The question posed by RBI deputy governor Subir Gokarn earlier this month no longer seems rhetorical: is a high rate of inflation the new normal? High inflation expectations are getting embedded into the Indian economy—a danger that is not been given its due in discussions about economic policy. The Reserve Bank of India (RBI) on Monday released its latest inflation expectations survey of households. The average Indian now expects prices a year down the line to be 13.1% higher than their current level. Inflation expectations have been climbing for quite some time now. Why is this a problem? Families fearing the ravages of inflation on their purchasing power will push for higher wages and could set off a price spiral. Companies could find it difficult to assess the profitability of new projects when prices are bouncing around. The new inflation expectations number comes a day after the International Monetary Fund asked whether India is in danger of overheating, even as it cut the country’s growth forecasts for 2011 and 2012. The question posed by RBI deputy governor Subir Gokarn earlier this month no longer seems rhetorical: is a high rate of inflation the new normal? Ordinarily, this might be interpreted as posing a dilemma for a central bank. Any further hikes in policy rates may “kill” growth while not raising them may lead to higher inflation in the months ahead as inflationary expectations appeared to have been unhinged. The assumption behind this dilemma is the usual trade-off between unemployment and inflation in the short-run. In reality, such a trade-off is illusory at the moment: the possibility that at higher rates of inflation, investment growth may be hit is very real. Even a cursory look at components of gross domestic product figures from 2003-04 to 2010-11 shows this clearly. Barring 2008-09, when the global financial and economic crisis hit India and 2010-11, investment demand has often outstripped consumption as a source of growth. If care is not taken to ensure the right conditions for fuelling this source of growth—and they are not right at the moment—it will surely hit the overall rate of growth. RBI must avoid this. The growth-inflation trade-off has been overstated for too long. If anything, evidence from China and India (the latter especially after 2002-03) shows that low inflation and high growth are not mutually exclusive. To say that Indians must learn to live with high inflation if they want to enjoy the fruits of growth is a cruel argument.
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Wednesday, April 13, 2011
Government to issue biometric PAN cards
The government has decided to issue biometric PAN cards to taxpayers across the country to weed out the duplicate and fake ones. The decision was recently taken by the finance ministry and it comes in the wake of a Comptroller and Auditor General report that asked the Income Tax department to ensure a single tax payer was not issued multiple cards. The proposed new biometric Permanent Account Number (PAN) cards would bear the I-T assessee’ fingerprints (two from each hand) and the face. There could be an option to existing PAN card holders to opt for the biometric cards, but it may not be mandatory, a senior official in the I-T department said. The Finance Ministry and the I-T department had put on hold the biometric PAN card project last year to avoid duplication with the UID numbers, to be issued by Nandan Nilekani’s Unique Identity Authority of India. “The bioemetric PAN card project is on again. The step will be very important when it comes to stopping the misuse of this vital identity document,” top finance ministry sources said. The biometric PAN card was proposed in 2006 by the then Finance Minister P Chidambaram to counter the problem of duplicate PAN cards uncovered during I-T searches and raids by police and other enforcement agencies. The CAG report on direct taxes for 2010-11, tabled in Parliament recently, has revealed that 95.8 million PANs were issued till March 2010 but I-T returns filed in the last financial year were only 34.09 million. The gap between PAN holders and the number of returns filed was 61.7 million, the CAG has said.
RBI set to hike key rates by 25 bps
MUMBAI: The Reserve Bank of India is expected to raise interest rates while announcing its monetary policy for 2011 in early May although the index of industrial production (IIP) points to a slowdown in investments. Economists across the board are betting on at least a 25 basis points increase in key interest rates by RBI. "The IIP reading was weaker than expected, but the consumer goods component and readings from other indicators suggest that the economic growth is holding up well. This means that inflation is still the dominant concern, not growth. This calls for continued tightening by RBI," said Leif Lybecker Eskesen, chief economist for India & Asean, HSBC Global Markets, in a report. "This means that the RBI will have to continue to tighten monetary policy, at least by 75 bps in 2011 and with 25 bps expected at the next policy meeting," he said. Following 4% growth in January (revised up from 3.7% earlier), IIP slowed to 3.6% year-on-year in February, lower than market expectations of a growth of around 5%. According to Rohini Malkani, chief economist with Citi, there is likely to be an uptrend in consumption due to wage increases and households raising money against gold holdings, which is no longer a 'dead asset'. "With inflation likely to stay sticky at Ëœ7.5% through FY12, we expect the RBI to raise rates by 75 bps through early 2012," she said in a report. Also, consumption demand is expected to remain strong because of an improvement on the agriculture front. Advance estimates released by the ministry of agriculture peg foodgrain production in the previous fiscal at 236 million tones—an increase of over 8% over the previous year following normal monsoons. According to a Deutsche Bank report, rural income in India is likely to witness a meaningful jump in FY11 driven by the sharper-than-anticipated growth in agricultural production, coupled with a continuing—albeit modest—increase in minimum support prices. "RBI has accorded less significance to IIP data in framing policy decisions. However, incrementally the information content in IIP data has only improved especially in terms of sequential trend. Nevertheless, we expect RBI to maintain a hawkish stance on inflation in response to accentuating inflationary pressure in core," said A Prasanna and Anurag Jha, ICICI Securities Primary Dealership, in a report on Monday. According to Arun Singh, senior economist at Dun & Bradstreet, moderation in the investment activity on one hand and the building up of inflationary pressures, especially on manufactured products, on the other would add to the monetary policy dilemma for the RBI. "RBI is expected to increase repo and reverse repo rates by another 25 bps during the forthcoming policy review," he said.
NBFC licence seekers will have to wait longer
MUMBAI: Toyota Kirloskar , and Daimler, the maker of Mercedes cars, will have to wait a few more months to begin their business of lending for car and equipment purchases as the Reserve Bank of India put on hold new licences awaiting new guidelines, said two people familiar with the decision. The central bank, which is in the midst of tightening rules for lenders who don't fall under the 'banks' category, has told some of the applicants for the finance company licence that it may not issue one till the new rules come into force, said those people who did not want to be identified. It might take RBI two to three months to come out with its new guidelines. Jain Irrigation and German electrical equipment-maker Siemens are the other companies planning to set up a finance company that would fund purchases of their own product, helping their businesses grow. Europe's biggest automobile company, Volkswagen , recently got the licence for such a company. It will invest 120 crore to expand the business. Manufacturing companies such as General Electric and others across the globe do fund equipment purchase that has helped them grow. Even state-run Bharat Heavy Electricals plans to set up a non-banking finance company. However, reckless funding could result in the collapse of even the parent company. GE, the top manufacturing company in the world, had to seek the help of US authorities during the 2008 crisis as there were few takers for its commercial paper. Because of these companies' role in the financial markets, the RBI set up a committee under deputy chairman Usha Thorat to finalise a new set of guidelines after raising their capital requirements recently. RBI believes that there is a need to strengthen the supervision of the 12,500 NBFCs in the country due to the high exposure of banks to NBFCs at over 15 lakh crore. "The recent global financial crisis has highlighted the regulatory imperatives concerning the non-banking financial sector and the risks arising from regulatory gaps, arbitrage and systemic inter-connectedness," said the RBI statement. "A need was, therefore, felt to reflect on the broad principles that underpin the regulatory architecture for NBFCs keeping in view the economic role and heterogeneity of this sector and the recent international experience." The RBI has taken some measures in that direction. In the last four months, it has reduced the arbitrage opportunities of NBFCs. It has also increased the capital adequacy ratio of NBFCs to 15 % and removed the priority sector status of gold-loan companies. But NBFCs are also seeing a growth in retail lending. NBFCs presently have a 26% market share, which is expected to go up to 47% in the next three years, says a report by rating agency CRISIL. The profitability of NBFCs has also peaked to the 2007 levels. Hence, in the next three years, NBFCs' non-mortgage lending is expected to match the levels of a commercial bank, provided there are no regulatory challenges.
With Mukesh Ambani on board, Bank of America wants RBI nod for loans to Reliance Industries
MUMBAI: Bank of America is trying to figure out the regulatory barriers in doing business with India's largest private company Reliance Industries (RIL) whose chairman Mukesh Ambani has joined the board of the parent, Bank of America Corporation. According to Indian regulations, a bank in India is not permitted to lend to any of its directors and companies where directors have board presence. BankAm India officials have discussed the matter once with the Reserve Bank of India and are likely to seek further clarifications soon. A bank spokesperson declined to comment on the matter.
J&K Bank-RBI pact a sellout, says Drabu
Sacked chairman of Jammu and Kashmir Bank Haseeb Drabu has termed the State Government's decision to shift banking operations with the Reserve Bank of India (RBI) as an act of demolishing the only vital pillar from under the edifice of autonomy of Jammu and Kashmir. The agreement signed last fall, came into effect from April 1, 2011. He has predicted that the Jammu and Kashmir Bank would be nationalised in near future and the State would be at the mercy of North Blockbased bureaucrats. Drabu was asked to resign on August 26, 2010 by Omar Abdullah-led coalition Government after heading the State's lone listed company for five years. After his resignation, the State Government entered into agreement with the RBI. Describing the agreement as “Machiavellian politics and Shylockian economics“, Drabu has first time gone public on the impact and outcome of the agreement that the State Government has described as “win-win situation“ for the State Government, the J&K Bank and the people of the State. The Finance Ministry and the J&K Bank have not reacted to Drabu's observations. In an article in prominent monthly magazine The Honour, Drabu has said that the J&K Bank has ceased to be State's banker. “It (J&K Bank) will cease to be lender of last resort to the Government, which it has been since its inception,“ he says. He says that the RBI's previous role in J&K was related to the Government's securities market involving floatation of Government loans and preparation of calendar for issuance of dated securities. The new agreement has, however, brought the RBI on centre-stage of fiscal management of the State and prmoted its status from “regulatory oversight“ to “operational control“. “For the purpose of the Government finances, J&K Bank is nothing more than branch of the RBI,“ he said. He says that the new agreement is benef icial to Government of India but neither to the State nor to the J&K Bank. He says that the State has lost its financial independence. “A financial crisis can be created by even an un-biased but stickler of a bureaucrat sitting in North Block. Not to speak of what a hostile political party at the helm can do,“ he writes. “The decisions will now be taken on Mint Street in Mumbai instead of Maulana Azad Road in Srinagar,“ he says. Referring to the agreement as “disempowerment of the J&K Bank“, Drabu states that it is akin to the political disenfranchising of the institution of the Head of the State. “When the position of Sadar-e-Riyasat was converted into that of a Governor it was more than the name that changed,“ he says. Drabu was economic adviser to Mufti Muhammad Sayeed during the latter tenure as Chief Minister in 20022005. He was shown the door by the Omar Abdullah Government a few days after Mufti's People's Democratic Party blamed Abdullah for financial misappropriation and leaked some confidential details on the Government's financial transactions.
Tuesday, April 12, 2011
Polaris to implement RBI's core-banking solutions
CHENNAI: The Reserve Bank of India (RBI) has chosen Chennai-based Polaris Software Lab to implement its core banking solutions, intended to integrate its operations across all its departments and offices. The RBI has 22 regional offices, most of them in state capitals. A Polaris spokesperson confirmed the deal but refused to divulge information on the deal size or value. Sources close to the development told ET that Polaris bagged the deal amid competition from the likes of TCS, Infosys and IBM. It would be a 10-year deal. According to a notice posted in the RBI Website, the project would be implemented in various phases, starting with an understanding of the bank's existing processes, systems, solutions and infrastructure. Based on this, Polaris would customise and implement the core banking solutions. Polaris has strong roots in the banking space. It has developed over the years its own product, the Intellect Suite. To gain greater market share, Polaris acquired Laser Soft Infosystems in 2009. This deal gave Polaris access to 40 accounts in India for cross-selling Intellect products. When Polaris announced its third quarter results in January this year, the company's founder, chairman and CEO Arun Jain said, "The Intellect suite has given us the opportunity to tap market potential in 60 countries worldwide, and 8 out of 10 top global banks use our product."
Phishy website of RBI
VITALINFO has come across the following phishy link in the name of RBI:-
Please bring this to the notice of all RBIeties.
Draft guidelines on new banking licences by month-end
The finance ministry today said the draft guidelines on new banking licence with provisions to allow entry of corporates would be finalised by month-end. The draft guidelines should be finalised by the end of this month, Financial Services Secretary SK Sharma told reporters on the sidelines of Ficci National Conference on Insurance. "This was to be (released by) March 31, but we are taking some more time because there are some issues we are still considering," he said. Asked if the draft guidelines would have any mention of industrial houses, he said, "it would be general...It will not be ruled out (corporate houses getting banking licence) also. RBI will have decision as per the guideline." In the Union Budget for FY11, it was announced that the Reserve Bank of India would consider giving traditional banking licenses to private sector players. Following the announcement made by the Finance Minister Pranab Mukherjee, the Reserve Bank had brought out a discussion paper in August, 2010, on giving out new banking licences to business houses and non-banking finance companies, besides regulations for the same to foster greater competition. On new LIC Chairman issue, Sharma said, the government has taken no decision. However, there were reports that DK Malhotra, the existing Managing Director of LIC, is going to replace Chairman TS Vijayan who will be completing his five year term in May 2011. Vijayan (58) still has 2 years of residual service. Extension of the term can be provided by the government. Earlier this month, Union Bank of India Chairman and Managing Director MV Nair was given extension of three months by the Appointment Committee of the Cabinet (ACC) headed by Prime Minister Manmohan Singh. As per the existing government rule, a Chairman and Managing Director or a Director is appointed in the public sector entity for a period of five years or up to age of 60, whichever is earlier.
INDIA’S PAYMENT GATEWAY TO BE LINKED TO UID NUMBERS
The move will allow customers to use their 12-digit Aadhar numbers and fingerprints as banking passwords. The National Payments Corp. of India (NPCI) plans to link Rupay, its soon-to-be-launched domestic payment gateway on the lines of global gateways such as Visa and MasterCard, with the unique identification programme Aadhaar. The move will allow customers to use their Aadhaar identity - a unique set of 12 numbers that would be issued to all residents of the country - and their fingerprints registered under Aadhaar as their banking password. “Just like a bank gives a gold or a platinum card, Aadhaar Rupay cards will be offered by the banks,” said A.P. Hota, managing director and chief executive officer, NPCI, which is overseeing the Rupay project. The Rupay will be on the lines of China’s UnionPay, which allows domestic transactions to be routed through a national card system. Although China has made it mandatory for all local transactions to be routed through the national card system, it will not be compulsory in India. Rupay is expected to be launched this fiscal. The Reserve Bank of India has already approved the Aadhaar-enabled payment system. “In the second phase, we are also mulling enabling the Aadhaar number to be printed on the card, so that there are no mistakes while punching the 12-digit number,” Hota said. A pilot programme is currently running in Jharkhand with the help of Bank of India, Union Bank of India and ICICI Bank Ltd. “The pilot is restricted to non-financial transactions for the time being. We are fine-tuning the system so it can be ready to handle financial transactions,” Hota said. The payment system and software are in place, said a Bank of India executive, requesting anonymity. “This is a new concept and needs to be recognized and accepted. The challenge for the banks will be to create the necessary infrastructure,” the executive said. It will take time for Aadhaar numbers to reach people, and for the hand-held terminals with biometric readers to be distributed - two measures critical for the project to succeed, he said. The Unique Identification Authority of India (UIDAI) has so far enrolled more than 4.5 million people and targets issuing Aadhaar numbers to 600 million people by 2014. The Aadhaar-enabled Rupay system will also allow correspondents of one bank to offer payment services to customers of another bank, Hota said. The Bank of India official, however, said, such interoperability will take some time. “Interoperability is allowed, but only in theory. There needs to be a payment and settlement system, which defines how participating banks will settle the payments,” the official said. “Till a payment-clearing house is put in place for this micro-payment system, interoperability cannot be implemented.” He said banks will wait until the intra-bank system stabilizes before moving to the inter-bank transactions. “Once more Aadhaar numbers are given, it can be scaled up to a pan-India level.” “Though MasterCard and Visa have already announced their intentions to support Aadhaar-enabled payment system, it will be easier for Rupay to launch it as they can make it a part of their system from the very beginning,” said a government official who is privy to UIDAI’s plans, but did not wish to be named.
Monday, April 11, 2011
Rongali Bihu at Pandu
A cheque lost in transit: How to minimise your loss
Depositing a cheque in the bank doesn't always guarantee that it will reach its destination. There are times it gets lost due to the circuitous banking procedures. Often, however, it is misplaced when it is withheld after being dishonoured. And if you haven't applied for the SMS alert facility, it's likely you won't even know that the amount hasn't been credited till you examine your account. Did you know that banks are supposed to inform you when a cheque is rejected and the reason for this? According to a directive by the Reserve Bank of India, banks should return the dishonoured cheque to the account holder within 24 hours, citing the reason for doing so. However, most banks don't bother to follow this procedure. Calling up customer care executives isn't of much help either. They will simply tell you to approach the bank which holds your account to clear up the matter. While the onus for a lost cheque lies with the collecting banker, not with the account holder, it is often the latter who ends up bearing the brunt. This is because if a cheque doesn't get credited on time, you will need to issue a 'stop payment' order to the bank. Most banks charge a fee for this, which ranges from Rs 50-200, depending on the bank. Some banks may provide this service for free if you do it through Net banking . You will then have to issue a fresh cheque or ask the payer to give you one. In some cases, the payer may be unable to draw another cheque. So you will have to approach the branch manager or the nodal officer of the bank. The bank is supposed to solve the problem within a month, but if no solution seems imminent, approach the banking ombudsman. To get the details of the ombudsman in your area, log on to www.rbi.org.in/scripts/bs_viewcontent. aspx?Id=164. You can also file an online complaint on www.rbi.org.in/ scripts/bankingombudsman.aspx. Another problem is that while local cheques get credited within 48 hours, outstation cheques could take 7-15 days. In case you have issued other cheque on the basis of the one that has been misplaced, these could bounce and you will have to pay a fine of Rs 75-300 per cheque. Some banks will charge extra if more than two cheques bounce within a quarter, and the fine can go up to Rs 800 per cheque. Also, if the cheques drawn on an account are rejected four times during a financial year due to insufficient funds, the bank can deny you a fresh chequebook. This is also a criminal offence, punishable with imprisonment for up to one year, or with a fine, which could be twice the amount of the cheque. If you have proof that you had deposited the cheque and that it is lost due to the bank's negligence, you can ask the bank to pay. According to an RBI order, banks should reimburse the account holder for expenses related to obtaining duplicate cheques. However, a few precautions can ensure that the chances of a cheque being dishonoured are minimised. Don't over-write on the cheque and ensure that the date as well as the name of the payee is spelt correctly. Though banks ask you to put the cheque in the drop box, in the case of a high-value cheque, get the counter-foil stamped and keep it carefully. In 2009, the Pune district consumer court ordered Axis Bank to pay Rs 5.61 lakh to building construction contractor Nilesh Pokar after the bank misplaced a cheque. The bank initially claimed that Pokar had an 'unauthorised' counter-foil, but later retracted its statement. Pokar had deposited a cheque for Rs 4.94 lakh in May 2008 and it took him a year to resolve the issue. The court asked the bank to return the original amount with a 12% interest and added Rs 10,000 as compensation.
Banking on credit growth
The latest numbers from the Reserve Bank of India (RBI) show that while credit growth has eased a bit, it is still strong, up 21.4% over a year ago. That, combined with the low base for three months ended March 2010, will drive earnings for banks in the fourth quarter of fiscal 2011. However, the tougher macroeconomic environment in the form of higher interest rates, tighter liquidity and an inflation rate that RBI is still uncomfortable with, means that net interest margins for banks will be under pressure. Indeed, many banks had indicated as much after their third quarter results. Brokerages reckon net interest margins may decline by up to 20 basis points from the third quarter levels, especially for smaller banks that don’t have the luxury of a large bank network and, hence, a lower proportion of low-cost current and savings deposits. One basis point is one-hundredth of a percentage point. Despite banks hiking deposit rates by up to 1.25 percentage points in the past few months, the credit-deposit ratio is hovering around 75.6, not much different from a quarter ago. However, the key question is whether banks still retain the pricing power to raise lending rates. Sure, liquidity concerns may ease in the next couple of quarters; liquidity adjustment facility borrowings averaged Rs. 70,000 crore in the last week of March compared with Rs. 1 trillion at the beginning of the fourth quarter. However, deposit rate increases operate with a lag and higher funding costs are likely to hurt net interest margins over the next couple of quarters as well, even as RBI continues to hike rates to keep inflation in check. Still, asset quality has generally improved for the whole system in the last fiscal. Angel Broking Ltd calculates that the net non-performing assets (NPA) ratio has declined to 0.99% for the December quarter from a peak of 1.15% in the year-ago period. With RBI extending the deadline to move to a new system of recognizing NPAs, there might not be any surprises in this metric for the fourth quarter, at least for private sector banks. For public sector banks, there is also the googly of pension liabilities after new settlement packages were finalized in the third quarter. While banks are allowed to amortize these liabilities over five years, the portion that goes to retired employees has to be provided for in fiscal 2011. This can be as high as 26% of public sector banks’ post-tax earnings in the fourth quarter, reckons Prabhudas Lilladher Pvt. Ltd. Overall, the consensus is that private banks will post more robust results than their public sector peers in the fourth quarter.
SBI: Transition challenges after the O. P. Bhatt era
A few years ago, Mr O. P. Bhatt, who retired ten days ago as chairman of State Bank of India (SBI), the top bank in the country, won an award given by a news organisation. This award was decided on the basis of popular votes that came in by SMS. A retired senior official of SBI told this correspondent that SBI employees were told to vote for their Chairman — and given their large numbers, he predictably won hands down. This anecdote was accompanied by a disapproving comment about what this great bank was coming to. It is common for retired officials of any organisation to think that the golden era ended with their tenure and the institution has now fallen into bad times. So, when one listens to these things all the time, we pass no judgment. Still, one heard the story with mixed feelings. On the one hand, I was a trifle surprised that someone, least of all an SBI chairman, should want these awards that badly. Put it down to naiveté, if you will. On the other hand, if this story was indeed true, then it showed certain PR savviness that you didn't normally associate with the SBI top brass till then. In the last few years, Mr Bhatt had managed to match word and deed and push his organisation into a faster growth path. He was granted a five-year tenure, one of the longest in recent times, and rare in recent SBI history which has seen chairmen come and go even before they had warmed their seats. Putting stability of tenure to good use, Mr Bhatt energised SBI and drove it to top spots in home and car loans — two segments of retail banking that it had completely missed in the preceding many decades. SBI was a natural leader in corporate banking by virtue of its size and an active player in SME (small and medium enterprise) banking because of its government parentage and developmental goals. But retail banking required a different approach, which public sector banks were generally slow to pick up. And they yielded rather good ground to private banks such as HDFC Bank, ICICI Bank and Axis Bank. What Mr Bhatt did in his tenure was to show that SBI can be a player to reckon with in all these segments too. With the economy expected to grow at 10 per cent upwards for the next decade, the demand for homes and cars can only keep growing and ensure SBI is on a strong growth path. The doubling of branch and ATM networks, the integration of all associate banks that is under way, surviving the global slowdown and the transformation that he brought about in attitude, are an impressive legacy of achievements that he leaves behind. To be sure, no leader leaves any organisation without creating some new problems. Often, the frenetic pace set by one leader has to be followed by a calmer period under another leader. The new leader consolidates the gains while also seeking to eliminate some of the weaknesses that got papered over during an earlier growth period. If you look at SBI's nearest private sector rival — the parallel would be obvious. Ms Chanda Kochhar has had to slow down and consolidate during the past two years after the hectic pace of the Kamath years. For SBI's new Chairman, Mr Pratip Chaudhuri, consolidation will be the challenge. He has a two-and-a-half year stint — just the right bit of time to understand the demands of the job, not upset the apple cart, consolidate the gains made earlier and hand over a stronger organisation to the next leader. He has already said that SBI will take a breather. Most importantly, Mr Chaudhuri will have to repair SBI's troubled relationship with the regulator — Reserve Bank of India. Mr Bhatt was a journalist's delight — in providing controversial copy. But in voicing his differences with the regulator with unexpected vehemence on a number of issues, including teaser loans and provisioning requirements, Mr Bhatt may have gone a bit overboard. That things didn't get worse was due to considerable regulatory forbearance and a high degree of tolerance on the part of RBI top brass. The RBI has stuck to the position that it cannot engage in any kind of public war with institutions that it regulates or their heads. Mr Chaudhuri's first priority will be to set this relationship right and ‘engage constructively' with RBI.
Dual bank licence plan
New Delhi, April 10: New licences for banks are likely to be of two types — one to provide just basic banking and another one to provide the usual range of services that not only includes basic banking but also sophisticated facilities such as wealth management and merchant banking. The Reserve Bank of India is set to come out with the draft guidelines for new licences later this month. The basic licence will allow new banks to set up base in rural areas to fulfil the obligation of financial inclusion. Microfinance organisations and co-operative banks will, therefore, get an opportunity to convert themselves into banks. Large industrial houses will be allowed entry, though there will be strict rules in place to ensure that lending is not limited to group businesses. Top finance ministry officials said the RBI was likely to use its discretion to prevent groups with huge investments in high-risk businesses such as realty. Diversified groups having limited exposure to real estate such as the Tatas or Wadias will not be debarred. The past record of an industrial house will be an important factor. “The whole idea is to allow large corporate groups to enter banking but not to bring about a repeat of the 1950s and 1960s when India had witnessed a large number of private banks being set up by industrial houses collapsing,” officials said. Officials said the minimum capital requirement was likely to be jacked up. Under the revised guidelines issued in 2001, the minimum capital requirement for a bank is Rs 200 crore. Promoters are required to raise it to Rs 300 crore within three years. This minimum capital requirement is now likely to be raised to Rs 500 crore for basic banking and Rs 1,000 crore for a comprehensive licence. Officials said there were differences over the voting rights for foreign investors. It is unlikely that foreign investors will be given majority voting rights. “In all probability, their voting rights will be limited to 49 per cent,” the officials said. “The explanation in the recently announced changes in the FDI guidelines makes it very clear that we will distinguish between foreign-owned or controlled investments and Indian owned and controlled investments,” the officials said. The change is being interpreted to mean that for a bank to be defined as an Indian entity it should be owned and controlled by Indians. Otherwise it will be treated as a foreign bank and will face many restrictions. Sources said top industrial groups such as Mukesh Ambani’s Reliance Industries as well as his younger brother Anil’s ADAG group and the Tatas could make an entry. The Aditya Birla group could be keen on banking. Ghanshyamdas Birla had set up Uco Bank in 1943, but it was nationalised in the 1960s. Earlier this month, RIL had entered financial services through a joint venture with hedge fund DE Shaw.
Govt eases rules for bank top jobs
The government has relaxed the norms for appointment to top jobs at public sector banks. To be eligible for the post of chairman and managing director (CMD), a candidate will now require at least 18 months of residual service, with six months experience as an executive director (ED). Earlier, a candidate was required to have at least two years of residual service, with one-year stint as an ED. The government has called 20 EDs for interviews by the end of this month. Eight CMD posts will fall vacant this financial year. In addition, the government has called 30 general managers for the interview for promotion as EDs. During 2011-12, a total of 13 vacancies are expected to arise. To be eligible for the ED's post, a candidate should have two years of residual service and two years of experience as a general manager. The norms for appointing EDs, however, have not been changed. Central Bank of India, Corporation Bank, Dena Bank, Andhra Bank, Syndicate Bank, OBC, Bank of Maharashtra and Union Bank of India will see new faces at the top this year. The appointment at Central Bank of India will be lateral, that is, a CMD of a smaller bank will be given charge. The norms were relaxed during the previous selection process, too. Then, the residual service requirement was made 15 months. The government may also consider appointing a second ED in banks that have a business of Rs 1 lakh crore and above. Some banks such as United Bank of India, Dena Bank and Punjab and Sind Bank have recently entered the league and, therefore, are eligible for a second ED. The search panel to interview candidates comprises RBI Deputy Governor Anand Sinha, Financial Services Secretary S K Sharma and former HDFC Bank chairman Jagdish Capoor, among others. The process for appointing the CMD of Punjab & Sind Bank has started. The post has been vacant for nearly a year. Sources say the finance ministry has initiated the process of shortlisting a suitable candidate. The selection of the chairman of Punjab & Sind Bank is not a part of the interview process followed for other banks.
Sunday, April 10, 2011
FINANCIAL INCLUSION BEYOND MICROFINANCE - Usha Thorat
The challenge in microfinance lies in taking advantage of economies of scale and passing on the benefits to the customer while providing a reasonable return to the investor. Financial inclusion is more than microfinance. Microfinance has shown how the poor are credit-worthy, how through regular savings and loan repayments, using group solidarity or guarantee, they have alleviated distress amongst low-income households, enabled consumption smoothening and facilitated self-employment and micro-enterprise. For borrowers who only had recourse to moneylenders and loan sharks, microfinance provided access to formal sector finance with very little formality and documentation. The MFIs have demonstrated innovative methods and technology to enhance outreach and attract equity which could be leveraged to make further investments to enhance coverage. They have been able to reach the last mile that banks have found difficult. The number of loan accounts serviced by MFIs in India increased from 10 million in 2007 to nearly 27 million in 2010 while loans outstanding increased from $840 million to $4 billion. On the other hand, the critics of microfinance have argued that the interest rates are too high and investors in such MFIs have obtained huge returns on their equity. Grameen Bank Founder Muhammed Yunus would argue that financial services to the poor cannot be rendered by profit-oriented enterprises. Others would argue that unless there are profits to be made, there can be no sustainable scale-up of business so as to cover the unreached and excluded. The whole issue boils down to what is considered to be abnormal or supernormal profits and what is considered to be cost covering and enough for the business to be sustained. The challenge ultimately lies in reducing costs through the use of technology, taking advantage of economies of scale and passing on the benefits to the customer while providing a reasonable return on capital to the investor. However, as has been the experience in microfinance, it is important that incentives are not distorted. Commissions have been given on basis of more clients and giving more loans. Executive remuneration has been based on profits generated. These, in turn, encourage imprudent lending and inappropriate practices such as multiple lending. As the credit risk gets transferred away from the MFI’s books through securitisation and assignment, there are no in-built measures to curb multiple lending and excess loaning to the same household. The MFIs are also accused of coercive methods of recovery. In India, matters came to a head in 2010, when one of the State Governments enacted an ordinance that effectively stopped collection of micro-debt and prohibited any new micro-loans in the State unless certain conditions were met. In this context, the RBI set up a committee under one its Board directors, Mr Y. H. Malegam. The report was submitted in January 2011. The committee has made a wide range of recommendations aimed at consumer protection. The crux of the recommendations is that lending to MFIs can be considered priority sector lending only when certain conditions are met by such MFIs. These include a cap of 10 per cent /12 per cent on the MFIS’ margins, a cap of 24 per cent on interest for individual loans, rules for ensuring transparency, cap of Rs 25,000 on size of loans, limit of Rs 50,000 on the income of the borrower to be eligible for micro finance, 75 per cent of the total loans of the MFI to be for income generation purposes, all loans to be only to members of JLG/SHGs and setting up a comprehensive credit information and referencing, MFIs to establish code of conduct and institute grievance redressal procedure, regulator to mandate Client Protection Code, and corporate governance principles to be laid down by the regulator. The Committee has also said that if its recommendations are accepted, the need for the Andhra Pradesh Act will not exist. The recommendations are under examination by the RBI. What I would like to emphasise is that financial inclusion is not just microfinance, although it plays an important role in providing credit access to the poor. Financial inclusion implies access to a mainstream bank account which, in itself, includes such accountholders in the economic lifeline of the system and provides him/her a savings product that is eligible for deposit insurance. Hence, financial inclusion has to ensure access to deposit insurance and the mainstream payments system through commercial banks, either directly or through various forms of electronic or mobile banking or through business correspondents. Financial inclusion has to be seen in the context of inclusive growth. The sections of the population that need access to affordable credit to be able to increase their income levels are the landless labourers and marginal farmers in agriculture and allied activities, and the small and micro entrepreneurs in industry and services sectors in the SME sector. This sector is ridden with problems of owning the title to land even though they may have the rights to the usufruct of the land — they have problems of not being able to provide sufficient collateral. Where the risk is perceived to be higher, lending agencies are usually risk-averse, especially as there are other opportunities. In this context, the policy on financial inclusion will have to address the design of appropriate credit guarantee or credit enhancement schemes with suitable disincentives for misuse or moral hazard. The public policy intervention in this area calling for fiscal support — directly or indirectly — will have to be carefully crafted looking at the international experience of such schemes and their effectiveness. (Excerpts from a speech delivered in Kuala Lumpur on April 5 at an event co-sponsored by CGAP OECD AFI and Bank Negara.)
(The author is Director, Centre for Advanced Financial Research and Learning.)
No turf war with FSDC, financial groups to be regulated by RBI
New Delhi: The finance ministry has told the Reserve Bank of India that regulation of financial conglomerates would be its sole prerogative. Addressing the central bank’s concerns over these conglomerates going out of its regulatory purview, the ministry has clarified that the Financial Stability and Development Council (FSDC)would only ‘monitor’ their activities. The RBI, on the other hand, would have the power to impose prudential and other regulatory conditions on the conglomerates. The FSDC is headed by the finance minister while its sub committee that meets more often is headed by the RBI governor as its vice-chairman. The government has outlined its view in the amended Banking Regulations Act recently approved by the Cabinet, an official said. Currently, there is no legal provision in the Indian financial laws or the RBI Act to specifically target regulation of financial conglomerates and holding companies. The changes in the Banking Regulations Act would empower the RBI to also supersede banks' boards in case of any wrongdoing. Besides, the RBI would be able to assess the risks arising out of subsidiary companies owned by the banking entity. “FSDC will not regulate but it will discuss conglomerates and accordingly issue guidelines. But individual regulators are masters of their own territory and FSDC cannot take a decision, which can be forced on a regulator,” the official said. The central bank, though, has a financial conglomerates cell in its department of supervision. “The RBI is now being vested with these powers through amendments in the Banking Regulations Act,” the official said. While changes in the Act would enhance the central bank's regulatory control over conglomerates, an internal working group of the RBI headed by deputy governor Shyamala Gopinath would shortly release draft guidelines pertaining to regulation of financial holding companies. Changes in these regulations are critical for the RBI as it prepares to unveil guidelines for the new banking licences. Industrial houses and conglomerates are expected to be given entry into the banking sector, subject to stringent criterion. Another official said the FSDC would monitor activities of large financial conglomerates by assigning them to lead regulators. A financial conglomerate deriving the majority of its revenues from banking activities, for instance, would be regulated by the RBI. The government created the FSDC in the aftermath the global economic crisis to look after financial stability, address inter-regulatory coordination issues and assess the functioning of large financial conglomerates. The central bank had recently highlighted the FSDC as a coordination mechanism whose efficacy is yet to be tested. “While coordination mechanisms within the financial sector have been strengthened (by the creation of the FSDC), it is yet early to assess their efficacy which will be tested by future developments,” RBI executive director Deepak Mohanty said last week in Jerusalem at the central banks conference of the Bank of Israel.
Slice of history: How IDBI came to be in 1960s
In the early 60s, when India was still battling to tackle the current account deficit and the negative industrial growth, the Reserve Bank of India decided to carve out a subsidiary that would finance the industrial development in the country. With this idea was born the Industrial and Development Bank of India (IDBI) in the year 1964. IDBI as a financial entity exceeded the expectations of not only industries but also RBI. IDBI within a decade fulfilled the role of a development finance company and expanded its base not only in the funding of large industrial or public sector undertakings, or PSU projects, but also short-term maintenance loans. In fact, according to the RBI history, the IDBI Act was amended in order to accommodate the scope of industrial concerns. Some of the criteria that were included in industrial finance were repair, testing or servicing of machinery, vehicles, tractors, etc. IDBI through this amendment was able to extend refinance facilities to state finance corporations (SFCs) and banks that provided assistance for setting up of industrial estates. According to narratives published in one of the issues of the Reserve Bank's history, the Big Daddy, aka RBI, was not too happy with the growing clout of IDBI. RBI had expressed its displeasure over the working of SFCs. It wanted to make SFCs financially viable and efficient. The issue was raised when IDBI was negotiating its second line of credit from multi-lateral agency the International Development Agency (IDA). RBI was not comfortable with this free-hand borrowing of IDBI. In one of the conferences of SFCs, the then RBI governor Jagannathan said "the World Bank's conditionality attached to lines of credit and measures of financial discipline stipulated by the World Bank were the ones that banks should be attaining in own interest. But by the late 60s, it was clear that RBI was losing its grip on the baby it had created. IDBI's de-linking with the central bank was proposed by the 'Administrative Reforms Committee'. In 1976, IDBI was de-linked from RBI and was declared an autonomous development bank. In 2004, IDBI converted itself into a full-fledged commercial bank.
Phishers bank on RBI mail address to bait victims
MUMBAI: In what is being described as an online shock for the Reserve Bank of India, cyber fraudsters masquerading as officials of the country's apex bank have started sending emails to unsuspecting citizens seeking their banking details. While it is still not known if people have actually taken the bait, the RBI has issued an advisory warning against responding to any such mails. The fraud came to light after several people reported having received a mail from the address update@rbi.org.in with the subject 'Important notice to all bank customers in India'. "Dear Account Holder, the Reserve Bank of India has introduced a new security update against online phishing in India. Download the attachment, select the bank you operate and update your account against online phishing," the mail read. Along with the mail is an attachment file and if anyone clicks on the attachment, he or she is directed to another page that has features similar to that of the RBI's official website, an official said. "To secure your credit/debit card, you are then advised to select the name of your bank and enter your information correctly," the official added. "Failure to match your details correctly may lead to permanent account suspension. The Reserve Bank of India apologizes for any inconvenience arising from this action," the mail warns. Alpana Killawala, Chief General Manager, department of communication said, "The RBI never asks for bank account details of any customer and we have not sent any such mails. The Cyber Emergency Response Team of India (CERT-IN), the central agency that monitors all government websites, has already blocked the website after the RBI issued the alert." "We appeal to the public to not respond to such mail or share their bank account details with anyone for any purpose," the RBI said in its alert put up on its website.Take Guard Those who have revealed their account numbers in response to the mail should immediately alert their respective bank. Bank officials should be told to keep them updated about any suspicious transactions through their account. Victims should approach the cyber crime cell of Mumbai police and file a complaint. Killawala said, "Those who have revealed their account numbers in response to the mail should immediately alert their respective bank. They should then also ask the bank officials to keep them updated about any suspicious transactions through their account. They can also approach the cyber crime cell of Mumbai police and file a complaint."
Rich Indians set their sights on properties abroad
April 10--WITH property prices in Mumbai soaring to record highs, many affluent Indians now find it more affordable to acquire a property abroad. Consequently, many rich Mumbai residents are buying properties in cities such as Dubai, Singapore and London, besides a few other locations. The Reserve Bank of India (RBI) under its 'liberalised remittance scheme' allows every resident individual to remit up to $100,000 a year for any current or capital account transaction, or a combination of both. Indians can acquire and hold immovable property or shares or any other asset outside India without seeking the RBI's prior approval. Of course, this facility is over and above the one relating to travel (private and business), overseas education and medical treatment.
Modi urges RBI to help expedite loan disbursals in Bihar
Deputy Chief Minister Sushil Kumar Modi today urged the Reserve Bank of India (RBI) to direct commercial banks to expedite loan disbursals in the state. At a meeting with RBI Deputy Governor Shyamala Gopinath, he informed her about the delays by commercial banks in distributing cheques for loans, including those under education programmes and Kisan Credit Card (KCC). Modi urged RBI to ensure monitoring of the functioning of commercial banks in Bihar and reviewing them regularly. He also apprised Gopinath about non-availability of banking facilities in two blocks - Ghatkutumba in Sheikhpura district and Ismailpur in Bhagalpur district. Besides, 14 other blocks do not have commercial bank branches. Modi asked RBI to strengthen the ''Lead Bank Manager'' in the state for providing better banking facilities. Gopinath assured the state government that the apex bank has given consent to the commercial banks to set up 148 new branches in the state in 2011-12, even as 461 new branches have already been set up across the state. Gopinath, at the same time, directed the state government to provide adequate security to the commercial banks'' branches in the state and set up a ''special battalion'' for the purpose.
Bihar
Financial literacy cell inaugurated at RBI Jaipur
Jaipur : The Reserve Bank of India on Wednesday inaugurated a Financial Literacy Cell (FLC) on RBI premises here. The cell is aimed at promoting financial literacy among citizens. Reserve Bank of India Executive Director V S Das said the cell would help in promoting knowledge about day to day banking transactions, financial proceedings, functioning of Reserve Bank of India and identification of fake currency etc. Reserve Bank of India has a number of programmes in place to promote financial literacy among citizens, including students. The new cell will also provide brochures and other written material on the concerned topic.
Friday, April 8, 2011
Legislation on RBI autonomy - S. S. Tarapore
The Financial Sector Legislative Reforms Commission (FSLRC) held its first meeting on April 5, 2011.The terms of reference of the Commission are wide and, although the term is two years, the task of the Commission is daunting. There are various aspects of autonomy. Some central banks derive their autonomy from traditions while others have legislative autonomy but do not have operational autonomy, and there are yet others that have neither legislative backing for autonomy nor operational autonomy by way of tradition. The Reserve Bank of India (RBI) belongs to this latter group. Central bank policies have to be broadly consistent with overall economic policy objectives, but within the overall framework, the central bank does need an element of operational autonomy. The present RBI Act is archaic and forecloses the effective discharge of responsibilities. There are many lacunae in the RBI Act but a few key drawbacks are set out below. While the government should have the right to appoint the Governor, the procedure should be akin to the appointment of the Comptroller and Auditor General of India, which is a Constitutional appointment. The Governor should have a single, non-renewable tenure of seven years. Such a long tenure is desirable as it would not be co-terminus with the electoral cycle. It would ensure that political economy considerations do not determine the appointment and tenure of the Governor. In the past two decades, the term of the Governor has been two or three years and extended by a year or two. The earlier tradition was a full five-year term (in the recent period there was one notable exception where the appointment has been a full five-year term). Although the Governor is not directly accountable to Parliament, increasingly, Governors are expected to appear before Parliamentary Committees. It would be best if there were a formal periodic deposition by the Governor before a Parliamentary Committee. Dismissal of a Governor should be only through a well-set-out procedure of Parliamentary impeachment, which should be strictly limited to personal malfeasance, bankruptcy or lunacy. The RBI Board members should be appointed by the Board itself, with one-third of the members retiring every four years and no member should have a total tenure of more than eight years. The appointment of Deputy Governors should be made by the RBI Board and there should be a single, non-renewable tenure of five years. This would avoid political patronage. Again, remuneration of the RBI officials should be determined by the RBI Board. The present impasse on the remuneration of RBI officials, being determined neither by the Pay Commission for government employees nor public sector units, is totally untenable. The RBI should not be treated like a poor relative of the system. There should be a requirement under the legislative framework that there should be an Agreement between the Government and the RBI as to the specific objectives of medium-term monetary policy with a clear prioritisation of objectives. This Agreement should be put in the public domain and any amendments should also be placed in the public domain, explaining the rationale for the changes. Once the objectives are set out, the RBI should have instrument independence on how to attain the objectives. There should be a provision in the RBI Act enabling the RBI to set up a Monetary Policy Committee (MPC). A large number of central banks have such a Committee as a legislative requirement. The MPC should be empowered to take decisions on key aspects of monetary policy. The MPC should consist of the Governor, the four Deputy Governors and four external experts, each with a four-year term. One fourth of the external experts should retire each year. The external experts should be remunerated as part-time top management officials. Decisions of the MPC should be by majority vote and the full minutes of the MPC should be put in the public domain after a stipulated period of time. The present Technical Advisory Committee on Monetary Policy is a poor substitute for a MPC with legislative backing and clear responsibilities and accountability. The Report of the RBI Advisory Group on Transparency of Monetary and other Financial Policies (2000) should be revisited by the FSLRC. Similarly, the RBI Board should be empowered by legislation to set up a Board of Supervision consisting of independent experts who should be remunerated as part-time top management. At present, penalties for violations of the regulatory framework are stultifying and are not effective deterrents. The penalties should involve a strong deterrent, such as twice the undue enrichment. The present system of handling financial frauds is permissive and there should be legislative requirements that these cases have to be brought to their logical end within a stipulated period. The Commission should arrange to have a comprehensive comparative study of central bank legislation in a large number of countries which would facilitate its work. There are many other areas where the RBI legislative framework needs to be revamped. The FSLRC has a long journey ahead, indeed!
Chaudhuri takes charge as SBI chief
Ending the uncertainty over senior appointments at State Bank of India (SBI), Pratip Chaudhuri on Thursday took over the chairmanship of the country’s largest lender. Chaudhuri succeeds managing director R Sridharan, who was the acting chairman after O P Bhatt retired on March 31. The government also issued notifications for the appointments of Diwakar Gupta, A Krishna Kumar and Hemant Contractor as managing directors. While Chaudhuri would be at the helm of affairs at SBI for two and a half years (he would retire in September 2013), Gupta’s term would end in July 2013. A Krishna Kumar would enjoy the longest tenure till, November, 2014, while Contractor’s would end in April 2014. Before taking over as chairman, Chaudhuri was deputy managing director, in charge of international operations. The immediate task for Chaudhari and the three new managing directors would be to finalise the bank’s balance sheet for 2010-11. A senior SBI official said Chaudhuri had already stated his priorities to his colleagues. These include improving the net interest margin, getting rid of orgainsational weaknesses, stemming attrition at entry levels and improve lending to agriculture.
Coop banks seek better interest rate regime, regulatory enviorn
Umbrella bodies of cooperative banks today met with the Reserve Bank and demanded deregulation of interest rate regime, besides better regulatory environment to work more effectively. The federations that met central bank Deputy Governor Subir Gokarn at the customary pre-policy meeting included the National Federation of Urban Cooperative Banks and Credit Societies, National Federation of State Cooperative Banks, Maharashtra Urban Cooperative Banks Federation, NBFC body Finance Industry Development Council, and Microfinance Institutions Network. The Governor Duvvuri Subbarao could not attend the meeting as he was indisposed. "We have demanded deregulation of the interest regime in the forthcoming annual monetary policy as in the current interest rate scenario we will continue to bleed. Today we are forced to lend at 7 per cent to the farm sector, while we are paying at least 9 per cent to our depositors. This situation just cannot continue," National Federation of State Cooperative Banks managing director B Subramanyam told PTI after the meeting. He further said the federation has demanded a higher interest subvention at around 4.5 per cent from the current 1.5 per cent. Earlier state cooperatives were getting 2 per cent interest subvention to tide over the borrowing-lending rate mismatch. But last year, RBI had brought it down to 1.5 per cent, he explained. The National Federation of Urban Cooperative Banks and Credit Societies president H K Patil said they have requested the apex bank to facilitate setting up of an umbrella body for them for coordination and growth. "Though the VS Das committee has clearly called for this nearly two years ago, the RBI is yet to come back to us with its views on the report," Patil said. The RBI has, however, agreed to expedite its reply, he added.
Regular meetings with nodal officers help banking ombudsman in Chennai trim complaints
The banking ombudsman in Chennai is taking measures to streamline the functioning and improve the effectiveness of this grievance-redressal machinery. The objective is to ensure that complaints of poor service from customers get addressed in the first instance at the local branch level and the regional level, and only escalated when this option fails. The ombudsman, after instituting regular meetings with nodal officers and senior management of banks, feels that most problems can be sorted out at their level itself. Currently, about 1,000 complaints come in every month to the ombudsman's office. With this mechanism (meetings with nodal officers), the number of complaints has reduced to about 700 a month. In 2009-10, the banking ombudsman in Chennai received the highest number of complaints in the country at 12,727, or 16 per cent of the total complaints, according to the Reserve Bank of India. From 4,585 complaints in 2007-08 it more than doubled to 10,381 in 2008-09, recording the highest number of complaints alongside Delhi. Mr S. Ganesh, who had taken charge as Banking Ombudsman Chennai - Reserve Bank of India last April, told Business Line that complaints are monitored on a daily basis to ensure that resolution happens at the earliest. “Greater focus has been made to trim down the complaints that have been pending for more than three months. With banks being compliant, it makes our job easier”, he said. Mr Ganesh said the awareness level among customers about banking ombudsman could be the reason for the highest number of banking-related complaints. He also said that the region has the least number of awards. Awards are financial compensation paid by banks due to their negligence, to the customers. The nature of complaints are no different from that seen across the country with credit cards and failed ATM transactions accounting for the largest number of complaints. This is followed by complaints related to loans and advances, remittance and pensions. There are few cases which may require excessive documentation which would have to be rejected, according to him. He said, “As we are not investigative authority, the customer can approach any other forum to solve this issue.” While the customer does not pay a penny to get his complaint redressed, the average cost per complaint borne by the RBI is Rs 2,368. The regulator incurs close to Rs 20 crore for running 15 ombudsman offices across the country.
NBFC representatives meet RBI officials, raise industry concerns
Reserve bank of India (RBI) officials on Thursday met representatives from non-banking finance companies (NBFCs) and associations of cooperative banks and discussed the current environment prevailing in the industry. In the customary pre-credit policy meeting, representatives from Finance Industry Development Council (FIDC), an association of NBFCs, met RBI Deputy Governor Subir Gokarn and raised concerns on recent steps taken by the central bank. Also present at the meeting were representatives from National Federation of Urban Cooperative Banks and Credit Societies, the National Federation of State Cooperative Banks, the Maharashtra Urban Cooperative Banks Federation and the Microfinance Institutions Network. A major concern taken up in the meeting was RBI's decision to increase the minimum capital adequacy ratio (CRAR) for deposit-taking NBFCs from 12 per cent to 15 per cent, thereby aligning them with non deposit-taking NBFCs. “The decision by the regulator to increase the CRAR was unwarranted. There are a lot of other requirements which the deposit-taking NBFCs have to comply with, like maintaining 15 per cent SLR. This is not required by non deposit-taking NBFCs. So, this decision was totally unnecessary,” said FIDC Director General, Mahesh Thakkar. NBFCs also demanded that a differential risk weightage system should be introduced for NBFCs to replace the current uniform risk weightage system. “We demanded that risk weightage to commercial auto loans be brought down from 100 basis points to 50 basis points. If this happens, only then can the NBFC sector absorb the impact of the hike in CRAR,” Thakkar said. Currently, all NBFCs have to provide a risk weightage of 100 basis points against all types of advances. The NBFCs also expressed concerns on the current liquidity and inflationary situation. “Though there are signs of liquidity easing, interest rates have to come down, as they are already eating into the margins of companies,” said an NBFC official. “We have demanded the deregulation of the interest regime in the forthcoming annual monetary policy, since in the current interest rate scenario, we would continue to bleed. Thursday, we are forced to lend at 7 per cent to the farm sector. But we pay 9 per cent to the banks. This situation just cannot continue,” National Federation of State Cooperative Banks Managing Director, B Subramanyam, said after the meeting. “Earlier state cooperatives were getting 2 per cent interest rate subvention to tide over the borrowing and lending rate mismatch. But last year, RBI had brought it down to 1.5 per cent,” Subramanyam added.
RBI may not extend liquidity support beyond April 8
The Reserve Bank of India (RBI) may not extend the additional liquidity support of 1 per cent Statutory Liquidity Ratio (SLR) and the second Liquidity Adjustment Facility (LAF) window beyond April 8. Bankers say the additional liquidity support is not needed as of now, as the liquidity pressure has eased. RBI had introduced these measures on December 18, 2010 and had extended the measures till April 8, 2011, citing tight liquidity conditions in its third quarterly review of the monetary and credit policy, in January. “Most banks, especially public sector ones, are currently holding excess SLR. Hence, there is no need to extend the facility,” said a public sector bank treasury official. He said the liquidity condition is expected to remain comfortable till June, after which the credit offtake usually picks up. “Now that the market is lending to RBI, these measures may not be needed at the moment. I don’t see liquidity pressures till mid-June,” said Moses Hardings, head, global markets, IndusInd Bank. Net LAF has been positive since the beginning of financial year 2011-12. RBI had provided the liquidity support to scheduled commercial banks under the LAF, to a maximum of 1 per cent of their net demand and time liabilities.
Banks fall short of RBI deposit growth target
Banks have failed to meet the Reserve Bank of India’s (RBI) deposit growth target 18% year-on-year in the last fiscal. The year-on-year deposits growth for the fortnight ended March 25 was 15.84% or Rs5,204,702.64 crore. The main reason for this, said bankers, was high inflation. “Deposits haven’t grown as projected because of tight money market position and inflation,” said Ramnath Pradeep, chairman and managing director, Corporation Bank. Analysts said banks are to blame too since they were tardy about growing deposits in the first half of the last fiscal because they were sitting on ample funds. They scrambled to mop up deposits in the second half when the liquidity began to tighten drastically. This meant banks had to increase deposit rates. In all, deposit rates rose 250 basis points in the last fiscal,” said Nitin Kumar, deputy vice-president, Quant Broking. Bankers feel low government spending and investor preference for other avenues also resulted in low mobilisation of deposits. “Deposit is not only a function of interest rates. Low government spending was also a reason,” said R K Bansal, executive director (retail banking), IDBI Bank. Bansal said despite good deposit rate hikes, some people preferred investing in equities or some other government saving schemes depending upon their needs.
Mahesh Coop Bank branch opened
Hyderabad: Mahesh Bank has opened its 34th Branch at Motinagar, Near Borabanda, Erragadda, Hyderabad. Sri Kasu Venkata Krishna Reddy, Hon’ble Minister for Co-operation has inaugurated the branch. Mahesh Bank is progressing well year on year and advised to extend a helping hand for upliftment lower middle class particulary needy of downtrodden sections society, he said. Sri A.S.Rao, RD, RBI, Hyderabad, Chief Guest of the function said that Mahesh Bank is expanding its presence at several centres and operating prudently everywhere. He further said the bank has never exhibited any inhibitions in extending customer service and through its redressal mechanism, corporate governance, expansion of outreach the bank has set up an effective customer service. He has also complimented the bank for having chosen the underbanked area like Motinagar to have its presence. Sri Manam Anjaneyulu, Hon.President, A.P.Co-op.Urban Banks & Credit Societies Association said that Mahesh Bank has stood as a model bank as several banks have been following it in terms of its discipline, adoption of technology and imparting training to staff. While the differences and the gap caused by globalization is fulfilled by UCBs, Mahesh Bank has been endeavouring for betterment of lives of lower middle and middle class sections of society of State. He requested the State Government and regulatory authorities to extend co-operation to the co-operative sector so that the UCBS can discharge the social responsibilities more effectively. At the same time, co-ordination is required in this direction among Government, RBI, Management and Staff. Mahesh Bank has become a part of growth story of urban banking sector of the State, Smt. Nanda Dave, GM,RBI, Hyderabad said. Among 106 UCBs under Hyderabad RBI jurisdiction, Mahesh Bank has shown an increasing trend in its profits and as well as in networth. It has occupied a rightful place in banking sector with its diversified customers, she stated.
Thursday, April 7, 2011
Mastercard Faces Domestic Challenge in India
The National Payments Corporation of India (NPCI) has finalized the commercial launch of the proposed India card which would be a domestic alternative to the global payment processing firms. MasterCard, the second largest global payment solutions company, provides a variety of services to support the credit, debit and related card payments of over 24,000 financial institutions. Given the size of India, this could have an impact on MasterCard's international transactions growth. Its main competitors are Visa, American Express and Discover Financial. Transaction processing, the major revenue source for MasterCard, constitutes about 32% of the $293 Trefis price estimate for MasterCard's stock. The Reserve Bank of India (RBI) in 2009, had asked the Indian Bank Association to launch a non-profit payment solutions company to meet the requirements of domestic banks. After almost two years of planning, NPCI has finalized the name of the proposed card as Rupay, which will launch later this year. The Rupay will resemble China's Union Pay, the domestic real-time payment processing firm for Chinese banks. RBI, in its vision paper on payment systems in India, said that the need for such a system arises from two major considerations: (1) the absence of a domestic price setter has caused the Indian banks to bear the high cost for affiliation with international card associations; and (2) the connection with international card associations resulting in the need for routing even domestic transactions, which account for more than 90% of the total, through a switch located outside the country.
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