RBI governor D Subbarao hints at soft monetary policy

NEW DELHI: Concerned over the declining growth, Reserve Bank Governor D Subbarao has indicated that the central bank could reverse the tight monetary stance adopted by it since March 2010 to tame inflation. "From here on we could expect reversal of monetary tightening," Subbarao told the BBC in an interview. The RBI Governor, however, added it was "difficult to say when that will take place and in what shape it will roll out". The central bank is scheduled to announce the monetary policy review on January 24. RBI has hiked key interest rate 13 times since March 2010 in its bid to check rising inflation, but it took a pause in its December monetary policy. Moderation in inflation witnessed in November-December has raised the hopes that RBI may start reducing key interest rate in its forthcoming credit policies. Headline inflation dropped to 9.1 per cent in November from 9.73 per cent in the previous month, while as per the data food inflation has declined to 0.42 per cent. Subbarao said that although inflation still remained a risk, RBI was aware that it needed to boost growth amid an uncertain global economic environment. "We have always been mindful of growth concerns, contrary to popular perceptions," Subbarao said adding "in fact, in our December statement we said that growth is a serious concern. So I think the balance between growth and inflation will shift in 2012". While the high interest rate has helped in moderating inflation, the high cost of credit has taken its toll on the economic growth. The GDP slowed to 6.9 per cent in the second quarter of 2011-12 from 7.7 per cent in the previous quarter.

ET

Minting money, melting coins

AHMEDABAD: If those into the business of exchanging old currency for new are to be believed then city-based trader Ravi Gupta is just a small fish in the world of racketeers, who are minting money from currency coins. In Ahmedabad there are over 100 traders who hoard currency coins and either sell them off at a premium to those in need or a few who, like Gupta, smuggle it out of Gujarat. The RBI has blacklisted more than 100 city-based traders. This punitive action was initiated when RBI officials suspected that the traders were indulging in illegal activities. Gupta, and his accomplice Jeetendra Rajai, were arrested last week following seizure of around 7 lakh coins from a truck near Dahod check posts. Reserve Bank Of India (RBI) had filed a complaint with Naranpura police station officials in the case. Gupta, who runs a money exchange shop in Bapunagar, told police that he had been availing coins from RBI. As per the norm, public can avail coins through banks selected as currency chests or through RBI. However, those in the illicit trade misuse the allotment of coins and employ men, who posing as working for an eatery or a business firm, procure coins from RBI or other banks. "Selling coins has become a huge business as any roadside eatery or a grocery store is always in need of change (coins). Considering the profits involved, several traders in the business have employed men who regularly procure coins from RBI and sell them off in the market for a premium. For a change of Rs 500 the dealer would charge anything between Rs 600 to Rs 700 depending on the client," said a trader, who has himself employed 20 men to collect coins from RBI.

TOI 

Why coins for VVIPs only?

This refers to ads by the Government Mint ( Kolkata) inviting orders for sets of two coins including one silver- alloy coin of face- value of Rs 150 issued to celebrate 150 years of IT. Booked coin- sets will be delivered after 10 months. Significantly RBI has for long discontinued practice of issuing silver- alloy coins. First- ever post- independence silver- alloy coin of Rs 10 issued on Gandhi Jayanti (centenary) was available in plenty on the day of the release itself. Members of public can get these coins of Rs 150 and Rs 5 by paying exorbitant price of Rs 4,240 and Rs 3,925 that too after 20 months of release, while about 200 such sets were distributed free to a select few. Are commemorative coins issued to VVIPS only, that too free of cost of public exchequers?

Bhagwan Thadani (FPJ)

Help migrants in opening account: Finmin to PSBs

NEW DELHI: The finance ministry has issued a warning to state-run banks after receiving complaints that they are not opening accounts for migrant workers and other financially excluded sections under the relaxed know-your-customer guidelines. The government has already issued detailed norms to ensure that such people can open a bank account after self-certification or if introduced by another account holder. "We had expected banks to aggressively use these provisions but their reluctance has left us confounded," said a finance ministry official. The new directives have been circulated to all bank chairmen after a detailed discussion with tax officials and the Reserve Bank of India, he said. Under the new procedure, if an individual has a proof of permanent address he can also open an account with any bank that has a branch in his native place. The bank will then verify the account holder's details or of the proof of the documents online through the branch where the permanent residence of the customer is located. "Banks will do this within 30 days and in this period customer will be allowed operations to meet the basic day-to-day requirements," the official said. Under these rules, a migrant worker can open a 'small' bank account where up to 1 lakh is deposited annually but monthly withdrawals cannot exceed 10,000 and the balance does not cross 50,000 at any point. A senior banker said the move may not be as beneficial as it is being perceived. "As of now the RBI has indicated issues with inter-bank account portability. So only those people will benefit who have a working branch in the area of their permanent residence," he said. As of now, only 45% of the Indian population has access to bank accounts. The move is part of the government drive to achieve its financial inclusion agenda. The government has also mandated a three-year rural stint for all new joinees in state-run banks. In the current financial year, banks are expected to take branches to another 20,000 villages, having covered 30,000 by the end of March 2011 since the inclusion drive began. The government and the RBI had set a target of covering 73,000 villages, each with a population of at least 2,000, by March.

ET

VITALINFO - Painstaking efforts............

Wooing NRI deposits makes sense : A.Seshan

.........Recently, the Reserve Bank (RBI) announced that banks were free to determine their interest rates under Non-Resident (External) Rupee Deposit Account and Non-Resident Ordinary Account. Since the exchange rate risk in respect of the repatriable rupee deposits is borne by the depositor, I am not sure that, in the current situation of currency depreciation, a wealthy NRI will be influenced considerably by higher interest rates on term deposits, unless they are sufficient to provide reasonable returns after factoring in the expected loss in the value of the rupee or the hedging cost..................

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RBI favours one-time KYC over SB a/c portability

Mumbai: The Reserve Bank of India is of the opinion that more than account number portability, customer would be better served by a facility to shift accounts without having to repeat the “know your customer procedure”. There have been reports that the finance ministry is considering asking banks to look at account number portability. Incidentally, RBI has already looked at the concept and has come to the conclusion that it would be a technological challenge and would be much simpler to implement once every account holder has a number issued by the Unique Identification Authority of India (UIDAI). “A bank account is a contract between a customer and the bank and it is not easy to transfer this contractual relationship. It can perhaps be looked at once the UIDAI numbers are in place but as of now it is a challenge in terms of technology,” K C Chakrabarty, Deputy Governor, RBI had said in the monetary policy press conference several weeks ago. Bankers say that unlike mobile phone numbers there is no pressing need for a customer to retain the same account number. “The only reason why a customer would need the same number is because he may have left standing instructions in respect of the account. But with application of one-time KYC norms it should be possible for customers to shift such instructions immediately,” said a banker. Regulators across service industries have been making it easier for unhappy customers to switch service providers. In the mobile industry, number portability has made it possible to switch telecom companies without having to inform all their contacts of the change. In insurance, the regulator has allowed policyholders to move their health insurance contracts to other companies without losing the advantage of no-claim track record. But with banks even after a one-time KYC procedure is introduced customers will have to visit their new bank branch to provide their specimen signature. In banking, number portability will require that customers be assigned a unique identity number. The government has proposed the UIDAI to be such a unique number. However, in the absence of such a number there is a need for a central registry to assign this unique id to customers.

TOI

ICICI takes ultra-small route for big plans on inclusion

Move to enable bank to process transactions faster than under the BC model. India’s largest private lender has decided to take the ultra-small route to achieve its financial inclusion ambitions. In a recent note to the finance ministry, ICICI Bank said it would set up branches with an area of 100-200 square feet in remote villages. Two employees equipped with a laptop or a tablet computer are to run these branches for a couple of hours on specific weekdays. The working days and timings will depend on local requirements. The branches will be directly connected to the bank’s core banking solution platform, with the help of CDMA technology. That will enable the bank to process transactions faster than under the current business correspondent (BC) model. Also, these branches will offer tailor-made financial services according to local needs apart from providing basic banking services such as cash deposits, withdrawals and fund transfers. While the technology has been tested, the bank is yet to roll out branches on a pilot basis. The bank will reduce dependence on BCs once the brick and mortar model firms up. According to sources, the bank took the step to reduce the operational and reputation risks in outsourcing banking activities. With the help of these branches, it will be able to monitor and control the activities of BCs and their agents at the ground level. In the proposed brick and mortar model, the bank felt connectivity and currency management were major challenges. Bank sources said though the focus was on electronic transactions, there was a significant need for handling and storing physical cash at these branches. When contacted, the bank declined to comment on the development pertaining to the small branches. The bank has a network of 2,552 branches and 7,440 ATMs. It has a stake in FINO (Financial Information Network and Operations Ltd), which provides BC services to a host of other banks, too. So far, BCs have played a major role in extending banking services across the country. According to Reserve Bank of India data, close to 100,000 villages have access to banking services, with about 77,000 covered by 58,351 BCs employed by banks. Scheduled commercial banks aim to extend financial services to around 223,000 villages by the end of March 2012 and 350,000 by the end of March 2013.

BS

SBI to use BCs for farm loan recovery

.... The RBI had instructed the banks to fully achieve the financial inclusion through the BC model in all the villages with a population of 2,000 and above across the country while extending the deadline by December 31, 2011. The banks will have to cover the habitations with less than 2,000 population in the next phase in 2-3 years from now......

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SBI achieves 100% financial inclusion in AP circle

State Bank of India (SBI) has achieved 100% coverage of its allotted unbanked villages in Andhra Pradesh under the Financial Inclusion Programme (FIP) of the Reserve Bank of India (RBI). According to Chief General Manager Rakesh Sharma, out of 6,661 unbanked villages with a population above 2,000 in Andhra Pradesh, SBI was allotted 1,369 villages to be covered under the Financial Inclusion Programme by the RBI and the bank has achieved 100% coverage. "We have opened 35 brick-and-mortar branches, appointed 1,157 banking correspondents, introduced 162 banks-on-bikes and 15 banks-on-Wheels, making use of IT in these villages," Sharma told a press conference today. He said they were able to open as many as 2.1 lakh accounts in the targeted villages with an average balance of Rs 400 to Rs 500 per account. The RBI has allowed the opening of zero balance-no frill accounts under the FIP to encourage maximum coverage. SBI now plans to cover villages with a population of less than 2,000 in an integrated manner over the next two to three years, furthering the financial inclusion programme. "We have a network of 41 urban banking correspondents in Hyderabad. We shall expand the urban banking correspondent network to other cities in Andhra Pradesh to fulfill the objectives of providing banking services to migrant population employed in urban as well metro centres," he added.

BS

Reinventing Indian Microfinance : A summary of 2011

2010-11 will go down as the worst year in the young history of the microfinance industry…it was a year, when the country’s biggest market for micro loans shut down for business, and new rules came into place to govern the industry……………

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Cap NBFCs' bank borrowings for financial stability: RBI study

A cap on borrowing by non-banking financial companies (NBFCs) from banks may strengthen the financial system. According to a study by the Reserve Bank of India (RBI), non-deposit taking NBFCs would lead to more systemic risks, owing to their reliance on banks for funding needs. “As a policy, when NBFCs are discouraged from raising public deposits, these become non-deposit taking, while increasingly substituting public deposits with borrowings from the banking system,” the working paper said. Hence, there seems to be scope to fix a separate ceiling for ND (non-deposit taking) NBFCs to borrow from the banking system, the study added. Non-banking financial companies heavily depend on banks for meeting their funding needs, as many of these are not allowed to raise deposits. However, by borrowing through banks, these indirectly use public deposits, on a much larger scale than by raising deposits on their own. The study also said due to high inter-connectedness, the vulnerability of the financial system may increase due to high inter-dependability. “There is a possibility that chains of inter-connectedness can make the system more vulnerable to shocks in any market, or at any single larger institution,” the RBI working paper said. While both banks and NBFCs would be impacted if either of these sectors are hit, the impact on NBFCs would be much greater. “Even at the slightest symptom of a crisis or a crisis-like situation, NBFCs can face pressure of withdrawal from banks, similar to the one encountered from mutual funds immediately after the Lehman Brothers episode,” the study said. Also, with tighter capital adequacy norms, banks may lend less or may completely stop lending to the sector in extreme cases. “Banks may either become too reluctant to lend to NBFCs or in an extreme case, these may completely refrain from lending to NBFCs, which would further precipitate the situation. Any strain in the normal chain would compel NBFCs to turn to the money market with higher costs to wade over the tight liquidity conditions, thus disturbing the money market as well,” the paper said. Apart from suggesting a cap on the borrowing limit of ND-NBFCs from banks, the working paper also suggested NBFCs should diversify their sources of funds. “NBFCs’ future growth depends, to a large extent, on the success these achieve in diversification of sources of funds,” it said.

BS

RBI to shower new year rate gift on India

"We have always been mindful of growth concerns, contrary to popular perceptions,"

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RBI is being sucked into funding the govt’s profligacy

The Reserve Bank of India’s (RBI’s) purchases of government bonds — whether to fund the government or to add liquidity — is seen as supporting a government that is not able to control its finances...........

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Stable, for now

The Reserve Bank of India's Financial Stability Reports (FSRs) are half-yearly assessments of the health of the financial sector. Of a comparatively recent origin, the FSR is intended to bring India's financial regulatory practices in line with the best in the world. Its key objective is to monitor and sustain the health of the financial sector. The RBI gives out its assessments and views at varied intervals through documents called variously as reports, policy statements, and reviews. For its part, the FSR distinctively focusses on the systemic aspects, rather than the individual components, of the financial sector and evaluates the soft spots in the Indian scene. Lessons are sought to be learnt from the interplay of the macroeconomic setting, policies, markets and institutions, for which the central bank claims to use the most up-to-date techniques and methodology. According to the latest FSR covering June-December 2011, the domestic financial system remains robust. The banking system is resilient enough to tide over unexpected adverse macroeconomic developments. But the good news, which is carried over from the previous FSR, was tempered by evidence of some deterioration in the macroeconomic environment and financial markets. Notably, all components of domestic demand have decelerated. Inflation pressures remain elevated, driven by a number of factors. Risks to the external sector have increased. Trade deficit and, along with it, the current account deficit have widened. The fiscal position remains challenging and, as the recent additional demand for supplementary grants shows, the risk of fiscal slippages is real. Equity and financial markets continue to be volatile, mainly due to adverse developments abroad. Exchange depreciation, which has been particularly sharp, is beginning to impact the Indian economy through various channels. There have been large transaction losses on foreign exchange exposures. Repayment of external commercial borrowings has become more expensive. Among financial institutions, the FSR shows some deterioration in financial soundness indicators, but capital adequacy stays well above regulatory requirements, and asset quality compares favourably with what obtains in peer countries. As the year progresses, the slowdown in GDP growth will make the Indian financial sector more vulnerable. Banks will have simultaneously to address the related challenges of lower asset quality and raising additional capital, the latter also to comply with the Basel III requirements. The FSR once again gives a clean chit to the Indian financial sector, but warns of troubles ahead.

BS

Food for Thought: Fall in food inflation

......... Industry is bound to mount pressure on the RBI to revert to an easy monetary stance in its January 2012 monetary policy review. But it would be short-sighted for the bank to jump the gun and ease interest rates at the first sign of respite on the price front............

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Mumbai Police unearth phishing racket, arrest six Nigerians

The Mumbai Police have arrested six Nigerian nationals and unearthed a “massive” online phishing racket that lured people into believing that they had won lakhs of pounds in prize money and made them shell out Rs. 4-5 lakh for getting these fictitious sum. “The arrested are all residents of Mumbai. They stayed here at Aarey Colony. All of them are in their late 20s or early 30s,” Joint Commissioner of Police Himanshu Roy said at a press conference here on Monday. Yoha Fred Jihan, 33, Tovy Evaka, 34, Yehike Enavhoro, 25, Amadin Jefferi, 31, Jarvis Nosa Lavani, 34, and Thiofelis Edemudia, 32, are in India on business visas. They had many legal documents such as PAN cards and driving licences in their names. They also signed several legal documents such as lease documents. A court has remanded them in police custody till January 12. In the raids on three flats on December 31, the police seized 14 laptops, 15 data cards, seven pen drives, 23 mobile phones, printer, laptop cards, various forged documents of the Indian Customs, the Reserve Bank of India and foreign courts, and government and private company documents. The accused have indulged in two types of cheating: “prize money scam” and “will scam.” “These people have software generating e-mail ids and mobile numbers. They would randomly select them and send thousands of SMSes and e-mails every day,” Mr. Roy said. A prize money scam message typically reads that a person has won £1 million through a lucky draw lottery from Coca Cola or ICC Cricket World Cup.“When the person showed interest, these people used to send him forged certificates and documents with his name and address which said the amount had been awarded to him,” he said. They would ask the victim to pay for legal processes in the United Kingdom such as tax clearance. Every time, they would send a certificate to make him believe that the amount was being processed. “Then they would demand another Rs. 1 lakh, saying the sum was deposited in the Reserve Bank of India, and they would need the money to legally bring the amount here,” Mr. Roy said.

HBL

Government plans flexible equity norms for RRBs

...... A committee constituted under the chairmanship of Reserve Bank of India (RBI) Deputy Governor K.C. Chakrabarty had recommended in May 2010 that the capital to risk-weighted assets ratio (CRAR) for RRBs be increased to 9% by 31 March 2012.......

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Core banking solutions

.........A ticklish issue for banks will be additionally to grapple with the issue of reclassification of what constitutes core capital and raising capital through hybrid instruments which would be beyond the realm of tier I under Basel III. Getting all these things right is the challenge for banks as there will be a cost involved in terms of meeting these requirements...........

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