Banks facing more challenges in current environment: RBI

Banks worldwide are facing more challenges in the current economic environment and while macro-sustainability is a necessity, it is not sufficient for sustainable economic growth, according to a senior Reserve Bank official. Speaking here during the inauguration of a national seminar on 'Basel III: Implementation Challenges in Bank' organised by the Bank of Maharashtra, RBI Deputy Governor Anand Sinha said while regulation is important, so is implementation. "Banks globally are facing more challenges now and macro-sustainability is a necessity but not sufficient for sustainable economic growth. Therefore, putting regulations in place is only one part and their implementation is equally important for achieving growth and sustainability," Sinha said. Sinha, who is in charge of regulation of commercial banks, non-banking financial companies and urban cooperative banks in the RBI, also talked about the 2008 global economic crisis and how the Indian banking sector had withstood it. He also made an elaborate presentation on the genesis of the crisis, its causes, regulatory reforms following the crisis, implementation issues, structural issues and the impact on growth. The seminar was attended by RBI General Manager Ajay Chowdhary and Bank of Maharashtra Chairman & Managing Director AS Bhattacharya. The topic of the seminar assumes significance as the RBI earlier this week issued draft guidelines for implementation of Basel-III banking norms in India, which envisage that the equity capital of a bank should not be less than 5.5% of its risk-weighted loans. It also recommended that Tier-1 capital, comprising pure equity and statutory and capital reserves, must be at least 7% and total capital must be at least 9% of risk-weighted assets (RWAs). It has also suggested setting up a capital conservation buffer in the form of common equity of 2.5% of RWAs. It is proposed that the implementation period of minimum capital requirements and deductions from common equity will begin from January 1, 2013, and will be fully implemented by March 31, 2017, it said. The central bank had invited comments and feedback on the draft guidelines, including the implementation schedule, by February 15, 2012. RBI Governor D Subbarao had earlier said Indian banks will have to incur additional costs to build capital buffers to comply with Basel-III rules.

BS

Basel-III requires more time for implementation

The upcoming Basel III guidelines will require more time if it seeks to improve the ability of banks, said Anand Sinha, Deputy Governor, Reserve Bank of India.“Basel III guidelines seek to improve the ability of banks to withstand periods of economic and financial stress by prescribing more stringent capital and liquidity requirement, by raising minimum core capital stipulation. Introduction of counter cyclical measures will enhance banks’ ability to conserve core capital in the event of stress through a capital conservation buffer," said Sinha while speaking on "Basel III – Implementation Challenges In Banks" organised by Bank of Maharashtra in Pune. Last month, RBI has issued draft guidelines for implementation of Basel III norms. "Basel-III reforms should not be implemented for one or two years and if, the effect of this on the growth will be very limited. It requires at least five to six years for the proper implementation, then the impact will be stable and long-term. Private-sector banks in India may need to raise a few trillion rupees of capital to meet Basel III norms," Sinha added. Commenting on banking system, he said, "We need much larger banks rather than complex banks. Our supervision should be more effective. Indian banking system is relatively more fundamental. RBI has been always criticised for being conservative. But it has helped the banking system to become stronger even in the financial crisis. Globally, banks are facing more challenges and macro sustainability is necessary but not sufficient for sustainable economic growth. Therefore, putting regulations in place is only one part and their implementation is equally important for achieving growth and sustainability." According to Sinha, more capital is needed for economic development. India's credit GDP ratio is much lower than the other Asian countries.

BS

Indian Bank's Corporate Office Building Inaugurated by Hon'ble Union Finance Minister



The Finance Minister, Mr Pranab Mukherjee, after inaugurating Indian Bank’s corporate office in Chennai on Friday, along with Dr K. C. Chakrabarty, Deputy Governor, Reserve Bank of India, (extreme right), Mr T.M. Bhasin, CMD, Indian Bank, and Mr Rajeev Rishi, Executive Director (foreground)



Shri Pranab Mukherjee, Hon'ble Union Finance Minister inaugurated the New Corporate Office Building of Indian Bank at Lloyds Road, Royapettah, Chennai on 6th January 2012. Shri.Mukherjee also launched e-lounge, WAP enabled Mobile Banking Facility and Online Loan Application System for making online application for Education Loan and Home Loan Schemes of Indian Bank. The Union Finance Minister also announced completion of 100% Financial Inclusion by Indian Bank, the SLBC Convenor Bank for the Union Territory of Puducherry, with the cooperation of other Banks. Indian Bank also announced that financing of SHGs will now be done by Cash Credit System replacing the Term Loan System. Shri T M Bhasin, Chairman and Managing Director, Indian Bank in his welcome address said that the New Corporate Office Building is built in TRILOBULAR SHAPE, resembling the LOGO of the Bank. It is a GREEN & ENERGY EFFICIENT Building with modern and sophisticated facilities. Shri Bhasin said that the Bank has launched many innovative, customer friendly technology products from FMs hands which will increase the e-Business volume of Indian Bank. Stating that the total business of the Bank has crossed Rs.2.05 lakh crore mark, Shri Bhasin thanked the customers for their continued valuable support in making this achievement possible.

Dr K C Chakrabarty, Deputy Governor, Reserve Bank of India who was the CMD of the Bank and initialed the process of construction of the New Corporate Office building expressed his happiness over the completion of the building project and for creating a new landmark in Chennai City. He also appreciated the Bank for rendering various value added and technology leveraged banking services.Shri J M Garg, Vigilance Commissioner, Central Vigilance Commission expressed his happiness in participating in this eventful moment of the Bank from where he started his career. Shri.J.M.Garg said that Indian Bank has emerged as a strong, vibrant and dynamic Bank with state-of-the art technology platform.

http://www.4-traders.com/INDIAN-BANK-9059774/news/INDIAN-BANK-Inauguration-of-Corporate-Office-Building-Of-Indian-Bank-on-6th-Jan-2012-4-15-p-m-at-Che-13959132/

RBI, CMF to host ‘Microfinance: Translating Research into Practice’ Conference

The Reserve Bank of India’s College of Agricultural Banking, Pune together with the Centre for Micro Finance, IFMR Research will host their fifth annual conference, “Microfinance: Translating Research into Practice” on January 9th and 10th 2012 in Pune. The objective of the conference is to actively engage stakeholders and researchers in discussions relevant to current and future microfinance practice. This year renowned development economists Professor Rohini Pande (Harvard Kennedy School), Professor Erica Field (Duke University), Annie Duflo, Executive Director, IPA, Prof. Susan Thomas, IGIDR will be present to discuss results from a number of recent studies conducted in the area of financial services for the poor. The 5 thematic sessions of the conference include Government’s New Rural Employment Generating Initiatives and Programmes, Psychology behind mass default in joint liability loans, Future of Financial Services for the Poor, Financial Literacy to accelerate financial inclusion and help customers make rational decisions and Financing Microfinance: Scope and opportunities. During the conference, special address will be delivered on Self Help Programme II, Microinsurance and Micropension.

Microfinance Focus

Reserve Bank sensitive to voices of poor: Subbarao

The Reserve Bank of India Governor D Subbarao in his defence of the policy to hike rates in order to combat inflation said on Friday that the central bank is “also sensitive to the ‘voices of the poor’ about the burden of surging prices”. “The voices of the poor do not of course have the same opportunity of collective articulation, and we therefore have to make the extra effort to listen to this ‘silent constituency’,” he said while addressing the National Convention on Leadership at CII-Suresh Neotia Centre of Excellence for Leadership in Kolkata. In order to combat inflation, the Reserve Bank has had to gradually and continuously tighten monetary policy, he said. “This has led to criticism, especially from industry and business sections, that higher interest rates engendered by our policy have curtailed growth. This grievance is legitimate, and to some extent, understandable. The Reserve Bank is sensitive to that criticism,” Subbarao said.

IE

RBI – Reflections on Leaders and Leadership

….. The high esteem in which the Reserve Bank is held today owes a lot to the competence and professionalism of its staff, its institutional values and culture, and importantly, the outstanding leadership of former Governors – twenty-one to date. When applauded for the law of gravity, Sir Isaac Newton, not one known for humility, famously said in a letter to his friend and rival Robert Hooke that, “If I had seen a little further, it’s because I am standing on the shoulders of giants”. I can quite relate to that statement. As the Governor of the Reserve Bank in these exciting times, I am deeply humbled by the intellectual reputation of the lineage of the Reserve Bank’s Governors……

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Growth with Financial Stability by Rakesh Mohan – Book review by P.P.Ramachandran

The author of the book under review Dr.Rakesh Mohan was the Deputy Governor of the Reserve Bank of India twice and is presently  the Professor of International Economics of Finance, School of Management, and Senior Fellow, Jackson Institute of Global Affairs, Yale University.  He is also Senior Research Fellow of Stanford  University . We had reviewed his earlier book “Monetary Policy in a Globalized Economy”.  Over a hundred countries, advanced, emerging, and developing alike, have suffered from financial crisis over the past 30 years: India is among the few which have not. That was the motivation for this book which provides an understanding of Indian macroeconomic, fiscal, monetary and financial policies as they have evolved over the years, and as they have contributed to achievement of economic growth with financial stability. The book analyses the record of Indian economic growth since 1947; proceeds to deal with financial sector reforms, analyses monetary policy. We have an interpretation of the reasons for the global financial crisis and how it was contained in India. Critical reforms that are needed in other areas are also studied succinctly. Dr. Rakesh Mohan believes that the key to maintaining and accelerating economic growth is a reform of overall government functioning. He argues that RBI must be allowed to continue its practice of consistent and harmonious blending of monetary policy with prudential regulation. Monetary policy and financial sector reforms acquired paramount importance in our country in the background of the global financial crisis .The present book makes a sterling contribution on this vital topic. The author was a part of the policy group that dealt with this problem during a crucial period in the last decade. He had submitted a number of papers at different fora and has now revised and updated some of these. There are 12 essays in the book. The volume starts with a critical analysis of India’s growth since Independence, when public sector was  the engine of growth,  fiscal policy stood for  high levels of taxation to generate finance  for investment in that sector and budget deficits were monetized  to fund investments.  While it is undeniable that the RBI armoury was not well furnished measures were taken to employ  instruments like the SLR and CRR  to stem  excessive undue expansion of money supply. The country averted high levels of inflation which plagued several developing economies. Post-liberalisation, the financial sector reforms have served to enhance not just the competitiveness and efficiency of banks, but also ensured their stability. The RBI compelled banks to follow internationally acceptable prudential norms of capital adequacy while accepting risk weighting of their assets and provisioning requirements. This resulted in credit being extended towards sound investments and abjuring speculative transactions. Indian banks were unaffected by the global turbulence during the East Asian financial crisis and the North Atlantic countries' financial meltdown . With the practice of automatic monetisation of the Central government's deficits getting phased out in the early 1990s, the RBI's ability to use monetary instruments was greatly strengthened.  The Fiscal Responsibility and Budget Management Act guaranteed a substantial reduction in fiscal deficit at the Central and State levels. The private sector garnered more resources from the market and the interest rates dropped significantly during 2003-08. Since 2009, there has been a reversal. Safeguarding financial markets against volatility has acquired paramount importance in managing exchange rate and foreign capital inflow. A gradualist approach was adopted in respect of capital account. While risk capital was permitted to flow liberally in the form of FDI and portfolio investments, short term commercial borrowings were afforded only a limited scope. The impact of foreign capital volatility on portfolio investments was tempered through open market operations and ‘sterilization' measures. The author presents a strong, well-constructed defence of the monetary policy pursued by the RBI over the past two decades. Unlike the central banks of many other countries, which focussed exclusively on controlling inflation, the RBI targeted price stability, exchange rate management, and financial stability coupled with adequate credit supply to sustain growth. RBI  has maintained  price stability and developed a sound financial sector and without a shred of doubt  been successful in achieving financial stability. However recently  inflation has raised its ugly head and reached two-digit level, in spite of the RBI altering  policy rates a dozen times in about 18 months. The economist points out that the financial system has failed in providing adequate credit to the farm sector and the small and micro enterprises. The development strategy should focus much more on agriculture, urban infrastructure, and human resource to maintain a substantial growth rate.  We have a masterly review of the post-1991 monetary and financial policies by one who played a major role in policy formulation. The book is strongly commended to all students of economics, banking, planning as also the mandarins in Delhi.

FPJ

Watch the video of the book launch ceremony......

UIADI Launches Micro ATM for Daily Wagers

The Unique Identification Authority of India (UIADI) has launched a micro ATM device that would enable beneficiaries like MG-NREGA workers with Aadhaar to withdraw money near their doors through core banking system. "The beneficiary has to put his finger and Aadhaar number in to the micro ATM wireless device and get the money within 8 to 9 seconds from a business correspondent after verification about the beneficiary having that much amount deposited in the bank account shown through a receipt by the device," UIADI Director General R S Sharma said here today. With the device not carrying any money unlike the regular bank ATMs, the beneficiary would get the withdrawn amount from the business correspondent on the spot. "The (about a foot-long) device functions through any SIM and wherever there is a mobile tower. The device will be with a bank-appointed business correspondent," he said. The beneficiaries could choose their business correspondence to approach, he said adding the method would root out any role by middlemen. Besides the MG-NREGA workers, other beneficiaries under old-age pension, scholarship or any other welfare schemes could also benefit from the device.Praising Jharkhand Chief Minister Arjun Munda's keenness to cover the entire state under the new system, Sharma said Munda had told him that the state government would like to link all its socials security funds through the new system. As pilot projects, he said the micro ATM device has been introduced in three blocks in Jharkhand's Sareikela-Kharsawan, Hazaribagh and Ranchi districts and about 1000 transactions have taken places during the last few days. Once it is proved to be perfect, it would be introduced in other states. He said the ICCI, the Union Bank of India and the Bank of India were linked with the micro ATM devices in these three districts. "Using the device to withdraw money by beneficiaries will save travel-related difficulties, money and they can also have some savings in their accounts as one knows that one can withdraw any time as business correspondents are available at their villages," Sharma said. He cited a survey in Madhya Pradesh that had calculated that a beneficiary had to spend Rs 125 on conveyance to withdraw a week's wages of Rs 525. Stating that the communication device would cost less than Rs 10,000, Sharma said it was developed among others by the RBI and Indian Bankers Association. "This new system is a part of our financial inclusion initiatives to help the poor with no middle-men troubling them," he said. The UIADI, is also working to introduce the system in areas like telecom, public distribution system, LPG cylinder and fertiliser/kerosene.

The Outlook

Betting on RBI - T N Ninan

........ If gold is overpriced, real estate looks like a bubble, inflation-adjusted interest rates on debt are close to zero, and stocks look fully priced, there are no obvious options. Watch out then for the game-changers? On the negative side, these could be a euro collapse or an oil price surge, either of which would upset today’s calculations. On the positive side, lower interest rates are a near-certainty — or the RBI governor’s name isn’t Subbarao. Does that swing the argument in favour of stocks? Happy investing !

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RBI asks banks to issue fund transfer receipts

Taking note of non-adherence by some banks to rules on sending confirmation of payments made through the National Electronic Funds Transfer (NEFT) system, the Reserve Bank of India (RBI) has directed lenders to put in place a system for issue of such receipts. In a circular, the RBI has also asked banks to give a copy of their plan within 15 days. “All banks should put in place systems to ensure positive confirmation is sent to the originator (sender). While it is expected that such confirmation messages are sent as soon as the beneficiary account is credited, it should not exceed beyond the end-of-the-day under any circumstance,” the apex bank said. The RBI has asked the banks to send an immediate report on the existing procedure followed by them for sending such messages — both as originator and receiver. “Banks are advised to put in place suitable mechanisms immediately by which such confirmation will be sent for all inward/outward messages, if such systems are not already in place,” the RBI said.

BS

RBI says companies must provide for FCCB liabilities

Indian companies must make provisions to meet obligations arising out of foreign currency convertible bond (FCCB) liabilities, a senior Reserve Bank of India (RBI) official said, highlighting growing concerns about the ability of corporates to repay such debt. "I would urge business and industry to fully provide domestic rupee/foreign currency resources to meet potential liability under FCCBs," V.K. Sharma, an executive director at Reserve Bank of India, said in Bangalore on Thursday, in views he said were personal. More than two dozen companies on the BSE-500 index face FCCB redemption worth 330 billion rupees by the end of the next fiscal year in March 2013, according to research by Indian brokerage Edelweiss. He also said businesses should borrow overseas only if they find long-term foreign currency borrowing cost lower, on a fully-hedged basis than comparable rupee borrowing costs. Sharma said that companies should not be tempted by nominally low interest rates overseas and "rigorously" evaluate such borrowing options. He said that companies must treat fixed rate long term funding as a risk-neutral strategy.

Moneycontrol

Five more MFIs seek debt restructuring

...... Micro Finance Institutions Network (MFIN), the industry body of micro-lenders, has urged the Reserve Bank of India (RBI) to temporarily relax banks’ provisioning requirements for restructuring the debt of five microfinance companies that have not participate in the recast programme last year.......

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RBI tells banks to put system in place for National Electronic Funds Transfer confirmations

MUMBAI: Taking note of non-adherence by some banks to rules on sending confirmation of payments made through the National Electronic Funds Transfer (NEFT) system, the RBI has directed lenders to put in place a system for issue of such receipts. In a circular, the Reserve Bank has also asked banks to submit a copy of their plan for putting in place a system to generate confirmation of NEFT payments within 15 days.  "... All banks should put in place systems to ensure positive confirmation is sent to the originator (sender)... While it is expected that such confirmation messages are sent as soon as the beneficiary account is credited, it should not exceed beyond the end-of-the-day under any circumstance," the apex bank said. It has asked the banks to send an immediate report on the existing procedure followed by them for sending such messages, both as originator and receiver. "Banks are advised to put in place suitable mechanisms immediately by which such confirmation will be sent for all inward/outward messages if such systems are not already in place. A copy of your plan of action in this regard may please be sent to us within 15 days of receipt of this letter," the RBI said. The apex bank had issued guidelines in 2010 for banks to put in place a mechanism which would enable NEFT participating banks to provide a positive confirmation to the remittance originator confirming the successful credit of funds to the beneficiary's account.  Banks had been advised to confirm completion of necessary arrangements to ensure its implementation by March 1, 2010. " ... Even though banks have had sufficient time for making necessary changes in their systems, it is observed that not all banks are sending such confirmations," today's notification said. "In most cases, the bank that originated the remittance is unable to provide the confirmation to the originator/sending customer since they do not receive the corresponding confirmation message (N-10 message) from the beneficiary bank," it said. Citing a recent analysis, the RBI said in respect of a large number of banks, the percentage of positive confirmations sent vis-a-vis the inward messages received was lower than 10 per cent. "... Positive confirmation is a unique feature of NEFT and has played a major role in popularising the system amongst users. Non-adherence to instructions in this regard will undermine the customer service efficiency of the system," it said. Meanwhile, in another circular, the RBI directed banks to adhere to norms under which they have to pay penalty in case of a delay in crediting funds sent through the NEFT system to the beneficiary customer's account or in returning the uncredited amount to the remitter.

ET

RBI cancels licence of Veershaiva Co-operative Bank

MUMBAI: The Reserve Bank has cancelled the licence of city-based Veershaiva Co-operative Bank, as the lender has become insolvent. "In view of the fact that Veershaiva Co-operative Bank Ltd, Mumbai (Maharashtra), had ceased to be solvent... the Reserve Bank of India delivered the order cancelling its licence to the bank as on the close of business on December 30, 2011," the apex bank said in a statement. It said efforts to revive the bank in consultation with the Maharashtra government have failed and the depositors were being inconvenienced by continued uncertainty. Veershaiva Co-operative Bank's capital adequacy ratio stood at (-) 139.6 per cent at the end of March 2011, while its gross NPAs constituted 79.1 per cent of gross advances.  The Registrar of Cooperative Societies, Maharashtra, has been requested to issue an order for winding up the bank and appoint a liquidator for the bank. "On liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of Rs 1 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the usual terms and conditions," the statement said.

ET

2nd Annual Summit Financial Markets–Time for Next Generation Reforms, 12th Jan’12 at New Delhi

Chief Guest

Shri D. K. Mittal, Secretary, Department of Financial Services, Ministry of Finance

Guest of Honour

Shri Hari Narayan, Chairman, IRDA

Shri Rajeev Kumar Agarwal, Whole Time Member, SEBI

Shri Anand Sinha, Dy. Governor, RBI

The visionary, foresight and watchful eyes of the Indian sectoral regulators- RBI, SEBI & IRDA – on the financial system ring-fenced it from getting contaminated by the global crisis. Amongst the global financial systems, the Indian financial system is perhaps the most closely regulated one, but there can be no doubt that this is one of the major factors contributing to the stability of the system. There is a strong need to evolve newer strategies, global cooperation and faster reforms to strengthen the Indian Financial markets to make them world class. In view of these imperative issues and developments in the Financial Markets in India, ASSOCHAM is organizing, 2^nd Annual Summit on “Financial Markets” .

Date:12^th January, 2012 / Venue:Hotel Le- Meridien, New Delhi.

TOI

‘The world sees India as a country without a government’

............Now if the RBI were to let the borrowing happen and accommodate it by having more liquidity in the economy, what you’d get back is inflation and that harms ordinary people. The high interest rate affects investments and through that, of course, employment, and that again affects the people. So you’re between the devil and the deep blue sea. What you really need is for the government to rein in its expenditures and achieve the same social outcomes with reduced expenditures..............

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Savings bank account number portability—will it work?

....A senior member of a bank employees’ association said, “It is a utopian idea”. On the other hand, the RBI opines that bank account number portability would be easy to implement once a bank customer is in the possession of a number given by the Unique Identification Authority of India ................

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A Pat Only for the RBI

While overall inflation may look bearable in the months ahead, pressure points in some items will continue

The new year begins on a bright note: inflation in some segments is falling dramatically and the latest PMI for manufacturing for December underlines what we have been saying for long now — growth momentum is strong in India. Despite the precipitous fall in the index of industrial production, the strong new business volume reported showed that industry is not doing as badly as is thought it is doing. The MSME Business Confidence Survey, conducted by Indicus Analytics in September, had reported expectations of higher sales in Q3 and these appear to have materialised now. While growth estimates will depend on IIP numbers and, therefore, still show less than 7% in Q3, it is time to go beyond the official statistics and look at multiple indicators to get a better sense of where we are headed. The Markit PMI reports a small uptick in employment, for the first time in five months, the MSME Business Confidence Survey reported a positive change, and the index for employment rose in December, reversing the two-quarter fall and returning to March levels. Investment and expansion plans have been maintained throughout the last two quarters at levels higher than the early two quarters of 2011. While this does not show yet in the official data, the survey results indicate intent that will translate into action as the rate hikes have now clearly come to halt. The PMI for services sector posted the sharpest rise for December since July and respondents were confident of better times in the year ahead. Clearly, the sparks of optimism that we sensed and spelt out two months ago are now slowly growing brighter. What about inflation, though? Unfortunately, despite the crash in inflation in primary articles, both food and non-food in December, there are some pockets that will continue to cause stress. The wholesale price index for November shows higher inflation for iron and semis, basic metal alloys, non-metallic mineral products, cement and lime, etc — in effect, inputs for industry have been under strain. Going ahead, while depressed growth in China and low projections of global growth will keep commodity price pressures down, the MSME survey indicates expectations of input price pressures easing in Q4. However, as volatility in these markets is a given, unexpected surges cannot be ruled out. With better business prospects for industry, the return of pricing power is once again on the cards. This will stave off any sharp decline in manufactured products inflation, making it much tougher for the RBI to call and plan rate cuts in the quarters to come. For the common man, however, inflation in most basic commodities is slowing. Yet, as the new Indicus Price Index that monitors prices of primary food and fuel in real time shows, pressures are building up in some essential items like oilseeds. Prices of especially groundnut have increased since early December, reflecting the impact of expectations of a low rabi output with sowing at less than half of its normal area by the month end. Further, with oils/fats being the sole item in the FAO Food Price Index to reverse a decline in November and the rupee at depressed levels, imports to make up the shortfall will not be coming cheap. The point is that while overall inflation may look bearable in the months ahead hitting 6-7% levels, pressure points in certain items will continue to plague both firms as well as consumers. Unfortunately, the pickup in growth and the moderation in inflation are all happening with little help from the government, and are definitely in no way close to what we should be achieving. In fact, the only active participant in trying to fix any problem, the RBI, has to now step back to watch the fallout of the polls and the Budget on further inflation levels. 

ET