Credit Flow To Mfis Will Now Improve: Malegam

Credit flow to micro-finance institutions will be adequate in future as the regulations relating to MFIs have been issued, Member of Financial Sector Legislative Reforms Commission (FSLRC), Y H Malegam have said. "Credit flows, perhaps, were waiting for the regulations to be issued. And now that the regulations have been issued, I think there should be adequate credit flow to the sector," Malegam told reporters on the sidelines of Financial Planning Congress' 11 organised by Financial Planning Standards Board of India. The microfinance sector was thrown into a tizzy last October when Andhra Pradesh issued an Ordinance that sought stringent regulation of the industry, following reports of a spate of suicides by harried borrowers. Andhra is the largest MFI market in the country. Following this, loan recovery slowed to a trickle and banks also refused to offer fresh funds to MFIs.  RBI then set up a committee under the chairmanship of Malegam, who submitted his report early this year. The Malegam Committee came up with its report on MFIs prescribing a interest cap of 24 percent on lending, creation of NBFC-MFIs along with host of other guidelines. Referring to overall health of MFI industry, Malegam said, "So far as other state governments (except Andhra Pradesh) are concerned, there is an improvement. Definitely, interest rates have come down. Well run and efficient MFIs are able to operate under the guidelines issued." He, however, conceded that the proposals given by his committee will have less impact in Andhra Pradesh.

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Govt likely to overhaul financial inclusion model, look at viability

Financial inclusion, a pet theme of finance minister Pranab Mukherjee and the Reserve Bank of India (RBI), is set to get a fillip with a major overhaul of the entire business correspondent model currently practised by the financial institutions. Within next few weeks, government is likely to allow business facilitators to work as business correspondents, which is expected to consolidate banking in the hitherto unbanked areas. Despite more than five years elapsing after the RBI allowed banks to employ business correspondents (BC) and business facilitators (BF) to expand their outreach, the model is yet to become an economically viable for most stakeholders. Experts say that it takes several years for a bank to break even in an unbanked area and therefore BC option enables banks to reach out much faster at a much lower cost. Around 85,000 of the one lakh villages are covered by banks through the BC channel. To make the model economically viable the government is planning to allow BF too to transact on behalf of banks. “Allowing a BF to handle the work of a BC would help increase viability of the business”, said a senior finance ministry official.

IE

Cooperative banks lose Rs 235 cr to bad loans

Srinagar, Jan 19: The Cooperative Department is seeking bailout from the State Government and the Government of India for three cooperative banks which have turned bankrupt and are presently under notice from the National Bank for Agriculture and Rural Development (NABARD) and the Reserve Bank of India (RBI). The banks in red include Jammu Central Cooperative Bank (JCCB), Anantnag Cooperative Bank (ACB) and Baramulla Cooperative Bank (BCB). Together, the three banks have a cumulative default of around Rs 235 crore. Official sources said mismanagement in the banks and extra-managerial costs pushed the banks towards the default. They said the management of these banks never tried to streamline the system and provided loans to even unscrupulous persons and allowed a lot of political interference. “A commission should be set up to fix responsibility. After all depositors’ money cannot go down the drain this way,” said an official pleading anonymity. Commissioner Secretary Cooperatives, Abdul Hamid Wani, is the chairman of the Cooperative Bank Anantnag and the Cooperative Bank Baramulla. “The Reserve Bank of India has issued guidelines after the State Government signed MoU with it. These three banks have not been issued the licenses. The RBI and NABARD are arguing that the banks should clear the debt,” the Minister of State for Cooperatives with independent charge, Dr Manohar Lal, said. He said Jammu Central Cooperative Bank has losses of around Rs 100 crores, Anantnag Cooperative Bank around Rs 80 crores and Baramulla Cooperative Bank around Rs 55 crores. “We have taken up the issue with the RBI and NABARD in a meeting held at Bangalore last month. We have explained them that people and societies over the years have taken loans from the banks and didn’t return. And there is need to bailout the banks,” the Minister argued. He said his Ministry will take up the issue in the State Cabinet and seek bailout for the banks. “We expect the State Government and the Government of India will bail out the banks,” he said. The Minister described losses of the banks as cumulative loss and attributed it to various factors including the packages announced by the Government from time to time. “The Government during Prime Minister Devi Gowda’s time announced debt relief package to farmers and subsequently similar packages were announced. That also affected the banks apart from poor recovery mechanism,” he said. However, the Minister said that Baramulla Cooperative Bank is on the path of recovery and it needs slight push. “The bank has improved a lot during last year and we expect it would overcome the default,” he said.

Greater Kashmir 

Rs 65,000 cr missing money: RBI needs to explain liquidity drop

... The RBI has a lot of work to do on liquidity management given the current liquidity tightness, which is becoming alarming. It has to communicate its analysis on liquidity to the market, as a market that is befuddled by liquidity will push up money market rates.....

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Short-term rates up, as banks raise funds

Interest rates on short-term debt instruments touched double digits on Thursday, as banks raised funds to meet credit growth targets in the last quarter of the current financial year. According to market participants, rates on certificates of deposit (CDs) issued by banks crossed 10 per cent on Thursday................

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State finances: More disclosure please - K Kanagasabapathy

................A transparent and periodic information flow about fiscal position of State governments, preferably State-wise, would considerably add to market stability and better assessment of fiscal performance of Centre vis-a-vis states and also inter-se states, There must be a coordinated effort from the RBI, Centre and the State governments towards this end.

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Banks pitch for higher tax breaks on bad debt provisioning

More incentives to attract deposits sought

New Delhi, Jan 19: Banks have sought full income-tax deduction on all the provisions made for bad and doubtful debts in their books. At a pre-Budget interaction with the Union Finance Minister, Mr Pranab Mukherjee, here on Thursday, top bankers suggested that all such provisions should be allowed as deductible expenditure, not subject to any taxation, sources said.  At present, according to the income-tax law, provision for bad and doubtful debts made by banks are allowed deduction of 7.5 per cent of gross total income and 10 per cent of aggregate average rural advances made by them. Alternatively, banks have an option to claim a deduction in respect of any provision made for assets classified by the Reserve Bank of India as doubtful or lost to the extent of 10 per cent of such assets. The bankers also sought more incentive to attract deposits. In particular, they suggested that the lock-in-period for Section 80C deposits should be reduced to three years from the current five years. They also suggested higher TDS exemption limits on interest on deposits. A suggestion was made to hike the annual TDS exemption limit to Rs 50,000 from the current level of Rs 10,000, sources said. The bankers also wanted a separate taxation window for pension funds and long-term funds. The need to support infrastructure funding was also highlighted and a demand was made to make banks eligible entities for issuing tax-free infrastructure bonds. The requirement for special incentives for investors in infrastructure bonds was also discussed, as also the need for clarity and broadening of the definition of infrastructure. On financial inclusion, they wanted incentives for banks which had done well to take them to the second level of economic inclusion. In view of the high costs of education, it was suggested that a loan guarantee scheme be launched.  Meanwhile, the Finance Industry Development Council (FIDC) urged Mr Mukherjee to bring Non Banking Finance Companies (NBFCs) at par with the banks on the issue of tax deduction of provisions made or bad and doubtful debt. Currently, NBFCs do not get any deduction on such provisions. FIDC also made a case for hiking depreciation rates (under the income-tax law) on construction equipment from 15 per cent to 40 per cent — at par with the 40 per cent rate prescribed for commercial vehicles. It was also suggested that banks lending to NBFCs for on-lending be treated as priority sector lending, Mr Raman Agarwal, Member of the Managing Committee of FIDC, told Business Line here after the meeting.

HBL

Banks, RBI set to provide relief to power cos: SBI

Banks are working with the Reserve Bank of India to explore the possibility of extending loan repayment period for those power sector companies which are facing problems in project implementation, a top SBI official said on Thursday. ". . . risk in power sector is micro not macro. . . .  In some cases they (power companies) have said that implementation of project got delayed due to reasons beyond their control. They want (us) to extend the moratorium. "We are working with RBI how that can be done without the banks being required to make any provisioning," SBI chairman Pratip Chaudhuri said in New Delhi . His comments come at a time when the power sector is grappling with acute fuel shortage and mounting losses of electricity distribution companies among others, which in turn is delaying many projects. Such a scenario has also raised concerns of default by power entities. The State Bank of India has not yet received any 'special request' from the power sector for restructuring of loans, he said, adding, "they are saying they would be in position to service their debts." Speaking to reporters after pre-Budget consultation with Finance Minister Pranab Mukherjee  the SBI chief said the bank has an exposure of about Rs 32,000 crore (Rs 320 billion) in the power sector. "We are giving loans to all big companies. . . It is not right for us to equate all the companies," he added. Public sector banks had exposure worth over Rs 2.97 lakh crore (Rs 2.97 trillion) to the power sector at the end of second quarter of the current fiscal, with maximum credit doled out by SBI. Country's leading public sector lender SBI and Bank of India accounted for nearly Rs 87,000 crore (Rs 870 billion) of the total loans given to the power sector till September 30, 2011. Another major lender to the power sector is Punjab National Bank  whose exposure stood at Rs 20,410 crore (Rs 204.1 billion). Maharashtra , Gujarat and Rajasthan are among the states that have been high amount of loans in the power sector from public sector banks.

Rediff News

High-level govt meeting to sort out textile firms' debt issues

The textile ministry will meet the finance ministry to restructure loans for the textile industry. A joint meeting of textile and finance ministry officials, and those from the Planning Commission, the Reserve Bank of India (RBI) and various other banks will take place on February 2 in New Delhi. Following several appeals from the industry, the textile ministry has been requesting the finance ministry for two months to intervene and help restructure textile companies’ loans, as they have been suffering heavy losses for some time now. The industry has been under pressure for over a year due to volatility in cotton prices and uncertainties in major export destinations. It was also hit after the government allowed duty-free import of 48 textile items from Bangladesh. So far, RBI has said nothing about restructuring textile loans. Currently, orders are coming in, but the sector has not been able to accept these as they have problems in managing even their working capital. “Most of the money is used to repay loans and cover losses,” said D K Nair, secretary-general of the Confederation of Indian Textile Industry (Citi). “I expect the next financial year to be better for the industry, as orders have already started to trickle in and will pick up eventually.” In a presentation made by Citi to the ministries and planning commission, it said the textile industry debt was Rs 1,00,000 crore, although no payment default had been seen so far. The Indian spinning industry was in losses worth Rs 11,000 crore last year. The other issue likely to be discussed in the ministerial meeting is implementation of the new Technology Upgradation Fund Scheme (Tufs), said an industry source. Tufs was re-introduced last April for the current financial year, with an addition of Rs 1,972 crore. The response this year has been poor due to the economic crisis in major economies, thus having an effect on the orders coming in. Many textile companies did not opt for this scheme.

BS

Tata Sons first core group firm to register with RBI

Tata Sons, the principal holding company of the Tata group, has become the country’s first core investment company (CIC) registered with the Reserve Bank of India...........

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