Corporates need to spruce up risk management: Gopinath

Reserve Bank of India Deputy Governor Shyamala Gopinath has cautioned that in an open economy like India , there is need for greater recognition of currency and interest rate risks and the risk management in banks and corporate firms need to gear up their risk management practices further in this area. “It is our experience that a large number of corporates still do not have well-designed risk management policies and practices to take care of volatile exchange rate movements and give scant regard to tail risks. There is also need for greater disclosure and adherence to accounting standards for financial instruments,'' said Gopinath who was addressing .Annual Conference of the Foreign Exchange Dealers’ Association of India (FEDAI) on Friday ``Approach to Capital Account Management - Shifting Contours''. There is also need to more comprehensively qualitatively assessment of of India's external liabilities to encompass liabilities of subsidiaries and branches of Indian financial institutions overseas, not in nominal terms but through a risk-based approach on the probability of recourse to parent bank liquidity support, said Gopinath. However, with focus on capital flows on a net basis, it is often not realized that portfolio flows were $174 billion a year over last three years on a gross basis, far outstripping FDI flows at $37 billion a year. In gross terms, over the last five years (2005-06 to 2009-10) FII flows have accounted for 47% of the gross capital inflows to India as against 9% for FDI inflows. This of course has more to do with the nature of these flows with a much larger churn for portfolio capital. High gross flows make economy more susceptible to such reversals and as such we need to continue to maintain adequate buffers, said Gopinath. In the current context, a high current account deficit (CAD) has been absorbing much of the capital flows in aggregate terms. The concerns, however, arise on account of the composition of flows coupled with lower order of reserves accretion and faster increase in external liabilities, added Gopinath. The enhanced exposure to external liabilities is reflected in the sharp increase in the ratio of external debt to foreign exchange reserves from 89.1% of GDP in 2008-09 to 99.1% as at end June 2010. Moreover, the ratio of short-term debt to reserves has increased from 17.2% to 21.0% during the same period. Another issue that may come up going forward relates to repayment of FCCBs. The redemption pressures on account of FCCBs would start building up from 2010-11 and peak in the next couple of years till 2012-13. She further said that there have been some concerns on the declining FDI flows in the recent past though as stated earlier it has little to do with the regulatory framework per se except in certain sectors. The moderation in FDI inflows to India during April-November 2010 has been driven by sectors such as construction, mining and business services.

Technology not reaching customers: Chakrabarty

RBI Deputy Governor Dr.K.C.Chakrabarty has said the benefits of technology adopted by the banks have not percolated in terms of cost, speed and convenience of the customer. The banks should move towards empowering the present day customers of information or digital age by greater choice, greater access, and better, faster, more efficient modes of delivery and service. "Customers are not going back to the old ways of banking. They are moving forward. If the banks do not complement their speed, the customers will pass by,'' said Chakrabarty.

Diesel price may be freed if inflation falls

Dr. Rangarajan, a former governor of the Reserve Bank of India, said headline inflation was likely to come down to 7 percent by the end of March on moderating food prices. Annual inflation based on wholesale prices eased marginally to 8.23 percent in January as against 8.43 percent in the previous month. ‘We have witnessed two years of high inflation. It has been around 7-8 percent. It needs to be brought down to a comfortable level of 4-5 percent,’ said Rangarajan adding the policy markers would continue to tighten monetary and fiscal policy until inflation was brought down to a comfortable level. ‘Inflation distorts the economy. It hits the poor hardest. We have to bring it down,’ he added.

Loans under JNNSM at 5% not violation of base rate norms: RBI

The Reserve Bank today said banks financing power generation equipment under the Jawaharlal Nehru National Solar Mission (JNNSM) at a concessional 5 per cent interest rate is not violation of norms. This financing below the base rate would not be considered violation of guidelines, RBI said in  a statement. "We advise that such lending at interest rates not exceeding five per cent per annum where refinance of Government of India is available, would not be considered to be a violation of our Base Rate guidelines," it said. In the new lending rate mechanism, no loans except few exceptions can be offered below the base rate of a bank. Base rates of most of the banks are 9 per cent. Other category of loans exempt from the guideline include loans to banks'' own employees and loans to banks'' depositors against their own deposits. The Ministry of New and Renewable Energy (MNRE) has formulated a scheme on financing of off-grid and decentralised solar (Photovoltaic and Thermal) applications as part of the JNNSM, it said. Under the scheme, banks may extend subsidised loans to entrepreneurs at interest rates not exceeding five per cent where refinance of two per cent from Government of India is available, it added.

Andhra Pradesh set to usher in new products under new MFI Act

Sensing foul play in the introduction of new products like loans for men and interest-free loans by microfinance institutions (MFIs), the Andhra Pradesh government is set to issue a notification to bring these products under the purview of the new MFI Act. MFIs in the state, whose revenues dropped after the introduction of the MFI Act, were finding new methods to carry on their business by introducing fresh products like loans to men and interest-free loans, a senior state government official said. According to R Subrahmanyam, Principal Secretary (Panchayat Raj and Rural Development), some MFIs are offering loans to the husbands of women members of selfhelp groups(SHGs), saying that extending loans to them will not attract the provisions of the Microfinance Act, which came into existence in December. Some MFIs were considering extending interestfree loans, arguing they would not come under the purview of the Act, he said. “That shows the desperation. When you want to make hyper profits, try to duck and find ways. We will not let that happen. A notification will be issued in a day or two, making it clear that these kinds of loans will also come under the Act,” Subrahmanyam said. The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010 is aimed at regulating the sector by keeping tabs on lending and recoveries by MFIs. It prohibits them from lending to SHGs already covered by the formal banking system, without seeking prior approval from banks.  Share Microfin, one of the largest MFIs in the country, recently launched ‘Suraksha Loan’ exclusively for men. In acircular to its branches, the company said the loan had to be extended to the husband of a woman member of an SHG. The circular stated the outstanding loan would be nullified only in case of death, but not suicide. Sources in SKS Microfinance said extending interest-free loans was a vague idea and one of the 40-odd concepts the company was mulling over.  “Even if they term these loans as interest-free or loans to men, they will attract all sections of the Microfinance Act. It will be viewed as a violation,” Subrahmanyam said.

PMEAC forecasts 9% growth in FY12, pitches for GST rollout, stimulus cut

RBI clarification on forex trading

The Reserve Bank of India (RBI) has clarified that existing Foreign Exchange Management Act (Fema) norms do not allow residents to trade in foreign exchange through electronic or Internet based trading portals.  The clarification comes after some advertisements recently by electronic /Internet portals offering trading or investing in foreign exchange with guaranteed high returns. “Many companies even engage agents who personally contact gullible people to undertake forex trading/ investment schemes and entice them with promises of disproportionate / exorbitant returns. RBI cautions the public not to remit or deposit money for such unauthorized transactions. The advice has become necessary in the wake of many residents falling prey to such tempting offers and losing money heavily in the recent past,“ the central bank said.

Enabling Inclusion - Aman Srivastava

Various studies have revealed that consumption is usually much less volatile than income, indicating a fair pattern of inter-temporal savings, even amongst the poorest households. But despite this active level of financial management, these households have no recourse to formal financial systems. Policymakers in India have recognised that improving current systems and designing new, innovative systems to reach the poor will require radical improvements in cost efficiency and an associated change in the existing set of regulations. The RBI has in recent years put in place several regulations to encourage financial inclusion by granting greater freedom to the concerned players while simultaneously seeking to protect the interests of the target populations. While many of its regulations have created an enabling environment for inclusion, some, understandably, have limited the progress that could have been made. This is an outcome of the ‘Regulator’s Dilemma’, a term coined by David Porteous: How can regulators balance their need to promote broader access to financial services with ensuring the stability of the financial system? This is a fine balancing act, failure to achieve it could lead to the choking of incipient attempts at providing universal access or financial destabilisation and the bankruptcy of the vulnerable. Ultimately, regulations have to be designed keeping in mind the risks involved. The risks will vary with the model adopted, whether the model is transformational or additive to banking. In addition, regulatory coordination will have to be achieved amongst the respective regulators to ensure they are not working at cross purposes. Since the current regulations touch upon the participatory capacities of players across all the concerned sectors, this discussion is segmented according to the regulations applicable to each sector. Which sectors are expected to play a leading role in expanding financial inclusion? Banks and mobile operators will be in the spotlight, along with any other companies that may partake in the business correspondent (BC) model. The chief regulators to walk the tightrope, then, are the RBI, TRAI and to a limited extent, the Competition Commission of India.  Several strides have been taken by the RBI in easing the regulatory environment to enable the entry and scaling up of participants. However, much more still needs to be done to ensure continued growth in this sector. For example, MSPs will have to provide inter-operable services by setting up some sort of clearing/settlement system, which will invariably involve the National Payment Corporation of India as a facilitator. Besides, banks will never have strong incentive to cater to poorer segments as long as their revenues come from floats and not from transactions.  While the RBI is currently marketing the FI paradigm through the bank-led model, it isn’t averse to giving centrestage to non-bank actors. Banks need to act quickly on the privileged position they currently enjoy.  Since financial inclusion through non-traditional modes is a new concept, and banking alliances with BCs a recent phenomenon, much is still to be learned over the coming years about customer protection issues, AML/CFT concerns, and the feasibility of various models. Regulations will have to keep evolving, and it shall be interesting to follow this evolution, which is already in motion and beginning to tangibly modify the financial landscape.

—The writer is an economist at the Centre for Financial Inclusion, Indicus Analytics. You can reach him at aman.srivastava@indicus.net

BoI to cover 400 villages under BC model

In pursuance of the RBI guidelines and instructions to all the bankers operating in the state, the Bank of India (BoI) will cover all the 400 villages in its share, each with over 2000 people, under the business correspondent (BC) model by the end of the current fiscal. The BoI has also planned to further boost up credit lending so that the state's CD ratio increases.  While this would mark the completion of the phase-I of the project, all the bankers have to bring the remaining villages, whatever the size of their population, under the BC model by 2013, said BoI executive director N Seshadri, who is in Bihar in connection with the inaugural launch of the same model at Sakra Mansurpur village in Muzaffarpur district by the RBI Deputy Governor on Monday.

Contenders unsure, new bank licence norms delayed

Draft guidelines on new banking licences have been delayed. According to sources familiar with the development, the main reason for this is that many of the comments received by the Reserve Bank of India (RBI) from various stakeholders on its discussion paper on the issue were contradictory in nature. As a result, the RBI could not come out with the draft guidelines by end-January — as it had said. According to a source in Indian Banks’ Association (IBA), the draft guidelines are expected to come out by the end of this financial year now and after that many players who are eyeing a licence might back out because the government and the RBI are expected to come up with some stiff terms on financial inclusion. “The government does not want new players to enter the banking industry and crowd the metros and big cities. Financial inclusion will get top priority in the draft guidelines,” the source said. In its second quarter review of the monetary policy on November 2, the RBI had said that the draft guidelines shall be put up in the public domain by January-end for public comments. In December, the RBI had released a gist of comments on the discussion paper on the entry of new banks in the private sector. It is now almost a year since finance minister Pranab Mukherjee said in his Union Budget speech on February 26, 2010 that in order to extend geographic coverage by banks, the RBI will consider giving some additional banking licences to private companies and non-banking finance companies. Some experts support the delay in granting of licences.  “If the RBI were to really very clearly articulate what is the responsibility rather than the opportunity, it would be more interesting. Then what will happen is that only those who have the long-term commitment to the economy will come forward. So it is better that the draft guidelines come out that way,” said Ashvin Parekh, partner and national leader, financial services, Ernst & Young. In the last one year, the list of players eyeing a banking licence has increased. It includes large corporates as well as medium and small players.

UCO Bank Adopts Village in Gujarat

UCO Bank in Gujarat state adopted Lakshmipura village with the sole purpose of uplifting the economic conditions of the village and making the inhabitants selfreliant by financing various productive activities and completion of 100% financial inclusion in the village. Bank At this occasion, sanctioned loans to the villagers for various activities and donated computers for use in local school. Seen in the picture are A.K.Bera Regional Director of RBI, Rajesh Kumar, GM, RBI, A.K. Roy, ZM, UCO Bank and others

Microfinance, macro problems

Indian activists protest in front of The Reserve Bank of India against micro finance institutions in Hyderabad.

Read full story...........

THE MICRO FINANCE MESS - DR. N. A. MUJUMDAR

Recent revelations of forprofit Micro Finance Institutions ( MFIs) have exposed naked exploitation by these institutions in the name of financial inclusion. Dr. . V. Reddy, former Governor, Reserve Bank of India ( RBI), recently said that these MFIs are worse than money- lenders. A money- lender lends out of his own money, whereas here, MFIs were actually borrowing money from depositors and banks and then further lending the money. In retrospect, the government of Andhra Pradesh deserves to be congratulated on its 2010 ordinance which spelt out clearly the malpractices of such MFIs. Whereas these Self Help Groups ( SHGs) are being exploited by private MFIs through usurious interest rates and coercive means of recovery resulting in their impoverishment and in some cases leading to suicides..., the ordinance said. This triggered a crisis which almost paralysed for- profit MFIs, with banks reluctant to lend, repayments dwindling and depositors tending to withdraw their money. It is this shock therapy which led to subsequent soul- searching on the part of those MFIs, the promoters of which were fattening themselves off the sweat of poor borrowers. The Microfinance Institutions Network ( MFIN), a grouping of for- profit micro lenders, has now set up a Committee to look into these deficiencies. In fact the clout of these MFIs seems to be so strong that in spite of all that has been now exposed, some influential papers plead: Dont Kill Microfinance. The short answer to such pleas is: We do not want to kill these MFIs but we certainly want to prevent them from killing their poor borrowers. No doubt the for- profit MFIs represent the predatory face of financial capitalism. But this was compounded by the institutional support which was extended to these MFIs. Such support came from the RBI, the public sector banks ( PSBs), NABARD and SIDBI. For instance, during 2008- 09, banks extended loans of something like Rs. 3,700 crore. Why should PSBs extend loans to MFIs at something like 12 per cent, when they were fully aware that these funds would be on- lent by MFIs at 25 to 30 per cent? The answer is that such loans by PSBs to MFIs were treated as riority sector lending. So this had the blessings of RBI. Similarly, some equity or quasi- equity support came from SIDBI and NABARD, of course, at concessional rates. RBI could have stipulated that PSBs should lend only to not- for- profit category of MFIs. PSBs could have also stipulated, on their part, that the on- lending rate of beneficiary MFIs should not exceed say 17 or 18 per cent. This was not done. This systemic support perhaps also lent some respectability to for- profit MFIs. Thus public sector financial resources were used to perpetuate usurious lending practices of MFIs. It is one thing to say that RBI had no stautory powers to regulate MFIs. But was it obliged to support for- profit MFIs? These questions must be answered by Dr. Reddy, during whose tenure the MFI party began. RBI could have stipulated that PSBs should lend only to not- for- profit MFIs, fixing a ceiling on their on- lending rates. This support made the system, in a manner of speaking, a co- conspirator in this business of exploiting poor rural borrowers. Public funds were allowed to generate private profits. RBI has not covered itself in glory in this episode. Because of obscenely high returns, stemming from exorbitant lending rates, for- profit MFIs have become attractive investment destinations for Private Equity and Venture Capitalists. The recent success of the IPO of SKS Microfinance is a case in point. It attracted high profile investors like billionaire George Soros, venture capitalists Vinod Khosala and Infosys Founder Narayan Murthy. Alluding to this transformation of the humble animal microfinance, Muhammad unus, the father of microfinance movement said: “ It is a complete detour and nothing but a quitting of microfinance mission.” Basically, lending to the rural poor at 30 or 40 per cent defies all economic logic. Our small rural borrowers are not Schumpeterian mini- heroes, who can make the project or activity for financing what they have borrowed, financially viable. In fact, by inflating interest cost, we are building ‘ ab initio’ non- viability into the project. Secondly, the engagement of for- profit MFIs with borrowers has been shallow based on touch and move on business models shorn of any development content. The average loans per client in both MFIs and SHGs have been low, between Rs. 3,500 and Rs. 5,000. The duration of the loan is short, typically one year or less. The small loan size and short duration do not enable most borrowers to do much except to ease liquidity problems.

(Dr. Mujumdar is editor of the Indian Journal of Agricultural Economics.He has worked for the RBI and has advised the central banks of Zambia, Mauritius, Tanzania, Belize and Cambodia.He was consultant to the World Bank, the FAO and ESCAP)

Non-review of MFI's programs by banks draw RBI's ire

The Reserve Bank of India is pulling up banks for not adhering to best practices and slacking on their role of reviewing microfinance institutions’ operations after extending credit support, reports The Hindu Business Line. The newspaper is quoted as saying that the apex bank sent a circular to the public sector lenders, mentioning that they were “not engaging themselves in capacity building and empowerment of the groups to the desired extent.''  At present, MFIs are disbursing loans within 10-15 days of the formation of new groups. However, the practice is to take six-seven months of 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 is reported to have said in the paper.

Finmin weighs extension for Union Bank, LIC chairmen

After putting new SBI and a new SEBI chiefs at helm, the finance ministry is currently evaluating whether to give extension to the tenures of LIC chairman T.S.Vijayan and Union Bank of India CMD M.V.Nair - both will be completing their respective five-year tenure but will be having residual services to reach 60. Vijayan, who recently had to do a lot of firefighting after Central Bureau of Investigation arrested officials from LIC's investigation department and LIC Housing Finance CEO R.R.Nair in bribe-for-loans cases, will be completing five years in April but will have two more years to reach the superannuation age of 60. Similarly, Nair will ending his five-year tenure at UBI in March but will have one more year to reach the retirement age of 60. It has not been an easy decision for the finance ministry to decide whether to go for extension in both Vijayan and Nair's cases as not giving extension after 'a tenure of five years' has become a parctice for so many other important appointments in financial sector and other public sector enterprises. Usha Thorat, Deputy Governor, Reserve Bank of India, Sarthak Behuria, CMD, India Oil, Ashok Sinha, CMD, Bharat Petroleum Company were earlier denied extension though all of them had residual services to reach 60. Sources point out that initial round of discussion among the top official of the ministry hasn't found favour for giving extension to both Vijyan and Nair.. But finance minister Pranab Mukherjee is yet take a call. There are indications that Vijayan may be rehabilitated in any other top posts like UTI Chief which has fallen vacant after U.K.Sinha's appointment as SEBI Chairman or a member in the Securities Appellate Tribunal. Similarly, Nair may be shifted as the executive chairman of Star Union Life Insurance, a life insurance joint venture among Bank of India, Union Bank of India and Japanese major Dai-ichi. The contenders for the LIC chiefs in terms of seniority are DK Mehotra, Thomas Mathew, AK Dasgupta - all are currently LIC's three managing directors. Finance ministry sources point out there will be a decision about the LIC chief soon. Meanwhile, the ministry is also in the process of filling up posts of UTI chairman, Nabard chairman, CMDs of Sidbi and ECGC. For top posts of Nabard, the name of Prakah Bakshi, one of the junior most executive directors in Nabard is doing the round, sources point out. If selected Bakshi will be superseding many of his seniors including SK Mitra who is the senior most ED in the organisation. Incidentally, KG Karmakar, managing director of Nabard who has almost completed five years in the post was excluded from the exercise to choose chairman as he has one and half years of service left, falling short of the two year of residual service norms for selection of Nabard chief.

April 1 date hint for MFI interest rate cap

The Reserve Bank of India may impose an interest rate cap on loans by microfinance institutions (MFIs) from April, in line with the recommendations of the Malegam committee last month. According to RBI Deputy Governor K.C.Chakrabarty, the apex bank has commenced talks with the stakeholders on the implementation of the Malegam proposals. “Some part of the report such as interest rate will be applicable from April 1,” he said. He, however, said officials at the RBI were still discussing the proposals and no binding decision had been taken it. The committee, headed by Y.H. Malegam, proposed the capping of interest rate charged by the MFIs at 24 per cent. Its recommendations followed a regulation by the Andhra Pradesh government restraining the MFIs from adopting strong-arm tactics to facilitate loan recovery. It also stipulated that the loan repayment cycle should at least be monthly from the earlier practice of weekly collections.

India Infoline launches financial literacy programme

Brokerage firm India Infoline (IIFL) on Friday said it has launched a financial education and awareness initiative called FLAME (Financial Literacy Agenda for Mass Empowerment), with an aim to improve financial literacy across over 1,000 cities in India. The company has a budget of Rs 25 crore for its initiative towards the corporate social responsibility, IIFL said in a statement.  “We shall leverage our network of 3,000 locations, 15,000 employees and 1 million customers across the country to reach out to small towns as well as under-privileged sections of the society. We have set aside a budget of Rs 25 crore, in addition to efforts of a crack team of 500 from the company,” IIFL Chairman Mr Nirmal Jain said. The company’s programme will comprise a mass media campaign, an online portal, a helpline, ground level financial awareness workshops, connecting with students at B-schools, books and training via expert sessions on financial literacy, the statement added. FLAME was launched by Reserve Bank of India’s Deputy Governor Mr K C Chakrabarty and HDFC Chairman Mr Deepak Parekh. Commenting on the occasion, Mr Parekh said “India cannot grow at a sustained high pace without greater financial inclusion and hence a significant investment in financial literacy is no longer a policy option, but a compulsion.” As a part of this new initiative, IIFL will setup a helpline to answer queries pertaining to financial services, which will be manned by the company’s trained professionals, the statement said.

Beyond Core Banking

Seen in the photograph is Dr. K. C. Chakrabarty, Dy. Governor, Reserve Bank of India, along with M. V. Nair, Chairman & Managing Director, Union Bank of India, S. S. Mundra, Executive Director, Union Bank and B. Sambamurthy, Director, IDRBT during the Executive Round Table on ‘ Beyond Core Banking’ organised by Union Bank and IDRBT in Mumbai. This was a unique effort for benefit of the banking community to draw a road map for better customer services and business growth by leveraging investment already made in Core Banking System.

RBI starts discussion with stakeholders on Malegam report

Reserve Bank of India (RBI) Deputy Governor Mr K C Chakrabarty on Friday said the Central bank has started discussion with all the stakeholders regarding implementation of the Malegam committee recommendations on microfinance. “This (the Malegam report) is at the discussion stage... We have not decided anything yet,” Mr Chakrabarty told reporters.  “Some part of the report like interest rate will be applicable from April 1,” he said. RBI has already invited public comments on Malegam panel report which suggested among other things capping interest rate at 24 per cent for loans extended by microfinance institutions. The committee, headed by Reserve Bank’s Central Board Director Mr Y H Malegam, suggested that small loans cannot exceed Rs 25,000 and creating of a separate category of non-banking financial companies (NBFC-MFI) for the MFI sector. RBI constituted the committee in October last year in the wake of allegations of overcharging and use coercive recovery practices by MFIs that led to a spate of suicides in Andhra Pradesh. The committee submitted its report on January 19. These recommendations, the committee said, should be implemented from April 1, 2011.

New CPI series out, retail inflation at 6 pc in January

The new consumer price index, intended to reflect the actual movement of prices at the micro-level and help policy-makers like the RBI in better framing of decisions was launched today, with initial data pointing to six per cent retail inflation in January. While Consumer Price Index (CPI), according to new series, has increased to 106 in January this year from a base of 100 in 2010, government has chosen not to mention the inflation figure saying the exact level could be arrived only next year. Analysts were also guarded as the new indices have a long way before they evolve into the country''s benchmark for inflation. The figure was arrived based on a comparison with the annual all-India CPI index average for the whole of 2010. According to new series, all-India Consumer Price Index stood at 106 (provisional figure) for January 2011 taking the base at an annualised level of 100 for the entire last year. "Since these indices are being introduced for the first time, annual inflation rates have not been compiled," the Ministry of Statistics and Programme Implementation said in a statement. Inflation, as measured by the Wholesale Price Index -- which remains the top benchmark -- stood at 8.23 per cent in January. Economists said the new series will help both the Government and Reserve Bank to frame their polices as CPI is a better reflection of actual prices than the current practice of following the wholesale price index (WPI). Crisil chief economist D K Joshi said that the country desperately needed an index which is comprehensive. "Not much should be read from the figure of 106 as released today. However, they could be used for framing policy decisions by both the Government and RBI with the passage of time," he said adding the index will move up as there is inflation in the economy. The WPI based inflation for the month under review stood at 8.23 per cent. The CPI has been released for rural, urban and all-India levels. While the rural CPI indices stood at 107, CPI urban stood at 104 during the month under review. ICRA economist Aditi Nayar too said the new series would become benchmark for policy makers, including the RBI, in the future. "Broadly speaking, India is one of the few countries in the world using the WPI as benchmark. The new unified CPI would help the RBI to frame policies in a proper manner," she said adding this reflects the micro level price situation more clearly.

Canara Bank reverses decision to charge for updating passbooks

The Bank had decided to charge Rs10 for updating passbooks of account holders from other branches, but relented after a customer insisted that such basic services should not be charged. When a customer of a nationalised bank protested against new charges to be levied, the officials reversed the decision. Banks, however, insist that it is becoming increasingly difficult to continue providing basic services free of charges and customers will have to start paying up.

How do migrant workers move money in India? - Justin Oliver & Dan Radcliffe

Imagine you’re a migrant laborer living entirely in the cash economy. How do you send money home to your wife and kids? How do you buy supplies from the next town over? How do you pay utility bills? In short, how do you move physical cash over distances? Without access to systems that permit transferring money conveniently, safely, and cheaply, hundreds of millions of domestic migrants face these dilemmas regularly. To better understand just how costly making remote payments can be for poor households, the Bill & Melinda Gates Foundation commissioned the Centre for Micro Finance at the Institute for Financial and Management Research (IFMR) and the Reserve Bank of India’s College for Agricultural Banking to survey 274 domestic Indian migrants and their families living at opposite ends of four domestic remittance corridors.

This is a guest blog by Justin Oliver & Dan Radcliffe. Justin is Executive Director of the Centre for Micro Finance in India and Dan is Program Officer with the Bill & Melinda Gates Foundation.

State Bank chief Bhatt doesn’t see big policy rate hike

State Bank of India chairman OP Bhatt on Friday has said that the interest rates are unlikely to harden in a big way. “Still, I do believe that if the situation on the inflation front continues to remain at the present level, then the Reserve Bank of India (RBI) may increase key policy rates by 25 basis points,’’ Bhatt said.

Budget will be a platform to provide directions on reforms

This year's budget is significant for two reasons. First, the recent spate of corruption scandals has dampened investor sentiment and the budget will be an important platform for the government to provide policy direction on reforms. Second, the current macro challenge facing the government is one of containing inflation and sustaining growth, unlike the last two years when a fiscal stimulus was the need of the hour. Hence, the government's resolve in tightening its fiscal belt will be closely watched.  The Reserve Bank of India has been doing a lot of heavy lifting in terms of containing inflation, but monetary policy is less effective if fiscal policy is not supportive, particularly since the food price inflation partly reflects supply constraints in agriculture. At least on paper, the budget should persist down the path of fiscal consolidation. In FY11, the central government budgeted a fiscal deficit of 5.5% of GDP, but this will likely be bettered at 5.2% due to seignorage (inflation tax) and a one-time revenue gain from 3G spectrum auctions.

U.K.Sinha assumes charge at SEBI

Upendra Kumar Sinha with his predecessor CB Bhave (right) as he arrives to assume charge at the Sebi headquarters in Mumbai on Friday. Sinha, who was the Chairman and Managing Director of UTI Mutual Fund, took over as the eighth Chairman of the market watchdog.

RBI undertakes programmes on financial literacy

New Delhi : As part of its financial literacy campaign, the Reserve Bank organised an interface on policy decisions relating to foreign exchange here. During the event yesterday, RBI's Chief General Manager-in-charge of Foreign Exchange Department (Central Office) Salim Gangadharan presented an overview of systems under the Foreign Exchange Management Act (FEMA) since 1999, and explained major initiatives taken towards liberalisation, the central bank said in a statement. The event was attended by students, money changers and people engaged in export-import business, it added. Reserve Bank personnel also visited Kendriya Vidyalayas in the city to provide information on the role and functions of the apex bank and issues such as security features of genuine currency notes, complaints redressal mechanism through Banking Ombudsman Scheme and its initiatives on financial inclusion and literacy, the statement said.

NBFCs told to drive up CAR to 15%

Finance companies which raise public deposits will have to bring in more capital to do business. The new rule, laid down by the Reserve Bank of India , will apply to large non-banking finance companies such as Mahindra Finance , Shriram Transport Finance and Sundaram Finance , among others.  This is in response to an RBI directive, which asks finance companies taking deposits from the public to maintain higher capital adequacy ratio (CAR) of 15% by March 2012. CAR is the ratio of capital (comprising equity, free reserves and long-tenure debt) to risk-weighted assets.  At present, finance companies are required to maintain a CAR of 12%.  RBI report has noted that as on March 2010, 212 NBFCs had a capital adequacy ratio of more than 12% against 221 NBFCs a year ago. "It may be highlighted that the NBFC sector is witnessing a consolidation process in the last few years, wherein the weaker NBFCs are gradually making an exit, paving the way for a stronger NBFC sector," it said. There are as many as 12,630 NBFCs registered with RBI as on end-June 2010, slightly lower than 12,740 a year ago.

RGB becomes first rural bank to achieve CBS

The Rushikulya Gramya Bank (RGB), a regional rural bank (RRB) operating in south Orissa, has become the first RRB in the state to have placed all its branches on the Core Banking Solutions (CBS) platform. Presently, five RRBs including RGB are functioning in the state.  All the 81 branches of the RGB located in Ganjam (71) and Gajapati (10) districts migrated to CBS on Monday. The day coincided with the Foundation day of the Berhampur based bank, which completed 31 years of its service. The bank was established on February 14, 1981.  “Our bank is the first RRB in the state to have fully implemented CBS, much before the stipulated time set by the Reserve Bank of India (RBI)”, said RGB's chairman PVSTR Seshagiri Rao. The Central government had directed the RRBs across the country to implement CBS before the end of September 2011.  The bank has planned to issue debit cards to its customers and explore the possibilities to utilise the ATMs of its sponsoring bank- Andhra Bank.

Sebi looks at cash settlement in IRF

As part of efforts to boost volumes in exchange-traded interest rate futures (IRF), the Securities and Exchange Board of India (Sebi) is evaluating the option of introducing cash settlement in the segment. If approved, it could come as a shot in the arm for the niche market that has been witnessing almost nil volumes for months.  IRF is an exchange-traded derivatives product for hedging interest rate risks. Only the National Stock Exchange (NSE) offers IRFs, which were launched for the first time in 2003. According to people familiar with the development, the joint technical committee reviewing the guidelines and contract specifications for IRFs is looking at cash settlement as one of the ways to attract more market participants. The committee comprises representatives of Sebi and the Reserve Bank of India (RBI).  With U K Sinha, the new chairman of Sebi assuming office from Friday (February 18), it is expected that the revised guidelines for IRFs will be unveiled soon.

MFIs demand bank funding resumption

Microfinance institutions, or MFIs, plan to approach banking regulator, Reserve Bank of India (RBI) and banking lobby Indian Banks’ Association (IBA) to demand the resumption of bank finance to the industry.  Commercial banks have been slow in releasing loans and considering new loan requests from microlenders since October, when Andhra Pradesh, the hub of the Indian microlending industry, imposed curbs on how MFIs recover money from borrowers—putting their ability to repay bank loans in question. “At an industry level, we are going to take up the issue with the Reserve Bank and IBA as survival of MFIs without adequate bank finance is difficult,” said Alok Prasad, chief executive of Microfinance Institutions Network (MFIN), an industry lobby.  MFIN is likely to approach RBI by next week, Prasad said. Microlenders said banks were unwilling to comply despite an RBI notice last month asking them to recycle loans to the sector—or channel money received as payment of earlier loans back to MFIs. “Banks are advised that they should endeavour to recycle the collections to MFIs,” RBI had said.

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.