RBI Board meets at Kolkata; State Govt., Banks and RBI to work together for meaningful Financial Inclusion

The Central Board of Directors of the Reserve Bank of India met today at Kolkata. Dr. D. Subbarao, Governor, Reserve Bank of India chaired the meeting. Directors Sarva Shri Dr Anil Kakodkar, Kiran Karnik, M.V.Rajeev Gowda, Y.H.Malegam, Azim Premji, Dipankar Gupta, G.M.Rao, Ms Ela Bhatt and Dr Indira Rajaraman. The Government nominee Shri R.Gopalan, Secretary, Department of economic Affairs and Government nominee on the Board also attended at the meeting. Deputy Governors Dr. K.C.Chakrabarty, Dr. Subir Gokarn, Shri Anand Sinha and Shri H.R. Khan were also present.

The Central Board meets at least once every quarter. Apart from holding meeting in Mumbai, Chennai, Kolkata and one in New Delhi after the Union Budget which is addressed by the Finance Minister, the rest of the meetings are held in other state capitals by rotation. The main function of the Central Board of Directors of the Reserve Bank is to provide overall direction to the Reserve Bank’s affairs.

Earlier, the Governor met the Chief Minister Miss Mamata Banerjee and discussed issues of mutual interest. The Governor also met local bankers and State Government officials. At this meeting, the following decisions were taken:

·         Banks will endeavour to achieve credit deposit (CD) ratio of 65 per cent by the end of March 2012. Current CD ratio in the State was 62 per cent which was significantly lower than the national average of 74 per cent. A higher target for CD ratio to be achieved during 2012-13 would be reviewed after that but would largely be subject to demand for large corporate credit.

·         Banks will make efforts to cover at least one lakh Self-Help Groups (SHGs) by March 2012. There are total 1.55 lakh SHGs to be credit linked in the State, out of which 29,622 SHGs have already been covered by banks.

·         To get a clear picture of ground realities with regard to loans to be availed by General Credit Card holders, a team of officials of State government, banks and the Reserve Bank will conduct a survey in four districts of West Bengal – Murshidabad, Howrah, Malda and North 24-Parganas. The survey would be completed by end-December 2011. Based on the findings of the survey, the SLBC will decide on the way forward.

·         All the 7486 villages with population of more than 2000, will be covered by banking facilities by March 2012 under the Financial Inclusion Plan. Banks had already covered 4348 villages by November 2011.

·         State government will give all support to the Reserve Bank in extending electronic benefit transfer (EBT), to begin with, in four districts where pilot project had already been initiated. The objective, however, will be to extend EBT facility to all the districts in West Bengal covering all villages. Banks would need to work out modalities with the active support of State governments in this regard.

·         In order to give boost to credit in the State and to ensure district level participation, the Chief Minister has agreed to attend one State Level Bankers’ Committee (SLBC) meeting in the next three months.

·         To encourage credit enhancement and financial inclusion at the district level, the District Magistrate, Regional Managers of banks and officials of the Reserve Bank will attend the District Consultative Committee meetings.

·         The urgency of extending State contribution for recapitalisation of the three Regional Rural Banks (RRBs) in West Bengal necessary for their improved performance was reiterated. 

Moneycontrol

RBI to help banks in rural Bengal to better credit delivery

KOLKATA: Showing concerns over low bank credit penetration to Bengal's non farm sector, Reserve Bank of India has decided to do a ground-level study to assist the state level bankers in improving credit delivery. The credit deposit ration in the state stands at 62%, way below the national average of 74%. Governor D Subbarao on Thursday announced that a team of RBI, banks and state government officials will conduct a survey in four districts of - Murshidabad, Howrah, Malda and North 24-Parganas to assess the reasons behind low credit offtake. United Bank of India will assist RBI for doing survey in Murshidabad while Allahabad Bank,  Uco Bank and State Bank of India will partner the central bank in North 24 Parganas, Howrah and Malda respectively.  The survey will be completed by December and the findings of the survey will help the state level bankers' committee to decide on the course forward.  "We will do the study to get a clear picture of ground realities with regard to loans to be availed by general credit card (GCC) holders," Subbarao said. Banks provide GCC loans to poor non-farming families in the interiors. Banks are targeting to achieve a CD ratio of 65% by March 2012. RBI has told banks to aim higher CD ratio during 2012-13 while banks complain about low credit demand in the state. "I have told the chief minister that the state needs to attract big corporate investment to improve CD ratio," Subbarao said. Banks credit offtake largely depends on demand from large corporate sector. The RBI governor has requested chief minister Mamata Banerjee and finance minister Amit Mitra to release Rs 85 crore as part of its contribution towards recapitalisation of three regional rural banks in the state. Unless the state, which holds 15% in each of these RRBs, releases its contribution, the centre would not release 50% of the recap fund. These tree banks would need Rs 470 crore as capital support. "RRBs need to be recapitalised fast so that these entities can play an effective role in improving the state's credit scene," Subbarao said.  The governor mentioned that while banks are supposed to extend minimum banking facilities in 7,486 unbanked villages by March 2012, merely 58% of the target has been achieved so far.

ET

Confusion over regulating MFIs - K. Kanagasabapathy



With the RBI and the States drawing up separate provisions for the microfinance sector, regulatory arbitrage becomes a distinct possibility



Even while the regulatory apparatus for microfinance is under serious debate, the Reserve Bank has chosen to introduce one more classification of non-banking financial companies purveying credit to micro-finance activities — namely, NBFC-MFIs — based on the recommendations of the Malegam Committee. This raises several concerns in the backdrop of the legislation by the Andhra Pradesh (AP) State already in vogue, the overall interest rate policy, and policies relating to financial inclusion.

RBI's position

The trigger for this move is evidently the micro-finance crisis in Andhra Pradesh, following reports about usurious lending practices combined with coercive recovery procedures adopted by microfinance institutions. The Andhra Pradesh legislation draws its powers from ‘money lending' Constitutionally coming under the States' jurisdiction. The Act applies to all entities engaged in the business of microfinance, including NBFCs regulated by the Reserve Bank. The Reserve Bank recognises the inherent conflict of this move when it comments on AP legislation in its Trend and Progress Report thus: “If State Governments start enacting their own legislations to regulate MFIs, including the ones regulated by the Reserve Bank, there will be a plurality of regulation, leaving scope for regulatory arbitrage. The responsibility for regulating NBFCs has been given to the Reserve Bank, thus empowering it to regulate the NBFC-MFIs. If other States also come out with legislation similar to the AP Government, it will raise concerns not only about multiple regulations but also about client protection, as borrowers would then be subject to different regulations. If there are separate regulations governing NBFC-MFIs in individual States, the task of regulation by the Reserve Bank of MFIs operating in more than one State will become even more difficult. This may also impact the business of MFIs, which are operational in more than one State.” One question that arises is that in the case of Andhra Pradesh at least, how this inherent conflict will be handled in respect of NBFC-MFIs. According to press reports, the Andhra Pradesh Government feels that while some aspects of the RBI norms were good, the lack of implementing mechanism would make them ineffective. The State government has taken the stance that micro-loans in the State would continue to be regulated as per the State Act. What are the implications of this? First, there will be dual registration. Second, the codes of conduct for recovery would be different. The AP legislation prohibits recovery agents and coercive methods of recovery and all repayments have to be made at the office of the gram panchayat or at a designated public place. Third, AP legislation stipulates that loan recoveries have to be made only in monthly instalments, whereas the RBI directives have a different provision.

MFIs as a Class

MFIs as a class gained its significance in the recent past mainly because of their ability to borrow from commercial banks and, in turn, the ability of commercial banks to include such lending as part of priority sector lending. According to the Trend and Progress report, the number of MFIs increased from 581 in 2008-09 to 691 in 2009-10, but came down to 469 in 2010-11. The loans disbursed by these institutions which went up from Rs.3,732 crore to Rs.8,063 crore but declined to Rs.7,605 crore during the same period. The total loans outstanding with commercial banks of MFIs as at end March 2011 is placed at Rs.10,689 crore. The Reserve Bank has been expressing concerns about growth of bank lending to NBFCs because of the systemic linkage. The systemically important non-deposit-taking NBFCs' borrowing from the banking system showed a whopping growth of 46 per cent in 2010-11 to Rs.1,37,827 crore. Though MFIs are not as systemically important, some of them may grow into that category.

For-profit MFIs

RBI has been following a policy of deregulating interest rates, and only recently the savings deposit rate was freed for the banking system. The current directives for NBFC-MFIs go against this stance. Furthermore, a ceiling of 26 per cent rate of interest would make it appear that usurious lending has RBI's blessings. Even at the peak of interest rate cycle in the past, when directed credit was the norm, never was there a norm like 26 per cent for any sector. The question is whether this will set the trend for other microfinance lenders, such as non-profit MFIs, non-governmental organisations and self-help groups. According to former RBI Governor, Dr. Y.V.Reddy, the for-profit MFIs are no different from money lenders and hence they need to be regulated as money lenders. Also, while money lenders lend out of their own funds, the for-profit MFIs lend out of leveraged funds obtained at lower cost. Dr. N.A. Mujumdar, in his presidential address at the Indian Society of Agricultural Economics, welcomed non-profit MFIs into the stream of microfinance, but came out with a scathing attack on for-profit MFIs, calling them rogue MFIs. Overall, while the RBI's move brings in some equity angle of regulating for-profit MFIs, a better option would have been to apply the current regulation over non-deposit-taking NBFCs in general to MFIs, without treating them as a separate class, and disqualify commercial bank lending to NBFCs as part of priority sector, which also militates against the overall interest rate policy. 

HBL

RBI to take all steps to ensure liquidity

The Reserve Bank of India (RBI) will take all steps needed to ensure there is adequate liquidity in the banking system, its chief said on Thursday, even as he declined comment on the possibility of lowering the cash reserve ratio to ease tight cash conditions. "There is liquidity constraint across the system or certainly for certain banks," Duvvuri Subbarao told reporters after a central bank board meeting in Kolkata. "So as necessary, we will take appropriate measures to see that the liquidity situation is eased," he said. The cash crunch, currently hovering around 1 trillion rupees, is above the RBI's comfort zone of 1 percent of the total deposits in the banking system, which roughly translates to 600 billion rupees at current levels. The RBI has bought back 243 billion rupees of bonds out of a targeted 300 billion rupees via three buybacks through open market operations to ease liquidity. However, bond dealers are hoping the RBI will use the cash reserve ratio, or the proportion of deposits that banks need to set aside with the central bank as cash, as a more potent tool to bring in liquidity. The ratio now stands at 6 percent. Subir Gokarn, a deputy RBI governor, had said on Wednesday the cash reserve ratio was not just a liquidity tool but a monetary policy signal. He said bond buybacks would be the route going ahead for easing liquidity. The RBI has a tough balancing job in ensuring enough liquidity for the banking system in a way it does not fuel inflation, which still remains high. India's headline inflation stood at 9.73 percent in October, above the RBI's comfort zone of 7 percent by March, 2012. "Some amount of rupee depreciation, some assessment of oil price has been spelt into our projection of WPI inflation...," Subbarao said, when asked whether the central bank will raise its inflation projection at its December 16 monetary policy review. The sharp fall in the rupee has been largely due to global factors, particularly the developments in Europe, the central bank chief said. "Because there has been no inflows coming in a significant way, the rupee exchange rate has been determined by current account deficit," he said. The rupee, weighed by a surging oil import bill and widening trade deficit, had touched a record low of 52.73 versus the dollar on November 22 and is the worst performing currency among Asian peers so far this year. It has fallen 13.6 percent so far in 2011. Subbarao declined comment on whether the RBI has intervened in the foreign exchange markets in past weeks, though forex dealers have suspected the central bank's hand in a bid to stem the rupee's slide. Official intervention data from the central bank comes with a two-month lag.It had intervened in the market in September, after following a hands-off approach for nine straight months, its monthly bulletin showed last month. "In order to determine whether we should intervene or not, our guide is our policy which is we intervene in the market to manage volatility and to manage any incipient macro-economic instability," he said.  
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Exchange rate is always on our radar: Subbarao

Dr. D. Subbarao, Governor, Reserve Bank of India flanked by Mr. R. Gopalan (left), Secretary, Department of Economic Affairs, Govt. of India and Dr. K.C. Chakrabarty, Deputy Governor (right) at the Central Board meet of RBI in Kolkata on Thursday. Dr. Subir Gokarn, Deputy Governor of RBI are also seen

Kolkata, Dec. 8: Dr D. Subbarao, Governor, Reserve Bank of India, on Thursday said that some amount of rupee depreciation and oil prices have already been factored in RBI's assessment of seven per cent WPI (wholesale price index) inflation for March 2012. However, the apex bank will intervene in the forex market if there is a sharp movement in exchange rate which is likely to impair macroeconomic stability. “Rupee depreciation over the last three months is a result of developments outside India, particularly Europe. Exchange rate is always on our radar,” Dr Subbarao said at a press briefing after the RBI board meeting here on Thursday. The rupee has depreciated against the dollar by about 14 per cent since August this year. “Rupee's depreciation is adding to inflationary pressures,” Dr Subbarao said. The apex bank will come out with a ‘definitive statement' on the local currency at its forthcoming policy meeting on December 16. Rupee depreciation was mainly on account of low dollar inflows, and it calls for some specific measures by the policymakers, Dr Subbarao said. “We should attract more inflows into the country, and this the RBI has already done by way of adjusting the ceiling for External Commercial Borrowing, adjusting the maximum interest rates for non-resident Indian deposits, and increasing the limit for foreign institutional investors in sovereign and corporate debt, among others.” The apex bank, he said, would also take additional measures as and when required. Dr Subbarao said the RBI will take necessary steps to ease liquidity. The liquidity deficit in the banking system has widened beyond the central bank's guidance of plus/minus one per cent of net demand and time liabilities, amounting to about Rs 60,000 crore, thereby indicating that some banks were facing liquidity constraints.“The liquidity situation is being monitored on a daily basis. We will take all necessary steps to ease it. We are aware of the advance tax payment situation. We will take that into account while assessing the situation,” he said. Under the open market operations, the central bank repurchased bonds worth Rs 9,000 crore on Thursday to ease liquidity, in addition to bond buybacks of about Rs 15,000 crore over the previous two weeks. Responding to a query on the possibility of a cut in cash reserve ratio, he said, “Whatever we might decide on CRR or otherwise, you will have to wait for the mid-quarter statement.” Foreign direct investment in retail would help attract foreign investment and combat inflation, Dr Subbarao said. Food prices have responded to the good monsoon, the RBI Deputy Governor, Dr Subir Gokarn, said. “There are structural factors that are driving food inflation, particularly of protein items, and that is something we should be watchful of.” On the possibility of further rate hikes, Dr Subbarao said that further rate action will depend on some unanticipated developments.

HBL

Subbarao discusses upgradation of entrepreneur centres with Mamata

Kolkata, Dec 8 : The Governor of Reserve Bank of India (RBI), D. Subbarao met West Bengal Chief Minister, Mamata Banerjee regarding the upgradation of entrepreneur centres in the state in Kolkata on Wednesday. He was in Kolkata to attend a board meeting of RBI on Thursday. Speaking to the mediapersons, he said they discussed upgradation of centres for entrepreneurship development for the people of Bengal Subbarao also said that he had requested Banerjee for the allocation of land in the state to set up centres of training to impart entrepreneurship skills to the unemployed, since the current set of such institutions did not operate on a permanent basis. "There are 19 centres functioning in West Bengal, but not all of them are on a permanent basis. The scheme is, the Government of India gives one crore rupees. The state government has to provide the land and the lead bank of the district sets up a centre for training local people in skills and entrepreneurship. I have requested the Chief Minister to provide land for the centres and she has kindly agreed to do that," said Subbarao. He also discussed the plans to bring banking system to nearly 7500 villages in the state. "There are about 7486 villages in West Bengal with a population of over 2000, which do not, as yet, have a bank branch. You are all aware that there is a national drive now, that by March 2012, which is about 4 months from now, all villages with population over 2000 must have access to banking," added Subbarao. However, the Reserve Bank Governor declined to comment on the financial health of West Bengal by saying the state chief minister had said that decisive and remedial steps have been taken in this regard.

http://www.newstrackindia.com/newsdetails/253811

RBI vows liquidity boosters

The Reserve Bank may consider liquidity enhancement measures, including a cut in the cash reserve ratio or statutory liquidity ratio for banks, in its forthcoming monetary policy review on December 16................

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Bengal balm and rider

Banks have agreed to lend more in Bengal but signalled that no dramatic improvements are possible in the absence of big industries. The assurance about more loans came a day after the RBI expressed concern over Bengal’s low credit-deposit ratio that suggested poor borrowings within the state..........

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Bengal needs to raise taxes: Subbarao

Kolkata, Dec 8 : RBI governor D Subbarao today said there is need to raise taxes and compress expenditure by the West Bengal government to improve its financial health. Asked to comment on the state's sagging financial health, Subbarao said, "there is a need to correct the fiscal situation generally by raising taxes and compress expenditure." He said that the quality of fiscal adjustment was important. Undesired expenditure should be cut more than desired expenditure. Subbarao who convened a special SLBC meeting with the state government and banks here said that the banks had told that the state's CD ratio would improve only when large corporate investment were made. Issues like increasing credit linkages to more SHGs and more distribution of kisan credit cards were also on the agenda. Subbarao said that state finance minister Amit Mitra had said that the state government would make efforts to release Rs 85 crore for recapitalisation of three RRBs in West Bengal. 

IBN Live

Zebra crossings, stop lines missing from junctions

Nagpur : Commuters and traffic cops have alleged that the traffic engineering wing of the Nagpur Municipal Corporation (NMC) is only concentrating on dressing up roads and squares leading to Vidhan Bhavan. The general feeling is that squares like Aakashwani, Morris College T- Point and RBI which are close to Vidhan Bhavan are being given preferential treatment…..

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FSDC Sub Committee meets in Kolkata

A meeting of the Sub-Committee of the Financial Stability Development Council (FSDC) was held today in Kolkata. Dr. D. Subbarao, Governor, Reserve Bank of India, chaired the meeting. The meeting was attended by Shri R. Gopalan, Secretary, Department of Economic Affairs; Dr. Kaushik Basu, Chief Economic Adviser, Ministry of Finance; Shri U. K. Sinha, Chairman, SEBI; Shri J. Hari Narayan, Chairman, IRDA; Shri Yogesh Agrawal, Chairman, PFRDA; Deputy Governors, RBI: Dr. K.C. Chakrabarty, Dr. Subir Gokarn, Shri Anand Sinha and Shri H.R. Khan; Executive Directors, RBI: Shri V.K.Sharma and Shri V. S. Das; and other officials. The Sub-Committee reviewed the recent developments in the global macroeconomic and financial sector scenario, focusing on issues relating to potential systemic risks for India. The Sub-Committee also discussed the stability issues emanating from the macroeconomic outlook, financial markets, financial institutions and financial market infrastructure. It deliberated on the draft Financial Stability Report (FSR) for December 2011, which is scheduled for release later this month. The functioning of the Technical Group for Financial Inclusion and Literacy and the Inter Regulatory Technical Group was also reviewed by the Sub-Committee.

Moneycontrol

Theatre to help revive 178-yr-old building that housed first RBI

.......To generate awareness of the history of the building, which housed the first Reserve Bank of India, the authorities are facilitating cultural exchanges like this theatre production.
“This production will gauge the interest of the people in such events and we will try and figure out if this can be made into a regular feature. We also plan to set up a modern storage of old British silver coins, etc, and make it available for public viewing, with some entry regulations. We have 8,000 such coins with us,”.......

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MFIs revamp business strategy

...The RBI's revision in provisioning norms and change in recognition of non-performing assets (to 90 days overdue from 180 days overdue) is unlikely to impact the profitability of the non-Andhra operations of Crisil-rated MFIs over the medium-term......

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RBI Licenses For All DCCBs

Andhra Pradesh is now the first state in the country to obtain banking licenses for all District Cooperative Central Banks (DCCBs), from the Reserve Bank of India (RBI), to carry on banking business. With the Srikakulam DCCB having obtained its banking license from RBI on 30 Nov 2011, all the DCCBs in the state have attained the status of licensed banks. Ever since the Andhra Pradesh State Cooperative Bank (APCOB) was issued its license during February 2010 itself, the entire network of rural cooperative banks has been operating on a licensed platform. The Committee on Financial Sector Assessment, under the Chairmanship of Dr. Rakesh Mohan, had recommended that there is a need to draw a roadmap to ensure that only licensed banks operate in the cooperative space.  In pursuance of this recommendation, the RBI, in its annual policy statement of April 2009, indicated that all unlicensed cooperative banks should strive to achieve licenses on or before March 2012, after which no unlicensed bank would be permitted to operate. The RBI also liberalised licensing norms, in order to facilitate the process. In Andhra Pradesh, out of 22 DCCBs, only 3 DCCBs were licensed at the time of the announcement of the RBI Annual Policy Statement for the year 2009-10. With planning and coordination between NABARD and cooperative banks, 19 DCCBs in the state have obtained licenses 4 months ahead of the target date set by RBI.While 5 DCCBs obtained licenses during 2009-10, as many as 8 DCCBs obtained licenses during 2010-11, and the remaining 6 DCCBs obtained licenses in 2011-12.

http://www.fullhyderabad.com/hyderabad-news/all-ap-district-cooperative-banks-dccbs-get-rbi-licenses-5672

Federal Bank on recruitment drive

Kerala-based Federal Bank Ltd will recruit close to 1,500 probationary officers over the next one-two years to make good the retirements that are likely to take place and to create resource to meet its expansion targets............

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PSU banks including UBI, PNB plan to hire 5 lakh as global banks cut jobs in India

…A whopping 44 lakh candidates will appear for a common recruitment test for clerks in public sector banks up to December 11 for about 50,000 jobs in the next four months, bank executives said. This is above the 10.5 lakh who took the examination for officers' posts recently….

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Priority sector lending to MFIs—need for adequate supervision

.........And without sufficient supervision, none of this will work on the ground and therefore, it is important for the RBI, DNBS and other concerned departments to take stock of what happened and why from a regulatory/supervisory standpoint. That is certainly some food for thought and let me reiterate that India is a great country for legislation but the implementation record is rather poor in many cases..............

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New savings A/c for higher interest: Is it wise?

...The prime motive behind the deregulation is to maintain the positive real interest rates in the economy. Deregulation will make the rate of interest on savings account flexible, market driven and in sync with the interest rate on other time deposits with banks with shorter maturities of upto 1 year. Furthermore, the large population living in rural and semi urban areas will benefit from this move. Unlike in metropolitan areas, where the savings bank account is held more for the day to day transaction purpose, in rural areas savings accounts is held primarily for saving and some even consider it as their investments. Hence deregulation is expected to make savings account more attractive in these areas and could have a positive impact on savings........

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How HDFC Bank Is Triumphing in India

Aditya Puri avoids e-mail, doesn’t carry a mobile phone or wear a watch, and goes home for lunch most days. That hasn’t stopped his HDFC Bank from becoming the country’s second-biggest lender by market value, after government-owned State Bank of India. “Banking is a simple business,” says Puri, 61, in an interview in his sparsely decorated office at the bank’s Mumbai headquarters, sunlight streaming onto the bare tiled floors……….

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The inflation hocus pocus

....The resort to incremental squeeze on interests, which succeeded during the Rangarajan regime at the RBI (1992-1997), has not worked. The past, it seems, is of limited utility in both the diagnosis and prognosis of economic problems......

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