Foreign travel made easier with prepaid cards

As per the Reserve Bank of India guidelines, a tourist can carry foreign exchange up to $10,000 per fiscal, of which only $3,000 can be carried in the form of foreign currency notes and coins.  For the rest, one has to resort to traveller’s cheques or banker’s draft. What if the cheque or draft was misplaced or stolen, or got stuck in baggage that was delayed?  Prepaid travel cards are available in different currencies and can be bought even on the day of travel. The exchange rate for a particular currency is based on what is prevalent on the day the card is loaded.  Though one can get multiple travel cards for different currencies, only one card will be issued for a single currency. One can load up to $7,000 on such cards and carry up to $3,000 in notes and coins. There are three types of prepaid cards —- closed-ended, semi-closed and open-ended. Closed-ended prepaid cards are used for payments meant for a single purpose. For example, the card will be issued to the holder to make payments towards DTH TV bills. Semi-closed prepaid cards are available in physical and virtual forms. A physical card is like a normal debit or credit card and has an account number and password. A virtual card only has an account number and password and can be used for online payments. Open-ended cards combine foreign exchange, travel and gift cards. These cards are issued by banks, travelling agencies and are accepted by all current point of sale (POS) terminals.

Banks should push financial inclusion – Ms. Suma Verma, Regional Director, RBI

Ms Suma Verma, Regional Director, Reserve Bank of India, Thiruvananthapuram has urged banks to extend more facilities to the rural population for making the concept of financial inclusion meaningful and fruitful.  Ms Verma said this while inaugurating ‘Sneha,' the Financial Literacy and Credit Counselling Centre (FLCC) established by Indian Overseas Bank (IOB), Lead Bank for Thiruvananthapuram, on Thursday. Delivering the keynote address, Mr K.C.Shashidhar, Chief General Manager, National Bank for Agriculture and Rural Development (Nabard), too, urged banks to reach out to the rural population to push financial inclusion. Ms Indira Padmini, Convenor, District Consultative Committee for Banking Development and Chief Regional Manager, IOB, spoke on the occasion. Among others who spoke were Mr K. Sudhir, General Manager, District Industries Centre; Mr K.S.Sasidharan, Principal Agricultural Officer; Ms J.Prasanna Kumari, Project Officer, Khadi and Village Industries Board; Ms Nalinakumar Ghosh, District Employment Officer; and Mr K. Sasikumar, Counsellor, FLCC.

MFIs in AP may face dual regulation

Microfinance institutions in Andhra Pradesh are likely to face dual regulation (from the RBI and the State Government) with the latter keen on continuing with its stringent Microfinance Regulation Act.  The State Government, which was the first in the country to put in place an act to check “excesses” of MFIs, is meeting top officials of the RBI to inform them that the MFI Regulation Act is going to stay notwithstanding the apex bank's view on the Malegam panel's report. “We have been called for a meeting with the RBI on February 22. Our position is that the AP Act is here to stay and the RBI is not empowered to ask the Government to repeal the Act,'' Mr Reddy Subrahmanyam, Principal Secretary, Department of Rural Development, Government of Andhra Pradesh, told Business Line. The Malegam Committee in its report, submitted to the RBI last month, has recommended that the RBI should be sole regulator of NBFC-MFIs, among other proposals. “This is not viable. The RBI in Hyderabad had about 250 staff. How can it regulate MFI activities in over 40,000 villages? Further, self-regulation of MFIs, as mooted by Malegam, has never worked in the MFI sector till now as a profit motive is involved,'' the official said. The State Government had already communicated its “strong objections” on the Malegam's report to the RBI. It also points to the Constitutional immunity enjoyed by the AP Act, thereby contesting the view that the need for AP act “will not survive” if the Malegam report is accepted. According to the list II of the Constitution, the regulation of money-lending is the original jurisdiction of the State Government. “An Act is the will of the people. Accordingly, whether the need for AP MFI (Regulation of Money Lending) Act exists will be decided only by the AP legislature and not by the RBI,'' says the communication. It also points out many lacunae in the Malegam's recommendations such as lack of provision for relief on a large amount of outstanding loans with interest ranging from 28 to 60 per cent. Given the situation, MFIs in the largest market of the country, which accounts for about 30 per cent of total outstanding portfolio of Rs 33,000 crore, are likely to go under dual regulation soon. “We don't have any problem if the RBI bothers itself with corporate governance of MFIs, solvency and capital issues. But the State Government is responsible for regulation of money-lending in whichever form it occurs,'' Mr Subrahmanyam said.

RBI pulls up banks for non-follow-up of client MFIs' operations

The Reserve Bank of India has found fault with public sector banks for not undertaking review of microfinance institutions' (MFIs') operations after sanctioning credit facility. In a circular sent to public sector banks, the apex bank had also noted that many MFIs supported by banks were “not engaging themselves in capacity building and empowerment of the groups to the desired extent.'' MFIs were disbursing loans to the newly-formed groups within 10-15 days of their formation, in contrast to the practice obtaining in the SHG-bank linkage programme which takes about 6-7 months for group formation or nurturing/ hand-holding. “As a result, cohesiveness and a sense of purpose were not being built up in the groups formed by these MFIs,” the RBI said. MFIs, which were financed by banks or acting as their intermediaries/partners, appear to be focusing on relatively better-banked areas, including areas covered by the SHG-bank linkage programme. Competing MFIs were also trying to reach out to the same set of poor, resulting in multiple lending and overburdening of rural households, it pointed out. Taking a dig at banks, the central bank said, as principal financiers of MFIs, they “do not appear to be engaging them with regard to their systems, practices and lending policies with a view to ensuring better transparency and adherence to best practices.” The RBI has made these observations on the basis of report of a joint fact-finding study on microfinance conducted by itself a few major banks.  It had also asked all scheduled commercial banks to take necessary corrective action where required.  The timing of the circular — which was sent a couple of days back to banks — was crucial as the RBI is currently studying recommendations of Malegam panel on MFIs and is expected to announce a policy shortly. The panel had suggested that creation of one or more ‘Domestic Social Capital Fund' may be examined by the RBI in consultation with the Securities and Exchange Board of India. At present, over 75 per cent of finance of NBFCs operating in the MFI sector is provided by banks and financial institutions, including SIDBI.  As of March 2010, the total outstanding loans granted to MFIs were at Rs 13,800 crore. In addition, banks were also holding securitised paper issued by NBFCs to the tune of Rs 4,200 crore, according to the Malegam report.

O P Bhatt's mission accomplished

Despite his run-ins with RBI, the State Bank of India chairman has managed to keep the public sector behemoth ahead of peers.  The chairman’s angst sums up the public display of the uneasy relationship between the country’s largest bank — State Bank of India — and the Reserve Bank of India (RBI), in the last couple of years over several issues, including the so-called teaser home loan rates (Bhatt, of course, has serious reservations over the term. He says he is not teasing anybody), higher provisioning coverage, guarantee to bonds issued by Tata Motors, etc. But more of that, later.  Even his worst detractors can’t deny that Bhatt, who is due to retire in March after a five-year term, has been able to turn SBI from a lethargic elephant to one that can dance. When he took over the reins in June 2006, the usual lament about SBI was: “It is too slow and past its prime. Soon, the nimble-footed private banks will go ahead.”  The numbers supported this argument. ICICI Bank was a serious threat. In June 2006, SBI’s total business stood at Rs 639,817 crore. ICICI, though behind, was closing in with a much faster growth rate. Its total business stood at Rs 330,490 crore. Analysts assumed it was only a matter of time – may be, another five years – before the private sector bank became the number-one bank in the country.  Bhatt’s appointment wasn’t a smooth affair, either. Yogesh Agarwal, then managing director of State Bank of Patialia, was considered a strong contender for the top position. But Bhatt pipped him to the post. Though Agarwal became the managing director of SBI in October, he moved to head IDBI Bank in July 2007. Internally, the bank was grappling with many issues. For one, it had serious software problems that were not allowing it to roll out core banking solutions. This had to be addressed on a war footing, since core banking solutions were the backbone required for any scaling up and offering value-added services to corporate clients. Bhatt evaluated the situation for the first three months. Then, he asked the software vendor, Tata Consultancy Services, to rectify the glitches. Then, the business process re-engineering process plan was started at branches. This involved training every staff and redesigning the layout of branches to make work a little better, faster and cheaper. He put in place capital-raising plans to support growth for the next four-five years. SBI raised Rs 16,000 crore in March 2008 through rights issue. At present, the bank has been working on another rights issue to raise about Rs 20,000 crore by March. Banking analysts say this capital should support its growth plans for another five years. “SBI has recorded a consistent growth in business in the last four years. The credit to deposit ratio of 77 per cent indicates efficient deployment of resources,” said D R Dogra, managing director of ratings agency CARE. Other important measures include an aggressive focus on the retail customer (the introduction of teaser loans being one such example); Parivartan I and II — programmes for employee motivation and skill set improvement; Udan — preparing a pipeline of future leaders at both senior and middle levels. These have improved the perception of SBI among both peers and analysts. He resumed clerical recruitment, which had been frozen for over a decade, in view of growing business. Importantly, the process of consolidation within the SBI associates was started. He merged State Bank of Saurashtra and State Bank of Indore with SBI. “This will improve the bank’s operating efficiencies,” added CARE’s Dogra. Many, however, say the SBI chairman could have handled his relationship with the regulator with a little more finesse. “He could have easily avoided the in-your-face and aggressive approach with the regulator. That had to deal with the banking industry as a whole,” said an observer. But Bhatt remains adamant and says he has done nothing wrong. “Many Indians own homes because of SBI. I am not fighting with RBI, but only clarifying... we only gave discount on the rate for the first two-three years and at higher than the cost of my funds. So what is wrong in what SBI does?” Bhatt said, while admitting that there were quite a few other issues on which he “differed” with the regulator.  Besides the teaser loan, the bank faced regulatory ire for guaranteeing Tata Motors’ debenture issue of Rs 10,000 crore and overall provisioning of 70 per cent for bad loan portfolio. The empire struck back. RBI was highly critical of the bank’s performance, including its financial health. Consequently, it downgraded the bank’s CAMEL (capital, asset quality, management, earnings, liquidity and systems and control) ratings from B to B- in an internal report for the year ended March 2009. There were internal rumblings too. When Bhatt restructured operations at state-level units, popularly known as circles, by dismantling a decision-making layer (zone) headed by deputy general managers, there was again a lot of criticism. While work would be sped up by cutting on red tape, it put immense pressure on general managers. The jury is out on whether or not this has made the bank more efficient.  A top official of the bank, under condition of anonymity, says: “Bhatt has improved the bank’s image and introduced aggressiveness. The performance, in terms of market share, speaks for itself.” In the same breath, however, the official admits that the down side of his leadership style has, perhaps, weakened the collective decision-making culture at SBI.  The good news: SBI continues to be at the top of the table. In December 2010, SBI’s total business stood at Rs16,19,950 crore, compared to ICICI Bank’s Rs 424, 439 crore. Of course, ICICI Bank took a conscious decision to shrink its balance sheet size to manage the adverse effects of exponential growth and global financial crisis. Jamal Mecklai, chief executive of Mecklai Financials, says: “During Bhatt’s regime, SBI has become more competitive in a market (like money and foreign exchange markets, and advisory services) where foreign banks and Indian private banks were very active. This helps expand the revenue base.” The fear: His aggressive style may have compromised the bank’s standing with RBI. In addition, some of the asset quality, especially the restructured portfolio (part non-performing assets and part standard assets) may be concerns in the future and hurt profitability – a big challenge for the next chairman. But on March 31, when Bhatt retires as chairman, he will have one satisfaction – no one calls SBI laid back anymore.

SBI launch ‘Tiny card’ scheme in Dimapur

The State Bank of India launched ‘SBI Tiny no frills account’ in Dimapur on Wednesday, February 16. It is part of the Reserve Bank of India’s ‘Financial Inclusion Programme’.  “The State Bank of India with over sixteen thousand four hundred plus branches has taken up this challenge by introducing `SBI Tiny no frills account` for the urban slum communities & Rural India. In this new account there is no need of `KYC` (or Know Your Client) documents and the account can be opened with a zero balance. In this account one can deposit or withdraw from Rs.10/- to Rs.10,000/- the upper limit for this account is Rs.50,000/-. Bank has various loan schemes to cater different needs of rural farmers and urban slum based persons.” For this programme the SBI has tied up with NGO’s who will play the role of ‘Customer Service Providers’ or rather work like a local branch. In this way the NGO’s will also benefit while the “RBI will be benefited as it is making this database for the (Unique Identity Number) UID scheme of the Government of India.” “The aim of this unique scheme is to cover as many of the poor unbanked population in the country.” In Nagaland, Thahekhu village became the first place to have the facility of this unique scheme today, in the form of a ‘Customer Service Point’.  It was launched in the presence of SBI officials of Dimapur. The Tiny Card with biometric identification is SBI’s answer to the challenge of financial inclusion of one lakh villages in the country.  SBI had recently announced plans to cover one lakh villages through the extensive network of business facilitators and business correspondents. Among other benefits, the cards are currently being used as a means of payment of government benefits directly to the poor persons, such as pension payments and wages under the rural employment guarantee programme. SBI is also looking at adding facilities like fund transfers through the Tiny cards. The cards also provide services like micro savings, micro credits, micro insurance and utility payments.

New norms on pension liabilities to hit profits

A new rule on how banks should expense pension costs is likely to hit profits of many public sector lenders in the fourth quarter.  Some of the country’s top banks have already begun internal exercises to estimate how much money they will have to put aside this quarter to meet the new norms on providing for pension liabilities, said senior officials.  “A clear picture will emerge only at the end of this quarter when we take into account the actuarial provisions,” Punjab National Bank (PNB) chairman and managing director K.R. Kamath said, and added that he hopes that there will not be any “disproportionate increase” in provisions. The genesis of the problem is an agreement between public sector banks and employee unions in 2009 that allowed bank staffers, who had initially opted to get a single lump sum payment on retirement, to shift to regular pension payments. Besides, in an unrelated development, the government also increased the maximum gratuity paid to departing employees from Rs.3.5 lakh to Rs.10 lakh, following a proposal in the 2010 Union budget. Both have increased the payouts to be made to retiring and retired bank employees. Public sector banks were worried that higher pension and gratuity liabilities would eat into their profits this fiscal because of provisioning requirements. On 9 February, the Reserve Bank of India (RBI) told banks they could expense their new pension costs over five years in the case of existing employees rather than make a one-shot provision that would destroy their profits. However, the accounting breather has not been extended to pension payments to retired employees, whose numbers are unofficially estimated to be around one-fifth of the current staff strength of public sector banks.  The sting in the tail has taken bankers by surprise. They have petitioned RBI through the Indian Banks’ Association, an industry lobby, to relax this norm. However, a senior central banker shot down the possibility of a further relaxation in the pension accounting requirements. At the sidelines of a conference organized by Tata Consultancy Services Ltd in Mumbai on Tuesday, RBI deputy governor K.C. Chakrabarty told Mint that it is the “management’s discretion to provide for the amount”, and that it is “perfectly legal” that banks should provide for retired employees. Calculating the provisions banks will have to make this quarter—and, hence, the precise effect on their profits—is a complex task involving assumptions about the number of retired employees having moved from a lump sum payment to annuities, their average age, life expectancy and discount rates needed to figure out the present value of all future pension payouts. State Bank of India has its own pension scheme and is not affected by the shift from lump sum payments to annuities. Others such as IDBI Bank Ltd is also not covered by industry-level wage negotiations because of its origins as a development financial institution spun off from RBI. Mint spoke with the top five banks that have offered employees the option to shift to pension payments—PNB, Bank of Baroda (BoB), Canara Bank, Bank of India (BoI) and Union Bank of India—to gauge the hit they might have to take. PNB’s total pension liability is about Rs.3,600 crore. Chairman and managing director Kamath did not want to provide a precise number because the bank is working out its potential pension liabilities. BoB Executive Director R.K. Bakshi said the actual figure is being worked out, but about one-fifth of its employees fall in the retired category. The bank has an estimated additional pension liability of Rs.2,060 crore. Some of this has already been provided for in the previous three quarters. A senior official of BoI estimates the provision the bank has to make in this quarter could be around Rs.450-600 crore. According to Canara Bank chairman and managing director S. Raman, the extra provision towards pension could be as high as Rs.500-550 crore, but he expects the figure to come down substantially when adjusted with gratuity, which has been fully provided for by the bank.  “The net effect could be Rs.100-150 crore in the fourth quarter, which is nothing for a bank of our size,” said Raman. Canara Bank’s total extra liability towards pension is around Rs.2,200 crore.  Union Bank could have to provide anything between Rs.350 crore and Rs.600 crore in the quarter towards pension for its retired employees, according to a senior official. The bank’s additional liability towards pension is Rs.2,400 crore.

Deposit rate on savings accounts: To deregulate or not?

The interest rate on savings bank deposits in India has been at 3.5% since March 2003, before which it was at 4%). In April 2010, the Reserve Bank of India (RBI) had changed the methodology of interest calculation on savings deposits to an average daily basis. For banks, this has effectively increased the savings deposit cost by 50-100 basis points (bps) and overall deposit cost by 10-25 bps. While interest calculation on average daily basis has led to higher earnings on savings deposits for deposit holders, the inflation-adjusted return continues to be negative. Against the 3.5% rate on savings deposits, the average inflation rate in India has been around 5.3% in the last decade, around 5.5% over financial years 2005-10 and around 6.5% over fiscal 2008-11. On multiple occasions, the RBI has expressed its intention to deregulate the savings bank deposit rate and is likely to float a discussion paper on this topic.

Banks bet big on technology to boost efficiency, curb fraud

Both international and Indian banks are fast adopting information technology (IT) to improve efficiency, curb fraud, cut costs, comply with regulatory changes and take their products to the market faster. For customers, the increased IT adoption by banks offers greater convenience, safety and accuracy in monetary transactions. “A bank wants a real-time, unified view of the customer. And the customer wants a unified experience of the bank,” says Sriram Srinivasan, senior vice-president and global banking business head at Wipro Technologies. “Customer-centricity is a key driver. How do you get the right focus, the right services for the business that customers give banks?” Bank customers have various channels of interaction today—automated teller machines (ATMs), the Internet, call centres, branch offices and even mobile phones. A simple text message can effect a financial payment as reliable and secure as with a few mouse clicks on a Web portal. Akhilesh Tuteja, executive director at consulting firm KPMG India, who works on technologies for the banking sector, identifies the several dimensions in which IT is changing the sector. “One is clearly customer service. The second is reducing the cost of doing business. The cost of processing a cheque leaf is several-fold over the cost of an electronic fund transfer.” The third dimension is risk management. Cellphone text alerts on credit card transactions have dramatically brought down fraud. On the banking side, analytics available today are capable of preventing even seemingly innocuous but fraudulent transactions. If a credit card is swiped in Bangalore and an hour later in Malaysia, a bank’s IT system will block the transaction. “It knows that you can’t get to Malaysia from Bangalore in an hour,” says Tuteja.  good part of the banking system in India has gone in for integrated core banking, the platform that offers a unified view of customers. A key challenge lies in standardizing how data is captured. A misplaced initial in a name can compromise a unified view of a customer. A big bet for the future is the creation of so-called digital wallets on mobile phones. Tuteja notes that a convergence of several factors is facilitating such a adoption: “The communication devices, the security on these devices, integration of banking IT infrastructure, and the regulatory framework and guidelines from RBI (Reserve Bank of India) are all in place.”

How Bhave’s Term was Regulated at Regulator !

C.B.Bhave, the Chairman of India’s securities market regulator, Sebi, will step down on Thursday after three years on the job, raising questions on the relative brevity of his tenure. The heads of other financial regulators such as the Insurance Regulatory and Development Authority (Irda), and PFRDA, the regulator of pensions, enjoy five years at the helm. The circumstances under which the government decided to limit Bhave’s term remain unclear, a number of officials said. Three people familiar with decision-making at India’s ministry of finance in 2009 and 2010 have told ET that the government had decided to extend his term by two years, only to abruptly change its mind. Bhave, who has been praised by many for his stewardship, will be succeeded by UK Sinha, the head of UTI Mutual fund. Sinha also has a three-year term though the government can extend it by two more. Around August-September 2009, soon after the government decided to provide a uniform five-year term for all regulators, the finance ministry asked Bhave and the other full-time members on the Sebi board if they were agreeable to serving for two more years. After they concurred, the finance ministry finalised a note which was sent to the Appointments Committee of the Cabinet, or ACC, for endorsement. The basis of the note was a recommendation by Sixth Pay Commission, which made out a case for a stable term of five years for all regulators. Indeed, the government had prepared the basis for the longer tenure.  In July 2009, it approved changes to Sebi rules relating to the terms and conditions of appointment of the chairman and members to incorporate a five-year term for them. The changes were then notified. But while the proposal was being vetted by ACC — which in this case includes the home minister and the prime minister — it was recalled by the finance ministry and then withdrawn before the end of 2009. The sequence of events indicates that the decision not to extend Bhave’s tenure was not linked to the ugly spat in 2010 between Sebi and insurance regulator Irda over regulating unitlinked insurance plans.  That the government was looking for a new chairman for Sebi became evident only in September 2010 after the formation of a search committee headed by the cabinet secretary. No reasons were assigned for this change of heart and the proposal was never considered again, according to the three persons with knowledge of the circumstances. All three confirmed the sequence of events but declined to go on record given the sensitivity of the issue. A e-mail query to the spokesperson of the finance ministry on Tuesday did not evoke any response.

SLSC Meet at RBI Jammu

The 21st meeting of the State Level Security Committee (SLSC) was held on Tuesday at Reserve Bank of India, Jammu, under the chairmanship of B.R.Sharma, Financial Commissioner (Home), and Government of Jammu and Kashmir to deliberate upon the security scenario in the banking industry. The meeting was attended by Dr. B. Srinivas IGP (CID),   Arnab Roy, Regional Director, Jammu and Kashmir, Reserve Bank of India and senior officers from police department, Airport Authority of India, Railways, Fire and Emergency Services, BSNL, and controlling heads of all the banks. In his keynote address, the Chairman B.R.Sharma called upon all the stakeholders to address the security concerns of the banks and emphasized the need for proper functioning of security gadgets installed at banks. He regarded fake notes to be a major threat to the economy and urged all the stakeholders to intensify necessary actions to curb the menace. Arnab Roy, Regional Director, Jammu & Kashmir, RBI in his opening remarks highlighted the latest developments in the area of currency management. 

Axis Bank launches everywhere teller machine service in Vijaywada

Axis Bank has tied-up with 120 merchants to offer everywhere teller machine facility. Axis Bank has launched its everywhere teller machine (ETM) service in India at Vijaywada, Andhra Pradesh. Debit card holders in Vijaywada, using this service, can now withdraw up to Rs1,000 in cash per day from a point-of-sale (PoS) terminal at select merchant outlets.  Axis Bank has over 180,000 PoS terminals deployed across India. In the first phase of roll-out, Axis Bank has tied-up with 120 merchants to offer this facility and plans to tie-up with 500 merchants across Andhra Pradesh by the end of March 2011. The bank plans to roll out this service in Maharashtra, Tamil Nadu, Karnataka, Kerala, and Gujarat in this fiscal and expects to cover all states by the end of next fiscal year.  As of now the facility of cash withdrawal using plastic cards is available only at automatic teller machine (ATMs) and certain EDC terminals installed at financial institutions exclusively for cash withdrawal. ETM's will ease the process of withdrawing cash for the customers when an ATM facility is not available nearby.  The ETM service will initially be available at Axis Bank EDC machines installed at select merchant outlets. All customers holding a debit card issued in India, as per Reserve Bank of India guidelines can avail this service for which they would be charged up to Rs10 per transaction.

Do Not Pay Money to receive Large Funds from Abroad : RBI Advisory

The Reserve Bank has today once again issued an advisory cautioning the members of public against responding in any manner to offers of moneys from abroad. It has stated that such offers are fraudulent and has advised the public to immediately register a complaint with the local police/ cyber crime authorities when they receive such offers or become a victim of any such fraud. Members of public have also been cautioned against making any remittance towards participation in such schemes/offers from unknown entities since such remittances are illegal and any resident in India collecting and effecting/remitting such payments directly/indirectly outside India is liable to be proceeded against for contravention of the Foreign Exchange Management Act, 1999. They are also liable for violation of regulations relating to Know Your Customer (KYC) norms/Anti Money Laundering (AML) standards. The Reserve Bank has further stated that it does not undertake any type of money arrangement, by whatever name called, and it does not take any responsibility for recovering moneys remitted in response to such bogus communication. For any further clarification in the matter, the Reserve Bank has advised the public to contact  the  officials of the Foreign Exchange Department at its various Regional Offices or at its Central Office, Foreign Exchange Department on telephone numbers 022- 22610589 / 22610618 or 2260 1000 extn. 2772 / 2732 during office hours (9.45 hours to 17.45 hours Monday to Friday) or seek clarification by e-mail . The public may also refer to the cautionary advices hosted on the home page of the RBI website (www.rbi.org.in) as a ticker for more information. The Reserve Bank has stated that it has urged the Indian Banks’ Association and banks to educate their customers to be extra vigilant with regard to such fictitious offers. Banks have also been advised to take up with law enforcing agencies whenever accounts of their customers are misused for such fraudulent activities. The Reserve Bank of India has, on several occasions in the past, cautioned the members of public not to fall prey to fictitious offers / lottery winnings / remittance of cheap funds in foreign currency from abroad by so-called foreign entities/ individuals or to Indian residents acting as representatives of such entities/individuals. Describing the manner in which the fraudsters operate, the Reserve Bank has stated that the fraudsters send attractive offers to gullible public through letters, e-mails, mobile phones, SMSs, etc. To lend credence to such offers, the communication is often sent on/ from letterheads /websites that appear to be like that of some public authorities like the Reserve Bank of India. The offers are apparently signed by top executives/senior officials of such authorities. However, only the names of the officials may be correct but their signatures are faked. The offer document would contain contact details of a so-called RBI officer working in some department in the Reserve Bank. The fraudsters initially ask potential victims to deposit small sums of money for different official sounding reasons, such as, processing fees/ transaction fees/tax clearance charges/conversion charges, clearing fees, etc. The victims are asked to deposit the money in certain accounts in banks. The fraudsters often have multiple accounts in the name of individuals or proprietary concerns in different bank branches for collecting such charges. Often gullible genuine account holders are persuaded by the fraudsters to lend their accounts for such fraudulent activities on the promise of receiving some commission. Once the initial amount is deposited, demands for more money follow with more official sounding reasons. After accumulating a sizeable amount in these accounts, the fraudsters withdraw or transfer the money abroad and vanish leaving the victims in a lurch. Many residents have already become victims and have lost huge sums of money by falling for such fictitious offers.

Banks likely to get subsidy of`Rs.140 for each no-frills account

Banks will likely get a subsidy of Rs.140 from the government for each so-called no-frills account they open, according to top bankers and finance ministry officials. The move will make banking accessible to many of India’s unbanked and help banks meet their target of opening, by 2012, 50 million such accounts in 73,000 villages with a population of at least 2,000. The target was set by finance minister Pranab Mukherjee last year; subsequently, the Reserve Bank of India (RBI) had asked banks to submit reports on how they planned to achieve the target. An official at the Indian Banks’ Association, a banking lobby group, said the government could give banks a subsidy of Rs.140 for every account. “It may come in this budget; that’s what we have been made to understand by finance ministry officials,” added this person, who did not want to be identified.  Two finance ministry officials said that the issue was being seriously considered as recently as December. The officials couldn’t be reached this week because they have been quarantined in the run-up to the presentation of the Union budget on 28 February.  To be sure, the government doesn’t make any promises on budgetary provisions, so there’s no certainty that Rs.700 crore (for 50 million no-frills accounts) will be earmarked for banks. Mint had first reported the possibility of such a subsidy on 2 October.  No-frills accounts allow customers to have zero balance, and also offer limited facilities. They are targeted at first-time customers whose banking needs are rudimentary. Between November 2005—when RBI introduced them—and March 2010, at least 50 million such accounts were opened.  Bankers say just around five million of these accounts are active, and that the low volume of transactions on some other accounts—sometimes, a mere Rs.10 is transacted—makes maintaining and servicing them unviable for banks. They have repeatedly asked the government to chip in, at least with the initial cost of Rs.200-300 they incur in opening an account.  While the subsidy, if it happens, will help, banks will also benefit from the Unique Identification Authority of India’s Aadhaar programme that is seeking to give every Indian a unique ID. This number is good enough to meet the know-your-customer norms of banks, thereby making opening accounts easier for the unbanked. The agency is also working with several government departments to see whether wages under the job guarantee scheme, or subsidies can be directly transferred to the bank accounts of the beneficiaries. This could ensure that more no-frills accounts remain active. Financial inclusion remains one of the United Progressive Alliance government’s focus areas. Last week, it launched a campaign to help small farmers borrow low-cost funds from banks—a move that will prevent them from falling into the clutches of moneylenders, who lend at usurious rates. Banks have been asked to cover all unbanked areas of the country, either directly or through agents. Bankers say the task is a challenging one. In a speech in November, RBI Deputy Governor K.C. Chakrabarty said that out of 600,000 villages in India, only around 50,000 have access to finance and that India has 145 million unbanked households, the highest in the world.

Pre-payment penalty should go forthwith : Subir Roy

The Reserve Bank of India (RBI) is reportedly engaged in active discussion with commercial banks to try and bring within reasonable limits, if not stop entirely, the practice of banks charging a hefty penalty, often going up to as high as 2 per cent or more of outstandings, from borrowers seeking to take their housing loans elsewhere. While this is clearly the right thing to do, it is about time RBI got moving a little faster.  It is now clear that in at least one other instance, microfinance, many of the sector’s present troubles would have been avoided had RBI discharged its regulatory role with greater speed. It is also a bit disingenuous in letting it be known that we do not approve these things and players are advised to change their ways, but leaving matters there indefinitely. The attempt to use moral suasion can be produced as evidence to counter the charge of inaction but if no firm action is eventually taken, then the brazen can get away with continuing to do what they want even though everybody agrees that this is not the right thing to do. Commercial banking is already a restricted market in the sense that you need a licence to run a bank and accept deposits, something that you do not need if you were to, say, manufacture a motor car. If on top of that the incumbent players engage in something which is clearly anti-competitive, then it is the customer who gets the short end of the stick and the overall efficiency of the sector suffers. The fact that the Competition Commission does not think the practice is anti-competitive says more about the Commission than the wisdom of its reasoning. At a time when there is mobile number portability and health insurance portability is round the corner, it is absurd that in a sphere which attracts the most amount of the lifelong savings of a middle class family, housing, restrictive market practices are allowed to continue. Like mobile telecom service providers and health insurance firms, banks have to live by the quality of their service and not anti-competitive practices. If State Bank of India offering teaser rates has not caused HDFC to go out of business, there must be a reason why people are willing to pay more to still develop a long-term relationship with HDFC. Two reasons are cited by banks for charging penal rates for pre-payment of a housing loan by a borrower seeking to change bankers. One is the original lender loses on the processing expenses that it had incurred on sanctioning the loan. This is fair and refund of the processing cost should certainly be in order in case a loan is prepaid soon after its disbursal. But this is a finite cost — how many man hours do you really need to process a loan, what with technology reducing costs? — which is independently computable and can be levied according to norms laid down by the regulator. But it is likely to be far lower than the Rs 40,000 that a borrower will have to pay if she pre-pays an outstanding of Rs 20 lakh which can be taken to be a rough median figure. The second argument holds even less water. Banks claim that they will land in asset-liability mismatch if a long-term borrower, say someone who has taken a 20-year housing loan, walks away as the bank will lose the asset against which it will have created a liability of similar tenure. The fact is, long-term lending by commercial banks which live mostly by taking short-term deposits, invariably leads to asset-liability mismatch. Banks are living with this and the regulator is allowing them to do so. It is for this reason that earlier there were term lending agencies in the shape of development financial institutions which lent long term and banks lent at most medium term. The situation will change when there is an active long-term debt market where pension funds can park their corpuses and banks float paper to access those resources. There is one other reason why levying of exorbitant pre-payment penalties should be outlawed. This practice makes for a lethal combination with another unhealthy practice — teaser rates. The current position is that a bank can induce a borrower to take a long-term housing loan by offering a teaser rate and then slap a sharp pre-payment penalty on anyone seeking to go elsewhere later when interest rates start going up. Both of these practices should be disallowed. Instead, RBI is allowing both to prevail even while making noises that it does not approve of them. In fact, the banking regulator can go a step further and take some innovative measures that will give retail customers of real estate a better deal and, what is systemically more important, spread a superior culture among real estate companies that makes for better health in the sector. Realty firms that give their ordinary customers a transparent and fair deal are likely to have greater integrity, be sounder and make for a more stable industry. RBI can well say that its primary job is to worry about the banking sector and not the real estate sector, but it does have a developmental role and can take a legitimate interest in the health of an asset class with a long life. It can, for example, tell banks that they should encourage realty firms that borrow from them to ensure two sound practices. One, mention the carpet area along with whatever else they want to like super built-up area while selling an apartment. Two, offer a warranty for a reasonable period, indemnifying the buyer against manufacturing defects. This will be as revolutionary as feasible.     

Students visit RBI Kanpur

A group of students from a school visited the Reserve Bank of India on Tuesday to study its functioning as part of the bank's financial literacy programme.  Shri N.K. Sethi, General Manager, RBI, Kanpur inaugurated the financial literacy programme.  Bank officials gave an overview of the functions of RBI and insights of currency management and foreign exchange management to the students.  Short films on working of RBI were also shown to the students. The youngsters got the opportunity to visit the exchange counters and coin-vending machines, which was a memorable experience for them.  The financial literacy campaign is organised by RBI for different target groups like students, women, rural populace and senior citizens to impart knowledge about RBI.

No cap on MFI interest rates

Amidst hue and cry over micro-finance institutions (MFIs) charging the rural poor exorbitant interest rates, Reserve Bank of India norms continue to allow these entities a free hand in determining their charges. The banks lending to MFIs too continue to have full discretion in fixing their rate of interest.   RBI has issued a latest master circular reiterating its earlier stand on micro-credit on February 14. Master circulars are like ready-reckoners on RBI rules related to a particular aspect. MFI sources said the latest circular removes doubts whether a cap on their rates was in offing, hinting there was a chance of upward revision now. Farm activists of the region, on the other hand, are crying foul, saying finally MFIs were replacing the usurious moneylenders in villages.  The circular said the interest rate applicable to loans given by banks to micro-credit organisations or by micro-credit organizations to self help groups (SHG) or their members would be left to their discretion. At the same time, the circular said competing MFIs were operating in the same area trying to reach out to the same set of poor. This had resulted in multiple lending and overburdening of the rural households.  MFI lending is divided into loans to SHGs mainly run by women and having a common bank account and joint liability group that need not have a common account. D Sathiah, head of strategic services of Basix, a NBFC engaged in micro-lending, said with this circular there were chances of the rates going up by 2% as even the banks might be now charging more.  He said the circular amounted to reiteration of the earlier status while the Malegham Committee on micro-finance had recommended MFIs should charge up to 24% though not directly mentioning a cap should be imposed. However, he also said that there was negligible lending by the banks to MFIs that also meant there might not be much change.  Moin Qazi of Asia Pragati, also a MFI, said that a cap should have been imposed on lending rates. MFIs get funds at around 12% from the banks but lend at around 24%. The rates were as high as 32% before the issue came into limelight. Even as a higher rates were needed to cover defaults, a spread of almost 100% of the cost of the funds was too high, he added.  Farm activists say that the move would only add to the farm distress. States were preparing laws to control MFIs with Andhra Pradesh already having put in a place a regulatory body, the circular would shield the MFIs, said Kishore Tiwari of Vidarbha Jan Andolan Samiti. He said, "there is an urgent need to appoint a regulator for this sector."

9.5% interest on EPFO may get nod

The Employees Provident Fund Organisation ( EPFO) stood its ground on offering 9.5% interest to over 4.71 crore subscribers with Labour and Employment Minister Mallikarjun Kharge expressing hope that the finance ministry will shortly give its concurrence to the proposal. The Finance Ministry has to give concurrence to the rate of return decided by CBT and notify allowing tax exemption on the entire such earnings on PF deposits.  Downplaying the ongoing tussle between the two ministries over hiking the interest rates on PF deposits, Kharge said there was " no tussle between the two ministries over giving 9.5 per cent interest rate." Following discovery of Rs 1,731.57 crore in suspense account, the EPFO trustees favoured raising the rate of interest on provident fund deposits to 9.5 per cent for its 4.71 crore subscribers from 8.5 per cent which is being paid by EPFO since 2005- 06.

Is a further hike in interest rates by the RBI required to keep inflation in check?

The majority concurs that the Reserve Bank of India should increase rates.  The central bank raised interest rates six times in 2010 to help tame inflation. But analysts are divided over whether further rate increases will help in combating inflation. The problem now is not demand-pull inflation. Food prices, which are stoking inflationary expectations in the economy, are being driven by supply bottlenecks. An increase in key rates will do little to check food inflation. Further rate increases will only take a toll on India's growth story just when the economy is recovering from the slowdown. The growing interest rate differential between India and the US will also attract a torrent of capital, putting pressure on the rupee and hurting the interests of exporters.

RBI may go for further monetary tightening measures: PMEAC

The Reserve Bank may take further monetary tightening measures to tame inflation which stood at 8.23 per cent in January, the Prime Minister’s Economic Advisory Council said today. “RBI will have to take a view looking at level of inflation. It is still at an uncomfortably high level. Some action, continued action, by the RBI (to tighten monetary policy) may be required,” PMEAC chairman C Rangarajan said. His remarks came even as inflation , though down marginally from December, continued to be above 8 per cent, a level where it has stood at since January 2010. The RBI has already hiked its short-term lending and borrowing rates by 25 basis points at its third quarterly review last month to tame inflationary pressure.  The apex bank has also termed inflation control as its topmost priority.  Asked about the fall in inflation numbers in January, Dr. Rangarajan said: “In some ways, it was expected. We can see inflation falling to 7 per cent by March.”  At last month’s review, the RBI had revised its inflation estimate to 7 per cent by March-end, from the earlier 5.5 per cent.  Inflation declined marginally to 8.23 per cent in January from 8.43 per cent in the previous month, as prices of certain commodities like wheat, pulses and sugar eased, although essential items like onions and other vegetables continued to remain firm. Besides, food items, many experts have also voiced concern over global crude prices which have crossed a 28-month high at $ 102 per barrel on account of political instability in the Middle-East, specially Egypt.

AP insists it won’t repeal law on MFIs

Andhra Pradesh insists that it won’t change a stringent new law that has brought the activities of microfinance institutions (MFIs) to a virtual halt in the state that accounts for one-fourth of the Rs.20,000 crore industry.  This runs counter to the conclusion of a panel set up by the Reserve Bank of India (RBI) that the state law “will not survive” if the recommendations it has made are accepted. “That does not change our stand,” Reddy Subramaniam, principal secretary of the Andhra Pradesh government, said in a phone interview. “We are fully aware of the situation.” He was asked whether the panel recommendations covering contentious issues such as high interest rates and over-lending would suffice to replace the state Act. RBI is currently in the process of studying the proposals made by the Y.H. Malegam panel on MFIs. Top central bank executives, including Deputy Governor K.C. Chakrabarty, are likely to meet Andhra Pradesh government officials and senior bureaucrats of some other states on 22 February to discuss the effects of dual regulation, according to two persons familiar with the development. Subramaniam confirmed that RBI has called a meeting on 22 February for feedback from the Andhra Pradesh government on the Malegam committee report. The banking regulator may seek a consensus on MFI regulations by asking states not to promulgate separate laws on the sector, said one of the persons cited above. “This (states having separate regulations) can create huge difficulties for MFIs operating in multiple states,” said the person, who heads a Hyderabad-based MFI. Nearly 80% of the industry is controlled by MFIs that are incorporated as non-banking financial companies (NBFCs). A proposed Central microfinance Bill, yet to be tabled in Parliament, envisages the National Bank for Agriculture and Rural Development as the regulator for smaller MFIs.

Cheque mate

Two months after the Reserve Bank of India (RBI) introduced the new guidelines for the Cheque Truncation System (CTS) in the National Capital Region, some customers have had a nasty surprise: Many cheques started returning to issuers, due to alterations and over-writing in them. The CTS is an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically. In this process, the existing system of settlement of payment on the basis of physical cheque movement is eliminated. The technology was introduced in the NCR and will be subsequently implemented in Chennai by the middle of the year and in other places like Mumbai. This will minimise the scope for frauds and provide benefits to both banks and the customers. As a result, any cheque which has over-writing or other corrections will be returned to the issuer of the cheque. However, changes or correction can be done on dates and for any other changes, one needs to issue a fresh cheque. The cheque images captured at the presenting bank in the NCR are transmitted to the clearing house for onward transmission to the payee or drawee bank. It is the responsibility of the drawee bank to capture the inward data and images and generate the return file for unpaid instruments. The electronic image of the cheque is sent to the drawee branch along with the image of the deposit slip which is clipped with the cheque by the customer. CTS reduces the scope for clearing-related frauds and minimises the cost of collection of cheque. For the bank, the benefits would be immense which would help them to introduce new products and optimise resources. Globally, CTS is being practised across many countries for faster clearing of cheques. The RBI has given a directive to banks prohibiting alterations/corrections on cheques cleared under the image-based CTS. The central bank has also clarified that rule does not apply to cheques cleared under other clearing arrangements such as MICR clearing,non-MICR clearing, over-the-counter collection (for cash payment), or even for direct collection of cheques outside the Clearing House arrangement. Diwakar Nigam, managing director of Newgen Software, the company which has developed the CTS software in NCR, says the system offers better reconciliation and will help prevent fraud. “It will also help a customer to get clearance within NCR in one day’s time and bring in efficiency in the process. It will also reduce the heavy paper-load as the process will be completely digitalised.” He says the second stage will cover Chennai and other southern regions and then to Mumbai. However, it will take three to five years to implement the process across the country. Realisation of proceeds of cheques can be done the same day itself and not 3-4 days which is currently the case across the country. For inter-city cheques, it takes two days for the clearance. CTS is more secure and is protected by a comprehensive Public Key Infrastructure-based security architecture which incorporates basis security and authentication checks such as dual access control. It is more secure a system and does not create any delay or inconvenience to the customer in case the cheque is lost in transit. Bankers say customers should use a dark-colour black ink pen while drawing the instruments and utmost care must be taken while using the rubber stamp and it should not be used on the printed code of the instruments. The physical cheque is warehoused with the presenting bank, in case the customer wants to get back the instrument. Experts the central bank must conduct an awareness campaign on over-writing and other corrections on cheques. “People usually sign near the correction as that is what has been done for many years. But with CTS, a cheque which has an alteration, even with a signature beside the alteration the bank will not accept the cheque and instead return it to the customer,” says a banker. Analysts say customers will have to be careful while issuing cheques for credit card payments, utility payments, insurance and investments, as most of them are linked to late payment fees. As a result of the central bank’s new directive, many utilities have been turning away cheques with any form of correction or alteration even if the changes were validated by the cheque drawer’s signature and that too in places either than the NCR. To avoid any late payment charges, they must pay well before time so that in case the cheque is returned, the customer will have enough time to issue a fresh cheque.

Inflation eases, but no one’s ready to bet it’s a trend yet

Headline inflation rate based on wholesale price index (WPI) did show signs of easing when it fell to a two-month low of 8.23% in January from 8.43% in December. But not everyone’s convinced the road heads down from here. Going by the naysayers, high global commodity prices and supply side bottlenecks could throw surprises going forward. “As of now, inflation has probably peaked out. But we will need to keep an eye on global commodity prices and supply side bottlenecks,” said Anubhuti Sahay, economist, Standard Chartered Bank. A Prasanna, economist, ICICI Securities Primary Dealership, said, “In headline terms, inflation is going to ease, but the point is it would not come down too fast. It will come down only gradually.” This means inflation will continue to be a cause of concern for the Reserve Bank of India (RBI). A few economists in fact feel WPI inflation will rise again.  “February 2011 headline inflation can rise back to about 8.50%. Even though food inflation is now easing, non-food inflationary pressures remain strong on the back of rising commodity prices globally, especially energy,” said Gaurav Kapur, senior economist with the Royal Bank of Scotland NV. The strength of inflationary pressures is visible from the fact that despite a significantly high statistical base effect of almost 1.5%, the headline inflation in January eased by just about 20 basis points, Kapur pointed out. According to the economists, inflation will be above RBI’s comfort zone of 7% by March and will be hovering in the 6% zone for the entire 2011, forcing the central bank to keep hiking rates further. “Inflation will be about 6% pretty much during 2011 due to which RBI will be concerned,” Prasanna said. Siddhartha Sanyal, chief economist for India, Barclays Capital sees March inflation numbers at 7-7.5%. “Talking about the bigger picture, the stickiness in inflation still remains. In FY12 also, the inflation will remain sticky,” Sanyal said. All the economists DNA spoke to expected the RBI to go for one more hike in the repo rate and reverse repo rate, of 25 basis points each, in the next mid-quarter review of monetary policy to be held on March 17.

Don't malign the MFIs

The controversy over the role of microfinance institutions (MFIs) refuses to die down. While one side believes MFIs are ripping off customers and adding to indebtedness of households, which has resulted in higher suicide levels, the other side presents equally compelling arguments. It points to how MFIs are saving rural folk from moneylenders, how their interest rates are lower than moneylenders, how they're more convenient for borrowers, and so on. While the political class, especially in Andhra Pradesh where MFIs have their largest business, have come down against MFIs, even the Malegam Committee of RBI has seen some merit in the arguments—yet it has put many curbs on how MFIs are to function, on the interest rates they can charge, and so on. While the importance of microfinance in consumption-smoothening should not be underestimated, it has a larger impact when the loans are given for productive assets. Evidence from Bangladesh and Indonesia indicates that high-quality, dependable, receptive and long-term oriented MFIs for the poor can go a long way in improving access to finance (Morduch and Rutherford, 2003). Recent studies have also pointed to the crucial role that can be played by MFIs by providing composite services; given the wide array of financial transactions that typify the financial life of the poor.      

Economists See Rates Rising 1% More in ’11

RBI’s task of controlling inflation, especially since it’s supply-driven, will be more complicated - Economists expect the Reserve Bank of India to raise key policy rates by 50-100 basis points (1 bp is 0.01%) this year after they analysed the latest inflation figures released by the government. The annual inflation rate, measured by the variation in wholesale price indices (WPI), rose 8.3% in January. Though much of the price rise, which has moderated over the previous month’s levels, has been largely due to supply-side factors, economists expect the Reserve Bank of India’s job, which is essentially focused on managing the demand side, to be more complicated.
“The current spell of inflation in India remains supply driven, but an elevated headline print and sticky core inflation will make the job of the central bank more complicated,” said a report by Sidharth Sanyal and Rahul Bajoria of Barclays Capital. The central bank continues to prioritise inflation management over growth concerns. We expect RBI to deliver another 75 bps hike in the repo rate during 2011, taking it to 7.25% by the end of the year. However, given the current structural pressure on liquidity along with high inflation, we think policy rate hikes may no longer be “costless” for future growth,” the report said.  “We maintain our view of RBI hiking by an additional 50bps in 2011. This would take the repo and reverse-repo rates up to 7% and 6%, respectively,” said a report by Rohini Malkani of Citi. “The composition of food inflation reveals that persistent high prices appear to have a structural as well as cyclical component. This, coupled with higher oil prices, is likely to result in inflation being sticky at 6.5-7% with an upward bias through 2011.”  Besides, both HSBC and Deutsche Bank expect RBI to raise rates by 100bps. “We expect the central bank to hike policy rates by 100bps through the course of 2011, taking the repo rate to 7.5% by the end of the year,” said a report by Taimur Baig and Kaushik Das. “We see substantial risks of WPI inflation remaining higher than RBI’s forecast of 7% by end-March 2011. A bigger concern is that from the second quarter of 2011, the base effect would turn adverse and put further pressure on WPI inflation,” they said in the report. “Add to that a likelihood of a nominal hike in diesel (5-6%) and petrol (10%) prices by the middle of the year, there is then little scope of WPI inflation to stabilise below 8% through the course of 2011,” the report added

Khandu urges RBI to ensure detection of fake currencies

Arunachal Pradesh Chief Minister Dorjee Khandu has asked to keep note-sorting machines for all banks in the state to check the increasing cases of circulation of fake currency notes.  Raising this issue during a meeting with Shyamala Gopinath, Deputy Governor, Reserve Bank of India (RBI), at Itanagar last evening, Mr Khandu lamented the fact that even the banks in the state have been mistakenly issuing fake currency notes in absence of proper note-sorting machines and devices. He said the issue needs to be seriously tackled to safeguard the nation’s economy. Expressing concern over the shortage of staff in the banks, he said it is causing severe inconvenience in the customers who stands in long queues to get their work done. The Chief Minister further suggested for increasing the strength of the staff in the banks and requested to conduct recruitment in the state so that more and more local youths could participate in the procedure and get job in banks. During the discussion, the Deputy Governor informed about unscrupulous activities of unincorporated bodies operating in the state which needed to be content immediately by enacting a Protection of Interest of Depositors (in Financial Establishments) Act, setting up of Economic Offences Wing and Framing of Rules under Chit Fund Act, 1982. She said the state government being the administrator under the money Circulation 1978 can authorise an official to initiate section against such bodies. ''Out of 34 unbanked blocks in Arunachal Pradesh, 11 have been selected for opening of bank branches which would be opened by March 2012,'' the Deputy Governor revealed.  She, however, requested the state government to put in place suitable infrastructure and ensure that necessary amenities in terms of road, telephone, electricity, premises and connectivity are in place. She further highlighted the need to implement the Crop Insurance scheme for the farmers of the state for which the union government would be providing 50 per cent and the state government needs to provide the rest. Responding to the suggestion, Mr Khandu agreed to issue appropriate directives to the departments concerned to take up the plan immediately in view of the state facing regular flood problems every year wherein instance of crop damages have become a regular feature. Apart from the regular discussion, issue on setting up of Rural Self Employment Training Institute (RSETI) was also discussed. The RBI sought land for setting up of the RSETI in all districts to which the Chief Minister assured to provide all possible assistance.

Savak Soharab Tarapore blasts inflation-pussyfooting, says RBI failed so far

Former Reserve Bank Deputy Governor Savak Soharab Tarapore has said the "soft and calibrated monetary policy measures" taken by the central bank so far to batten down runaway inflation have failed and has called for more sterner and concerted steps to tackle price rise that has become a national crisis. "There is no alternative to unequivocal and unswerving policy action to tackle inflation that has now become a major structural problem. The efforts of the RBI in controlling inflation have failed so far," he told at a function organised by research agency Dun & Bradstreet at Mumbai over the weekend.  Warning that the government's as well as RBI's pre-occupation with high growth at the cost of inflation will be counterproductive and disastrous, he called for "a proactive, forward-looking monetary policy to batten down inflation and not the baby-step measures as it has been recently doing." Stating we can't get away from the fact that inflation is all pervasive as it has become generalised, Tarapore, who played a key role during his days at RBI in monetary policy, foreign exchange regulation as well as on capital account convertibility, said, "the over 13 per cent food inflation just cannot be wished away as a supply-side problem." "Even after a 4 percentage point slump last week, the number is intolerably high and gnaws into the vitals of large tracts of the population." Arguing that "there is no soft monetary policy" when it comes to fighting inflation, he blasted the belief gaining currency among policymakers that it is possible to curb price rise by resorting to small, calibrated steps thus not hurting growth. "You can't slay the dragon of inflation without hurting growth," he said, quoting economist CA Yandle.  "There is an element of disenchantment with inflation targeting at RBI now. This does not mean it cannot wield a strong monetary policy to control inflation," Tarapore said. "If the timely action is delayed and inflation rises to unacceptably high levels, the monetary policy required is very harsh, as a cold turkey approach becomes inevitable." Stating that the most important remit of any central bank is to keep inflation low, he said, since the Reserve Bank cannot keep prices low by producing more goods, it must ensure that there isn't too much money in the system chasing too few goods. Pointing out that the consumer price index-based inflation is the globally accepted measure of price rise, he said, "the WPI-based inflation, which we follow even now, is a poor indicator of inflation at the grassroots level," and lamented that we are yet to have a consumer price index (CPI), which can be used for policy purposes. Quoting an NCAER study, he said as many as 40% of the households account for only 14 per cent of income, but spend as much as 63% of their incomes on food, leaving little for saving. On the other hand, the top 20% account a vast 52% of total income and bulk of savings and also 45% of aggregate non-food consumption. Warning that the biggest treat to the high growth story is the inflation spiral, he said, "given the large number of the poor in our country, a 6-7% sustained growth with a 3-4% inflation would be preferable to a 9% growth with a 9-10% inflation. "High economic growth with high inflation is not a sustainable policy option," the eminent economist and monetary policy expert concluded.

Banks seek shorter term for tax-saving deposits

Banks have once again knocked on the doors of the Government to reduce the duration of the tax-saving term-deposit scheme to three years from five years. They want this change so that the resources so raised not only support infrastructure lending, which has gained traction over the last one year or so, but also suitably address the duration mismatch between assets and liabilities. Banks have not been able to make much headway in mobilising funds under the tax-saving term-deposit scheme. Given that they could miss out on higher returns should interest rates head north, savers perceive the five years lock-in as too long a duration to commit funds. “The tax savings term-deposit scheme in the current form is not favoured by savers as funds get locked in for five years. As premature withdrawal of the deposit is not allowed, the saver will have to forego an opportunity to earn better returns in case interest rates go up. Further, loan/overdraft against these deposits is not available,” said Mr K. Unnikrishnan, Deputy Chief Executive, Indian Banks' Association. Savers will be willing to park their money in the tax-saving term-deposit scheme if the duration is cut to three years, he added. Banks had made a similar representation to the Finance Ministry last year also. Banks pay around 8.5 per cent interest on tax-saving term deposits. According to the Bank Term Deposit Scheme, 2006, deduction is available on investments under Section 80C of the Income-Tax Act, 1961, on investments (minimum of Rs 100 and up to a maximum of Rs 1 lakh a year) in term deposits of five years' maturity in a scheduled bank. Under Section 80C, premium towards life insurance and unit-linked insurance plans, subscription to public-provident fund, employee's contribution to provident fund, investment in National Savings Certificate and equity-linked savings scheme, and repayment of principal amount in a home loan qualify for deduction (up to a maximum of Rs 1 lakh a year) from a taxpayer's gross total income.

BYST Entrepreneur Awards 2010

Runner up- Ms Madhvi Khandve from Rural Maharashtra (BYST- BoB Entrepreneur) being felicitated by Hon’ble Ms Usha Thorat, Former Deputy Governor, RBI & Pramit Thaveri, CEO, Citi India.Business - Mfg of Ladies Garment at BYST Entrepreneurs win - Citi-Group Micro Entrepreneur Awards 2010. Award Function on January 27, 2011. at Jamshed Bhabha Theatre, Nariman Point, Mumbai. Every year BYST nominates its entrepreneurs for various national and international awards for entrepreneurial excellence. Citi-Group Micro Entrepreneur Award is one of those. The Citi Micro Entrepreneur Awards program is an endeavor to recognize the spirit of enterprise that has taken persons from poverty to a life of dignity. The awards acknowledge individual micro entrepreneurs, who have exhibited a superior ability to emerge from the below the poverty line through the use of micro-credit to build self-sustaining enterprises, create employment and contribute meaningfully to their communities. This year 6 of BYST’s entrepreneurs have won this prestigious award, for best entrepreneur of the year Out of these 6 entrepreneurs- 5 are the ones jointly supported by BYST & Bank of Baroda under BYST-BoB Entrepreneur Development Program. The awards function was held on Thursday, January 27, 2011 at Mumbai. Hon’ble Mrs. Usha Thorat, Former Deputy Governor, Reserve Bank of India was the Chief Guest at the ceremony. She along with Mr. Pramit Thaveri, CEO, Citi India, felicited the awardees from across all the four regions of the country, East and North East, West and Central India, North and South India. The awards are presented under the categories of National winner, National Runner-up and the Social Responsibility Category winner.

RBI may review KYC norms for tainted cos

The Reserve Bank of India may review ``Know Your Customer'' (KYC) and `"customer due diligence'' procedures followed by banks for loans to companies that have come under the scanner of investigating authorities.    Banks that have lent to DB Realty have said that their funds are fully secured. However, in addition to ensuring security of loans, RBI has asked banks to do ``enhanced customer due diligence'' for loans where a ``politically exposed person'' is the final beneficiary. In the case of DB Realty, the firm had availed of bank loans and had also provided an indirect loan to Kalaignar TV, a company which would qualify under the RBI definition of a `politically exposed entity''. RBI guidelines require banks to get approval from their top management to loans whenever a ``politically exposed persons'' benefits from a bank loan.

‘Cheque bounce cases at place of transaction’

The Delhi high court has ruled that cases of cheque bounce can only be entertained by courts at the place of transaction. The ruling has come in response to an appeal filed by Zeenat Insaf, a resident of Mumbai. She had challenged a Delhi trial court’s jurisdiction to entertain a complaint by Dr Sudanshu Bhattacharya, a cardio thoracic vascular surgeon in Mumbai. Bhattacharya had operated upon Insaf’s father at Breach Candy Hospital.  She had made a payment through a cheque of a bank located in Mumbai. Bhattacharya gave the cheque before his bank in Mumbai. The cheque bounced. The cardiologist contacted his lawyer in Delhi. He sent a notice to Insaf. A complaint against her was filed before a Delhi court on the grounds that the lawyer who sent the notice was located in Delhi. The Delhi high court said that sending a notice from Delhi would not confer jurisdiction on Delhi courts. Delhi courts have no territorial jurisdiction to entertain and try complaints filed by a respondent who is based in Mumbai.

RBI holds district-level quarterly meet

The Reserve Bank of India General Manager Vikram S Bajwa presided over the quarterly meeting of the District level review committee. The District advisory committee was held in the Punjab National Bank zonal training centre in Dehradun on Friday. Addressing senior bank officials,  Bajwa said that banks should work to further improve customer services and ensure their full contribution towards facilitating financial inclusion. He said that banking services should be provided through POS machine/BC module in villages with a population of more than 2,000 and Atal Adarsh villages.  The PNB circle head V.K.Srivastav, officials of various banks in the District, heads and representatives of different departments concerned were also among those present.