Customer protection should be given top priority, says Sinha

Mumbai, Dec 18: Customer protection should be given highest priority by all financial institutions since it is vital for overall financial stability, Deputy Governor of the Reserve Bank of India, Mr Anand Sinha, said here today. “Consumer protection is not only important to attract more people into the fold of financial system, but also vital for maintaining the financial stability of the economy,” Mr Sinha said at the Financial Planning Congress 2011 organised by Financial Planning Standards Board of India here. He also said that there should be appropriate changes in the legislation to empower the central bank to take appropriate measures to improve the level of consumer protection. “Issues relating to management of banking institutions and secrecy of consumer information among others should be addressed in the legislative process,” he added. Justice B N Srikrishna, chairman of Financial Sector Legislative Reforms Commission (FSLRC) said concerted action should be taken up by various regulators to protect the customer from mis-selling and frauds. “A financial product should suit the socio-economical and educational qualification of a customer, so that he gets optimum benefit of his investment,” he said. He also said that the FSLRC would look into all matters relating to consumer protection in its report. Other speakers at the event also emphasised on the importance of financial literacy for protection of investors’ interest. “Financial literacy is another area on which regulators and financial institutions should work upon,” Chairman of Pension Fund Regulatory and Development Authority (PFRDA), Mr Yogesh Agarwal said.

HBL 

Odisha passes depositors interest protection bill

Bhubaneswar: With aim to protect interest of depositors in non-banking financial companies (NBFCs)and un-incorporated bodies (UIBs), the state assembly has passed Odisha Protection of Interest of depositors (in Financial Establishments) Bill, 2011. The Bill was passed with few amendments moved by Finance Minister Prafulla Ghadai last night. "The new legislation will help curb illegal activities of unscrupulous NBFCs and UIBs," Ghadai said. The Bill will protect the interest of depositors by way of return of their deposits with benefits/interests at the instance of the state government. "The existing RBI Act does not have provision to protect the interest of common depositors," he said. With a number of NBFCs and UIBs luring the people with high returns and vanishing overnight leaving the common depositor frustrated, the government had no alternative but to bring in a stringent legislation to curb the menace, the minister said. It had been observed that some NBFCs and UIBs collect and receive deposits with sole intention of defrauding the people in different parts of the state, mostly in remote areas. The new legislation has the provision of making it mandatory for all such institutions to register themselves with the government.

Zee News

This is not the way to protect rupee

Both the government and RBI will be happy to see the local currency bouncing back, but will the trend last?

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RBI should look to bring in reforms on asset side of banks

MUMBAI: Despite many reforms in the banking system over the last two decades, challenges like diversified structure of financing and complexity of financial products should be addressed for long-term stability, industry experts said here today.  "Though there have been many reforms in the banking space in the last two decades, issues related to long-term financing, rising complexity of financial products with globalisation along with various sources of funding still remain. Regulators have to address these issues for long-term stability of the sector," Member of Financial Sector Legislative Reforms Commission (FSLRC), Y H Malegam said at Financial Planning Congress' 11 organised by Financial Planning Standards Board of India here. He, however, said Indian banks are better placed than their global counterparts as far as capital adequacy and exposure to risky assets are concerned. 

TOI

One cheer for RBI

....The last missing cheer, of course, is for the missed CRR cut. While signalling a change in stance is all very well, you can’t sit back and watch—you need to be pro-active, particularly when the market is on a rampage. An off-meeting CRR cut followed by more FX intervention will be just the ticket to bolster RBI’s very slowly recovering credibility............

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Majority of Indian MFIs may have to shut shop

Tough new regulatory requirements laid down by RBI and a shortage of funds may adversely hit MFIs in next 2-3 yrs..........

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Ground Zero for Financial Inclusion

.... The drive for financial access has got a new fillip with the RBI allowing for-profit firms get a role in financial inclusion. For Indian banking industry, this day must be treated as Ground Zero towards universal financial access. But for-profit financial inclusion will still make a loss, argues Sameer Kochhar, Editor-in-Chief, Inclusion......

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RBI monetry policy: A wise and significant pause

The Reserve Bank of India (RBI) Governor, D Subbarao, has been true to his word. In October 2011, while announcing the midyear review of the central bank's monetary policy, he assured us that "the projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 and then continue down a steady path to 7% by March 2012... providing room for monetary policy to address growth risks in the short run." Consequently, "the likelihood of a rate action in the December midquarter review is relatively low. Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted." In keeping with that promise, the governor kept all policy rates unchanged in the RBI's mid-quarter review last Friday. In the process, he has turned a deaf ear to finance minister Pranab Mukherjee's not-so-subtle hint just two days before the mid-quarter review. Speaking at the Delhi Economics Conclave, the FM made no bones about where his preferences lay. "It is necessary for policymakers to send clear signals, mindful of the fact that options today are much more limited. India cannot afford to relax on its efforts to promote growth," Mukherjee said. The message was clear. It is time for a reordering of priorities. "Read my lips, cut rates," the FM seemed to urge the RBI governor. But the governor has chosen not to. Is he being dogmatic? Remember the beleaguered Margaret Thatcher's famous boast, "the lady's not for turning"? So, has the governor, likewise, dug in his heels when he should, perhaps, have been more 'flexible'? After all, by his own admission, "domestic growth is clearly decelerating, reflecting the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties." The answer is an emphatic 'no'. The reality is despite depressing index of industrial production (IIP) figures that show a 5.1% decline in industrial production in October 2011 and somewhat encouraging inflation numbers, the RBI cannot afford to relax its guard on inflation. True, food inflation, the most worrisome sort in a country like ours, is down to 4.35% for the week ended December 3, 2011. But what we gain on the food front is likely to be more than offset by a rise in the prices of manufactured articles and of fuel and power, thanks to the depreciating rupee and rising inflationary pressures worldwide. According to the International Monetary Fund's September 2011 World Economic Outlook, consumer price inflation is likely to rise from 1.6% in 2010 to 2.6% in 2011 in advanced economies, and from 6.1% to 7.5% in emerging and developing economies. In the Indian context, we have an additional problem. Our inflation numbers understate actual inflation since domestic prices of administered petroleum products do not reflect the full pass-through of global commodity prices. As under-recoveries of oil marketing companies increase, it is only a question of time before an increase in the price of administered petroleum products becomes inevitable.

ET

What does RBI know that we don’t?

.... The central bankers are obviously reading the tea leaves differently from those in North Block. They are, though they won’t say as much, preparing for the real possibility of a macroeconomic shock that has its origins in the rapid deterioration of the fiscal imbalance; the bleak global outlook is only exacerbating the problem..........

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From inflation to growth

Last week, the RBI, at long last, applied brakes on its high- interest rate regime. That was the good news. After raising the policy rate for 13 times on the trot since March last year, it was time too that it paused. But Governor D Subbarao disappointed a lot of people who were actually expecting a rate cut. The economic situation did not warrant it at this stage. Given the virtual run on the rupee, this was not a bad decision at all. Markets can wait for a couple of weeks for the rupee to stabilize before the policy rate can be trimmed a notch. Happily, the RBI has begun to support the rupee with the objective of stabilizing it at about the current rate against the dollar. Thanks to high inflation, the real interest rate continues to be negative. Even though due to seasonal factors food prices have moderated in recent weeks, overall core inflation continues to be high. But the policy review last Friday by the central bank suggested that it is no longer worried about inflation. It would henceforth engage itself in boosting growth. Which means some easing of the policy rates at the next review. The sharp drop in the factory output, particularly in the capital goods sector, might have acted as the spur for the RBI to switch from inflation to growth as its main objective. However, neither fighting inflation nor boosting growth is entirely in the hands of the central bank. There are clear limits to what a monetary policy can achieve. Frankly, successive RBI governors have conscientiously done their bit in this regard. As Finance Minister, P Chidambaram had sought to inject his own agenda but the RBI Governor at that time had successfully resisted pressures. D Subbarao is fortunate that Finance Minister Pranab Mukherjee is sensible enough not to seek to interfere in his functioning. Therefore, the broad hint of a rate cut in the next policy review by the central bank is good as far as it would go to improve the economic sentiment. Markets on Friday tumbled by a record 345 points after learning that there was no immediate rate cut available for them to cheer. However, the two- year low by the SENSE is no reflection on the monetary policy. It is a reflection on the overall state of the country of which economy is an integral part. Unless the Government gets its act together, and political uncertainty gives way to a sense of stability, the economy will remain hostage to adverse factors. It would not be correct to shift the entire blame to the global factors for the slowdown. There has been some moderation in the price of crude oil in recent weeks. However, the increase in exports is not matched by a commensurate drop in imports, thus widening the trade gap further. Hard currency borrowers are feeling the pinch of a depreciated currency. As foreign loans mature in the next two years, the currency could come under further pressure. The sharp drop in the value of the rupee is largely because of the failure of the Government to create a propitious climate for fresh investment in the core infrastructure sectors such as power, roads, transport, mining, etc. Growth in all these areas has come down sharply in the last couple of years. Indeed, on the present reckoning the overall growth in the current financial year may not even touch seven percent, though the RBI has projected a rate of 7.6 percent.

FPJ

Playing safe

“The RBI had a difficult choice before it.” It was not unexpected that the Reserve Bank of India (RBI) would relax its tight monetary policy after 13 consecutive interest rate hikes since March 2010. These hikes added 350 basis points and had the unintended consequence of slowing down the economy already hit by other macro-economic problems and an unfavourbale external environment. The apex bank has now retained the status quo on repo or lending rates, as promised in its second quarter policy statement in October. Though its expectations at that time have not come true, it probably had to effect a pause. There was even a view that the RBI should go beyond a pause and actually start reversing the interest rate hikes. But it obviously wanted to play safe when matters are still not under any semblance of control. The RBI had a difficult choice before it. Inflation has shown signs of moderating from its peak levels but it is still above 9 per cent. The entire dear money policy was meant to bring inflation down to acceptable levels. But the goal of 7 per cent inflation by the end of the financial year is difficult to achieve. Though food inflation has registered a significant decline, there are other difficult indicators. The depreciation of the rupee and the increase in crude prices are likely to fuel the inflationary spiral. The likely increase in government expenditure in the coming months and its impact on fiscal deficit also have to be reckoned with. In spite of all these, the RBI felt that the impact of the rate hikes on the economy has been severe, with industrial production even showing a negative growth in October. There is a severe credit crunch and corporate investments and tax collections are falling. Since the monetary policy tweaking had almost reached its limit, the bank may have felt it had to halt before the slowdown gained further momentum. The RBI’s projection of a 7.6 per cent growth for the economy this year seems to be in doubt. That may be the reason why it has stated that from now monetary policy actions are likely to reverse the cycle, responding to the risks to growth. That may be an indication that the first rate cut after many months is likely to happen in its January policy review. However, it may still be not the last word because inflationary pressures are still strong. 

DH

Cautious policy

This is with reference to the editorial “Behind the curve” (Business Line, December 17). The rupee has plunged to a record low against the dollar and is under stress. Unsustainably high level of inflation, growth rate falling below 7 per cent, and widening fiscal deficit are worrisome factors. Pressure was obviously on RBI not to increase the key policy rates any more. Reduction in the cash reserve ratio was expected this time around, but by maintaining it at the present level of 6 per cent, the RBI has clearly preferred a wait-and-watch policy. India Inc is happy as high interest rates aren't good for the economy and eat into the profits of companies, reducing the surpluses. It's a cautious policy initiative aiming at the right balance between growth and inflation, while taking the economy again on a growth trajectory. 

Srinivasan Umashankar, Nagpur (HBL)

No non-event, this

In its mid-quarter monetary policy review on December 16, the Reserve Bank of India did not change the policy interest rates, the repo and the reverse repo rates. They remain unchanged at 8.5 per cent and 7.5 per cent, respectively. Nor did it tinker with the Cash Reserve Ratio, which stays at 6 per cent. The repo rate is the rate at which the RBI lends to banks while the reverse repo is the rate at which it takes money from banks, both against securities.The repo rate has emerged as the key reference rate. The reverse repo is pegged at one percentage point below it. Those significant changes were introduced in the annual policy statement of May 3, which also saw the introduction of the marginal standing facility whose rate is fixed at one percentage point above the repo rate. The absence of changes in the interest rates does not make the policy announcement a non-event. One tends to assume that headline making interest rate moves are the whole of monetary policy. Everything else does not seem to matter. It ought to be mentioned here that a monetary policy announcement does not cause the same level of excitement, which, say, a budget announcement does. Until recently, monetary policy issues were presumed to interest bankers (to whom it is generally communicated in the first instance) rather than the common man. To a large extent that was true: for the man on the street there was little to relate to interest rate or exchange rate policies. But the paradigm is surely but steadily changing. Ordinary citizens develop a vested interest — they may own a house bought with a bank loan or financed their children's education through an educational loan. Many, of course, travel abroad making them aware of the intricacies of foreign exchange transactions.  For them and many others, there is a growing need to understand the intricacies of official policies. The list can go on and on but suffice it to say that to the extent official policies are made more accessible, it is in everyone's interest. The latest mid-quarter review is one of the eight policy statements by the RBI in a year. The increased frequency — one every 45 days — helps the central bank keep in constant contact with the financial markets. It is also part of a process of demystifying official policies. However, one outcome flowing from the frequent announcements is that the monetary policy statements have become predictable. There are pros and cons in such an approach. On the plus side, there is greater transparency as well as continuity in policy. Important issues discussed just 45 days ago will not be forgotten. For instance, in the quarterly review (October 26), the RBI more than hinted of a soft monetary policy ahead when it said that that the possibility of a rate review in the December statement was ‘relatively low' and that henceforth the monetary policy will have more room for addressing short-term concerns. The flip side, of course, is that the central bank probably loses its surprise element when it wants to take the market participants by surprise. However, on December 15, the RBI sought to impose curbs on speculation in foreign exchange forward contracts as part of its gambit to stem the rupee's slide against the dollar. The rupee rebounded sharply on the next day. All these show that there is still room for surprise announcements in between policy dates. Effectively, the RBI had announced a change in its stance in the last policy announcement itself. On the eve of the latest statement, the consensus among money managers and others was that the RBI will maintain the status quo neither reduce the interest rates nor hike them. However, in the days prior to the policy announcement, there were strong arguments for and against a rate hike. Inflation continues to be a main worry, although the RBI is hopeful of containing it within its projected target of 7 per cent by March, 2012. On the other side, growth concerns have begun to occupy the centre stage. “While inflation remains on its projected trajectory, downside risks to growth have clearly increased,'' the RBI said. “From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth,'' it said.

HBL

Stance of silence

Growth is in trouble, so the RBI should be wary of continued inaction

Reserve Bank of India, in its mid-quarter policy review, has unambiguously signalled a shifting of stance. Not only does the RBI reiterate in its statement that “further rake hikes may not be warranted”, but it concludes by saying that “from this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth”. This is a welcome recognition from India's monetary authority of grim reality. There is little doubt that a tight money policy — which continued even as domestic policy making froze and the external environment turned the most uncertain it had been since the financial crisis of 2008 — has caused the India growth story to come to a screeching halt. The RBI was forced to acknowledge industrial production, particularly in capital goods, appears to be stumbling badly, reflecting the constraints on investment of a high interest regime. As the RBI says: the causes of the decline in growth can be traced to an “uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties”. Admittedly, the RBI cannot be held responsible for either the concern radiating out across the financial markets from the euro zone, or for New Delhi's inability to push through growth-enhancing reform. Yet it has been clear for some time that growth and inflation are both slowing. A strongly-held belief that inflation expectations are not adjusting quickly enough has perhaps caused the central bank's reactions to be slower than most observers would like. Hopefully this approach will not continue in the crucial months and weeks to come. Inaction has also been on display in the foreign exchange market, in which speculators have been allowed to take one-way bets on the rupee — while the RBI seemed to think that, even though it was a regulator, its hands were tied. Some actions have now been taken to discourage speculation in the foreign exchange market. It remains to be seen if they will be enough. The primary focus of the RBI, however, should remain slowing growth and inflation. Food inflation is at its lowest point in four years; fuel prices are being slowly moved up and down by oil marketing companies; the growth slowdown itself is being reflected in pricing. While inflation may still be above the RBI's comfort zone, it is difficult to believe that rational observers still have inflationary expectations that are high enough to be problematic if a rate cut were to be announced. In the end, a central bank's job is essentially to manage expectations: if it does merely what is expected of it, it may not be seen to be in control. The RBI perhaps raised rates too slowly, and in stages that were too small to properly impact market participants. As it moves towards cutting rates, questions should be asked in Mint Road as to how to avoid that trap this time. The answer, perhaps, is to ensure that a reasonably-sized cut in rates is taken soon enough, which will be able to work its way through the system — and perhaps rescue some part of 2012-13 GDP growth.

BS

FDI policy makes messy entry into new year

...... The FDI policy framework entails four different agencies, and each can work in a silo impervious to the thinking in the other two. The first is the Reserve Bank of India (RBI), India’s central bank, which administers exchange controls under the only real “law” on the subject – the Foreign Exchange Management Act (FEMA). The RBI makes subordinate legislation in the form of regulations under FEMA, which should govern cross-border investments in and out of India. Yet, on a number of issues, the positions adopted by the RBI on day-to-day matters of exchange controls goes way beyond the basic scheme and purpose of exchange controls.................

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Banks agree to ease norms for customers

“Customers should have a choice. The committee held wide-ranging consultations with bankers and other people, and as a chairman, I am happy that some of these have been accepted.” IBA chairman Mallya confirmed that banks met RBI to discuss the Damodaran committee recommendations on Friday.

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Fake notes: Can’t ‘bank’ on banks

JAIPUR: Getting forged notes from ATM counters has now become a regular affair in the city. Mithya Singh, a college student got a fake Rs 500 note from her neighborhood ATM. She didn't realize it until a teller in a multinational bank at Raja Park rejected the note as fake.  A shocked Singh explained that she withdrew the money from the ATM of a nationalized bank just a few hours ago. The cashier, unmoved by the entreaties, cited the RBI guidelines and Singh had to forgo the money.  Singh's is not a one-off case, and with no provisions for compensation, it's the common man who has to bear the brunt. RBI (Reserve Bank of India) too feels that it's a problem with no solution in sight. "There is no policy on replacing the fake currency if it comes out from an ATM. It is difficult to prove that this note has come out of a particular teller machine," an RBI official said. People, therefore, try to get rid of such notes and often slip them with genuine ones to shopkeepers. This, in turn, leads to circulation of fake currency which largely remains unchecked.  "I received a fake Rs 500 note from an ATM. I did not check it while taking out the money. Later, when I realized that it was a fake it tried using it at several places. After a few failed attempts, I somehow managed to use it at a petrol pump," said Mukesh Goyal, a shopowner at Chandpole.  RBI has issued strict guidelines to all the banks to ensure unfit or forged notes are not circulated by the ATMs. However, in the absence of any compensation policy, banks seem to shortchange customers. "It is mandatory for every bank to instal a cash sorter machine to detect counterfeit notes in their currency chest. If the process is followed properly, chances of loading fake notes in the machine will be remote," the RBI official said.  Victims often have to bear harassment by the bank staff in case forged notes are detected.  "I went to a bank to deposit a sizeable amount of money which I had collected from various sources including ATMs. While counting, the cashier found that six notes were fake. He immediately seized the notes and later the bank also lodged an FIR. The cops quizzed me about the places from where I got the money. I was interrogated as if I had printed the fake notes. It was adding insult to the injury," said Raghuvansh Rai, who works with a private company at Sitapura. The banks, however, say it's difficult to identify genuine customers.  "If we start substituting the fake notes with an original, there will be no end to it. Also there is no mechanism to find from which ATM a note has been taken out. However, often we replace it if a person has maintained an account with us for the past 4-5 years. Banking business runs on trust and we realize its value," said Himanshi Dhawan, manager of a leading bank.

TOI

No provision to compensate ‘duped’ ATM customers

JAIPUR: RBI has issued strict guidelines to the banks so that dispensation of counterfeit notes thorough ATMs can be reduced, if not stopped. However, RBI does not have any provisions to compensate if ATMs dispense forged notes.  RBI has asked banks to ensure that only properly sorted and examined notes are fed into the ATM. All the banks with average daily transactions above Rs 50 lakh have been instructed to instal sorting machines.  A master circular issued by the RBI clearly mentions "the government of India and the national security council have taken a view that dispensation of counterfeit notes through the ATMs would be constructed as an attempt to circulate the counterfeit notes by the bank concerned."  ATMs in the country are replenished in two ways.  Either the bank concerned refills them or hires the cash in transit (CIT) companies, which fill the ATMs on behalf of the banks. In both cases, the banks have the authority to carry out adequate checks before loading. The banks also need to follow the proper procedure for hiring the companies.  "Banks have a major responsibility in ensuring that fake currency does not circulate in the market. For that, they need to adopt measures recommended by the RBI. If they follow the parameters seriously, the problem of ATMs dispensing fake notes can be tackled," an RBI official said.  However, not many banks are fulfilling their duties properly. An RBI official asserts, "Even after constant reminders, banks ignore our recommendations. It is a fact that banks do not process notes properly. Sorting machines are not duly maintained or updated regularly. There has to be a sense of responsibility and ownership in the banks to check the flow of counterfeit notes."  In the absence of any provisions in the law to compensate a customer who receives fake notes, banks easily get away.  "Every counterfeit note is a useless piece of paper. Banks are not liable to compensate the customers as there is no mechanism to establish that a forged note has come out from a particular ATM. Also banks are not making fake notes, so they are not liable to pay for it," the official said.  He added, "We can't take any action against banks unless we receive sufficient number of complaints against a particular ATM of a bank. However, we do conduct a surprise checks to ensure that banks are complying with all our guidelines.

TOI

Lock funds into 2- 3 yrs maturities - S.S.Tarapore

....The forward guidance offered by the RBI is worrisome as the guidance is clearly that the interest rate cycle would be reversed in January 2012. The qualification that a relaxation of policy in the next review would be contingent on the evolving situation would be lost in the din of the clamour for easing monetary policy. Now what should the common person do? The best he/ she could do is to quickly lock into longer maturity term deposits as banks could well lead the way by reducing the rates on longer- term deposits...........

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India needs to re-examine stand on Islamic banking: Experts

.......“Participatory banking in India includes cooperative banks, non-banking financial institutions and micro-credit programmes etc. We need to pitch Islamic banking within the framework of participatory banking in India which will involve profit and loss sharing arrangements with no fixed or predetermined interest rate and investment banking with no fixed or prefixed return rate...........

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Govt, RBI must find a lasting solution to tackle NPAs

..It is for the Government and the Reserve Bank to seriously view the NPA menace and introduce a solution perhaps acceptable to all stakeholders of banks other than borrowers. ..............

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SBI Cards to customise offers around spending patterns

.... “As consumerism grows, and as people become comfortable with plastic, the credit-card market is bound to grow. People are already very comfortable with plastic in terms of debit cards. The usage of credit cards probably would ride, in some sense, on that......

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RBI should look to bring in reforms on asset side of banks

....... "Though there have been many reforms in the banking space in the last two decades, issues related to long-term financing, rising complexity of financial products with globalisation along with various sources of funding still remain. Regulators have to address these issues for long-term stability of the sector,"...........

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