it mandatory for all micro finance institutions (MFIs) to be registered with the Reserve Bank of India (RBI). It also entrusts the task of regulating the sector with the RBI. She said, "The sector should be developed but the interest rates should be checked... It should be seen that there are not many loans given to a single person". Micro finance -  the practice of giving small loans to poor people  - have come under intense scrutiny over allegations of high interest rates and coercive recovery tactics. Micro-credit is the lending small amount of money, usually less than Rs 10,000, to entrepreneurs to start or expand small businesses. These institutions source their funds from banks at an interest cost of 12-13 per cent and in turn lend at much higher cost of nearly 30 per cent. The MFI industry is going through a rough weather after the Andhra Pradesh government introduced an Act last year to regulate their activities following a string of farmer suicide in the state. The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010, requires MFIs to declare interest rates upfront and disclose all details relating to their borrowers.

BS