Microfinance industry in India seems to be in a real state of confusion. First, the industry facing setback of the RBI guidelines on securitization of short term loans making it impossible for microfinance loans to be securitized and leaving MFIs to depend on bank borrowings as a funding source. Then the microfinance institutions facing the ripple effects of the Andhra Pradesh government’s ordinance, borrowers defaulting; rising defaults, banks pulling credit and shying away from any further lending or securitizing loan pools leaving the cash strapped microfinance institutions with no other option but recasting their debt by banks and financial institutions. Just then, in such a state of frozen credit, banks were reported to provide additional line of credit of Rs 1,500 crore to MFIs to achieve their targets in the financial year 2010-11. Despite micro lenders facing several defaults, this came as a sign of relief to the microfinance institutions. It was a double whammy when the finance ministry said it was mulling over reviewing the portfolio of public sector banks to ensure they were lending directly to the priority sector and not buying loans from regional rural banks (RRBs) or microfinance institutions (MFIs) to meet their priority sector lending requirements. The ministry felt that the purpose of emphasizing on priority sector lending for banks to channelize lending to agriculture and weaker sections was getting lost. Another difficulty glaring at the face of microfinance institutions and bankers is, while the banks are continuing to gain exposure in MFIs by way of securitization, as it is considered as direct lending to the priority sector, the MFIs are topping the banks list of non-performing assets. In such a scenario the Indian Banks Association had requested RBI to relax its restructuring guidelines, for the MFI sector as the benefit of Prudential Guidelines on Restructuring of Advances by Banks are available to the dues to the banks that are fully secured, while the bank loans to MFIs are mostly unsecured. Taking stock of the situation, RBI vide circular RBI/2010-11/376 DBOD.BP.BC.No. 74 /21.04.132/2010-11 dated 19th January, 2011 provided the relaxation that special regulatory asset classification benefit would be extended to restructured MFI accounts which are standard at the time of restructuring, even if they are not fully secured. The relaxation was granted as a temporary measure and was to be made applicable to Standard MFI accounts restructured by banks up to March 31, 2011. RBI had also advised that the banks should adopt the consortium approach for restructuring where all the banks financing and MFI would decide on the course of action to be taken for that unit. RBI further looked at the Malegam Committee to resolve issues with regard to priority sector lending and restructuring of debts, the focus of the report was only on making the loans affordable and looking for a rationale for rate of interest charged. It is estimated that almost a third of the loans that banks have given to microfinance institutions would be admitted for restructuring. Each MFI would have a core team of 10 lenders who would discuss restructuring of loans of that MFI. There are some banks wanting to restructure the securitized loans along with other loans and have requested Reserve Bank of India to treat these loans on par with microfinance loans as without restructuring these loans the loans would become non-performing. Also if securitized loans become non-performing the provisioning requirements would go up impacting the bank’s balance sheets. The Malegam Committee report stated that the assigned and securitised portfolios held by banks as at 31st March 2011 are believed to aggregate to around Rs. 4200 crores. While there is opposition from several banks, but if Reserve Bank was to accede to the request, the very essence of securitization may be lost. This would tantamount to securitized loans pools to be nothing but loans extended to the MFIs in the garb of securitization and in such a case the so called securitized loans should not go off the books of the MFI. Once the asset sale takes place, the risk is transferred. Securitised loans are not a matter of convenience and cannot be treated as such. The industry in the recent times has faced tumultuous times and ironing of these is the need of the hour.
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Sunday, April 17, 2011
India for effective framework to deal with global imbalances
Washington, Apr 16: India has pressed for an effective G-20 framework to address the problem of structural imbalances and ensure sustainable growth of world economy. "The success of this initiative (of G-20) is critical for a durable global economic recovery and for better economic and financial governance," Reserve Bank Governor D Subbarao said at the G-20 ministerial meeting. The G-20, which is a club of developed and emerging economies, is currently engaged in formulating guidelines for identification of large imbalances and suggesting corrective steps. The structural imbalances refer to problems pertaining to high public debts, huge forex reserves, etc. He further said the leaders of G-20 tasked the central banks to formulate indicative guidelines for identification of persistently large imbalances requiring corrective action, including their root causes and impediments to adjustment. "We now need to finalise these guidelines... this would focus on root causes, impediments to adjustment and corrective policies and actions," Subbarao said. He added an effective outcome is needed to provide a signal the G-20 is not only serious in ensuring strong, sustainable and balanced growth for the world economy going forward, but it also intend to create an effective and relevant institution for addressing current structural problems in a fast evolving global economy. Talking about debt, he said in India the public debt is predominantly domestic and therefore India’s potential to influence global systemic imbalances because of public debt is negligible if not nil.
Currency Intervention Shouldn't Be a Part of Trade Policy, Subbarao Says
Countries should not use currency intervention as a part of trade policy, and should allow economic fundamentals to dictate exchange rates, said Duvvyri Subbarao, Governor of India’s central bank. “Letting exchange rates remain aligned with economic fundamentals, and an agreement that currency interventions should not be resorted to as an instrument of trade policy should be central to a coordinated approach at a multilateral level,” Subbarao, who is chief of the Reserve Bank of India, said today in the text of a speech to the International Monetary and Financial Committee in Washington. The comments are part of a weekend of meetings during which Group of 20 nations officials outlined methods to decide when indicators, including budget deficits and external trade balances, appear excessive. India is among the seven countries targeted for further study. The global recovery may be “jeopardized” by a sustained rise in oil prices, and food-supply constraints are also causing volatility in prices, Subbarao said in a separate statement to the IMFC, the steering committee of the IMF. Regarding capital flows into developing economies, Subbarao said that managing such flows “should not be treated as an exclusive problem of emerging market economies.” While growth prospects of emerging markets and their declining rates of inflation are helping to pull in capital, advanced economies are also pushing capital flows with “easy monetary policies,” he said. Countries must collectively work to stem protectionism and resist the short-term pressures that are likely to grow in coming years, Subbarao said. “Covert protectionism has been on the rise,” he said in the speech. The challenges of a single reserve currency for the world have become apparent, and while a solution must be developed, the Special Drawing Rights don’t yet satisfy the conditions for an alternative, Subbarao said. “We see the move to a multicurrency world as a gradual evolution,” he said.
2G scam: RBI governor’s letter shows how Raja ignored objections
The Central Bureau of Investigation’s (CBI) probe into the 2G scandal has revealed that former telecom minister A Raja and his associates had blatantly ignored serious objections about spectrum pricing raised by the ministry of finance’s department of economic affairs. In his statement to the CBI, the RBI governor, D Subba Rao, who was then the finance secretary, has said he had raised objections to the department of telecom’s (DoT) decisions on 2G spectrum allocation. On November 22, 2007, Rao had written to the DoT, stating, “The purpose of this letter is to confirm if proper procedure has been followed with regard to financial diligence. In particular, it is not clear how the rate of Rs1,600 crore, determined as far back as in 2001, has been applied for a license given in 2007 without any indexation, let alone current valuation. Moreover, in view of the financial implications, the ministry of finance should have been consulted in the matter before you had finalised the decision.” The letter further said, “I request you to kindly review the matter and revert to us as early as possible with responses to the above issue. Meanwhile, all further action to implement the above licenses may please be stayed.” Rao further said that a full telecom commission meeting was called on December 7, 2007. “Pricing of spectrum was not an agenda item for this meeting. Later, a meeting of the telecom commission was also scheduled for January 9, 2008, wherein pricing of spectrum was an agenda item. However, this meeting was rescheduled by the DoT to January 15, 2008,” Rao has told CBI. However, before the meeting could take place, DoT issued a letter of intent to telecom operators.
Saturday, April 16, 2011
RBI Conflicted Managing Interest Rates, Bond Sale: India Credit
April 15 (Bloomberg) -- The Reserve Bank of India is facing conflicts in its dual role of fighting inflation and managing the government's debt issuance, according to former governor Bimal Jalan. The most-active 2022 bonds are headed for a third week of losses, with the yield reaching a two-month high of 8.26 percent as the Reserve Bank held the first government debt auction of the fiscal year on April 8 and prepared to meet to set monetary policy on May 3. Jalan, chairman of the Centre for Development Studies, said policy makers may be discouraged from raising interest rates to keep price increases in check. Rupee notes have lost 0.6 percent this month, the worst performance among 10 Asian local-currency debt markets outside Japan, according to indexes compiled by HSBC Holdings Plc. Wholesale prices rose 8.98 percent last month after gaining 8.31 the previous month, four times the rate in the U.S. and the highest among BRIC economies except Russia. "There is always some tension and some trade-off if you're managing government debt," Jalan said in an interview on April 11. "If you're a borrower, whether you acknowledge it or not, the only way is to try and keep interest rates lower than they should be." The yield on 7.8 percent notes due April 2021 rose six basis points, or 0.06 percentage point, to 8.00 percent today, according to data compiled by Bloomberg. The Reserve Bank raised 120 billion rupees ($2.7 billion) from the April 8 sale, which included new 10-year bonds. Inflation in the nation, where 66 percent of the population lives on less than $2 a day, has climbed from an 11-month low of 8.08 percent in November. The difference in yields between the nation's 10-year bonds and similar-maturity U.S. Treasuries has widened to 451 basis points from this year's low of 436 reached on April 8. "The RBI needs to be vigilant and look at whether these increases are becoming more persistent," Namrata Padhye, a Mumbai-based economist at IDBI Gilts Ltd., said in an interview on April 13. In the U.S., the Federal Reserve sets interest rates while the Treasury manages government issuance. Most OECD countries established independent debt-management offices in the 1980s and 1990s, while emerging-market economies including Brazil, South Africa and Argentina have restructured public finances. Most countries "don't have this sort of a problem, but in our situation it has evolved over years," said Jalan, 70, who led the central bank from November 1997 to September 2003. The Reserve Bank and the Finance Ministry have examined the separation of roles since 1991, with the central bank's 2000-01 annual report "unequivocally" recommending the move. There is a "severe conflict of interest between setting short-term interest rates and selling bonds," according to a finance ministry report in 2008. Finance Minister Pranab Mukherjee said in his budget speech on Feb. 28 the government will introduce legislation to set up an independent debt-management office. "Establishing a separate debt office earlier would have helped," said Deepali Bhargava, an economist at the Indian unit of ING Groep NV in Mumbai. "Maybe the Reserve Bank could have had a better hold on inflation today." Finance Minister Pranab Mukherjee aims to reduce the shortfall in the government's finances to 4.6 percent of gross domestic product from an estimated 5.1 percent in the prior 12 months. The International Monetary Fund estimates the gap in the government's finances will be the highest among the BRIC economies at 8.5 percent of gross domestic product in 2011, including the gap in state government budgets. The central bank, which next meets on May 3, will raise the benchmark repurchase rate to 7 percent by end-June from 6.75 percent now, according to Royal Bank of Canada. "The deficit is falling at a very slow pace and that just means that the onus is on the RBI to do all the work" on fighting inflation, Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong, said in an interview on April 8. The deficit "is a consideration which guides how quickly they can go on interest rates," he said. The rupee has dropped 1 percent this week on speculation oil refiners stepped up dollar purchases to pay for costlier crude imports. Oil for May delivery was at $108.23 a barrel on the New York Mercantile Exchange, taking this year's gains to 18 percent. The currency traded at 44.461 per dollar today, according to data compiled by Bloomberg. "Inflation globally is being caused by a rally in commodity prices like oil," said N.R. Bhanumurthy, a New Delhi- based economist at the National Institute of Public Finance and Policy. "The RBI has limited tools at its disposal to influence" external factors, he said. The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has increased three basis points to 166 this month, according to CMA prices. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt. "The setting up of a debt management office is overdue, but at least it is getting done now," Dharmakirti Joshi, Mumbai-based chief economist at Crisil Ltd., a unit of Standard & Poor's Ratings Services, said in an interview on April 13. He predicts inflation will range from 7 percent to 8 percent over the next six months if oil prices drop to $90 a barrel.
RBI Penalizes Four Gujarat Co-operative Banks for KYC/ AML Violations
Mumbai (ABC Live): The Reserve Bank of India imposed a monetary penalty of Rs. 5.00 lakh (Rupees five lakh only) on The Siddhi Co-operative Bank Ltd., Ahmedabad. The penalty was imposed for violation of RBI instructions/directions on Know Your Customer (KYC) / Anti Money Laundering (AML) and for submitting improper compliance of the observations made in its last inspection report. The Reserve Bank had issued a show cause notice to The Siddhi Co-operative Bank Ltd. The bank submitted a written reply in response to the Show Cause notice and after considering facts of the case, the bank's reply and personal submissions in the matter, the Reserve Bank concluded that the violations were substantiated and warranted imposition of penalty. The Reserve Bank of India has imposed a monetary penalty of Rupees five lakh on Shri Vinayak Sahakari Bank Ltd., Ahmedabad, Gujarat for violation of Reserve Bank of India instructions on unsecured advances, Know Your Customers (KYC) norms and Anti Money Laundering (AML) guidelines, shortage in cash balances, opening of benami accounts and violation of Dos' and Donts' prescribed for board of directors. The Reserve Bank of India has imposed a monetary penalty of ` 1.00 lakh (Rupees one lakh only) on The Suvikas Co-operative Bank Ltd., Ahmedabad, Gujarat for violation of Reserve Bank of India instructions on Know Your Customers (KYC). The Reserve Bank of India has imposed a monetary penalty of Rupees one lakh on The Botad People's Co-operative Bank Limited, Botad, Dist. Bhavnagar for violations of Reserve Bank of India instructions in respect of reporting of cash transactions above ` 10.00 lakh to Financial Intelligence Unit-India (FIU-IND), New Delhi, non compliance of Know Your Customers (KYC) norms and persistence of irregularities pointed in previous inspection report.
Single rate, multiple realities : A Seshan
There are several caveats in the assumptions made by RBI?s working group. The working group on operating procedure of monetary policy – appointed by the Reserve Bank of India (RBI) – has done a timely and professional job in its report. Its findings are supported by empirical evidence and provide the rationale for recommendations it made in relation to the liquidity adjustment facility (LAF). However, a few caveats are in order. First, the working group refers to the policy rates of different central banks. The proposal is that following them, India too should have a single policy rate and other official rates should be linked to it. The fact is that there is a hierarchy of policy or official rates. The cut-off or implicit yields in the auctions of treasury bills and dated securities are as much indicative of the policy stance of the central bank as the repo rate recommended by the working group. These rates cannot in any way be linked to the repo rate because they depend on the demand and supply factors in the market. As a governor of the Bank of England once said, the central bank is as much guided by the market in rate setting as it is the other way round. The single policy rate obtains in the UK and Japan and it is the lending rate. The three key interest rates of European Central Bank (ECB) are: (1) the interest rate on the main refinancing operations (MROs), which normally provide the bulk of liquidity to the banking system. The Eurosystem may execute its tenders in the form of a fixed rate or variable rate tenders; (2) the rate on the deposit facility, which banks may use to make overnight deposits with the Eurosystem; and (3) the rate on the marginal lending facility, which offers overnight credit to banks from the Eurosystem.(See http://www.ecb.int/mopo/decisions/html/index.en.html). As far as the US Federal Reserve is concerned, its Discount Rate is as much a policy rate as the targeted Federal Funds Rate (FFR). In the normal course of things, purchases or sales of securities by the Federal Reserve, whether outright or temporary, are its principal tool for influencing the supply of balances at the Federal Reserve Banks and FFR. It is not clear whether the working group expects RBI to intervene in the market through open-market operations on a daily basis, as in the US, to influence the market rates. The linking of a comfortable level of deficit or surplus as a proportion to the total Net Demand and Time Liabilities (NDTL) of banks, based on the results of the econometric exercises presented in Technical Appendix II, raises the question on its relevance to the estimated growth of the gross domestic product (GDP). Since the central bank has a multiple-indicator approach, it should take an overall view of conditions in the economy in relation to the expected GDP growth rate (nominal as well as real) and decide on the deficit or surplus that it can live with. A mechanical linking of the amount to NDTL can be misleading, especially when there are technical or autonomous factors, like currency in circulation and government balances with RBI that are beyond the central bank’s control. The reverse repo rate needs to be determined keeping in view, inter alia, the problem of carry trade and not the repo rate alone. The proper course is to intervene in the market to bring its rate within the desired corridor, irrespective of the size of the deficit or surplus. The working group’s preference for the deficit mode in liquidity is influenced by its finding that monetary policy is more effective when the market is in surplus. Monetary policy is a means to an end. The objective is to promote growth with price stability. If the surplus mode does not pose a threat to price stability, then so be it. It keeps the rates lower than otherwise. One should normally expect a deficit situation in a growing country devoted to price stability unless there is money creation to finance fiscal deficits or there is a foreign inflow of funds that are not sterilised. The cash reserve ratio (CRR) is still very much in the armoury of many central banks, developed or developing. China has been using it to the hilt as RBI did in the past. Although I have argued elsewhere that it is not financial repression, as claimed by Western economists, the central bank may revisit the idea of paying interest on the reserves of commercial banks. In fact, both the Fed and European Central Bank pay interest not only on the required reserves but also on excess reserves — consider it yet another instrument for monetary policy! The cash reserve ratio should be the ultimate brahmastra for RBI to deal with liquidity problems, although in Hindu mythology it could be used only once.
The author is an economic consultant and was a former Officer-in-charge in the Department of Economic Analysis and Policy at the Reserve Bank of India.
Malegam report may be part of monetary policy
Mumbai: Banks and microfinance institutions (MFIs), which are eagerly waiting for the implementation of the Malegam report by the Reserve Bank of India (RBI), will have to wait till May 2 when the central bank will announce its annual credit and monetary policy. It was expected that RBI will announce the implementation of the report in April first week. “RBI will make announcements on Malegam panel in the credit policy,” sources at RBI said. In October 2010, RBI constituted the Malegam Committee to study the state of MFIs in the country. The committee, which submitted its report on January 19, suggested among other things capping interest rate at 24% for MFI loans. The committee also suggested that small loans cannot exceed the Rs 25,000 ceiling and asked for creation of a separate category of non-banking financial companies (NBFC-MFI) for the MFI sector. Finance minister Pranab Mukherjee in his Budget 2011-12 had announced creation of an equity fund of R100 crore for MFIs, which would help the cash-strapped sector to continue lending to small borrowers. Dalli Raj, CFO, SKS Microfinance, said, “We think it is a very positive report for the sector. First, it brings in regulatory clarity and it says that the RBI will act as a sole regulator for the sector.” Raj further said the implementation of the report would ensure in funding certainty, because it had reinstated priority sector status for the bank loans to MFIs. Finally, the report called for the withdrawal of Andhra Pradesh MFI Act. “SKS has not asked for any kind of restructuring of exposure of banks to the company as we have go a strong networth of R1,850 crore and our exposure to the state of Andhra Pradesh was only 25% of our total loan portfolio. Still, our concern being that banks must start funding to the sector in a big way so that it results in augmenting the credit flow from the banks to the MFI sector,’’ he said. However the microfinance industry, which of late has witnessed slowdown in business said banks are shying away from advancing loans to them.
Gokarn to lead working group on savings
Mumbai: The government has formed a working group on savings for the 12th Five Year Plan under the chairmanship of Subir Gokarn to suggest measures to boost savings in the country. The 12th Five Year Plan begins in 2012-13. The committee, which met for the first time in New Delhi last week, has been asked to submit its report before the government within six months from now. Chaired by Gokarn, the meeting also was attended by officials from the Planning Commission, RBI, State Bank of India, Nabard and Sidbi. Being the first meeting of its kind, the panel asked different members of the committee to come up with their notes on various issues relating to savings like how to estimate the small savings in the future and how to bridge the savings gap and so on, a member of the committee told FE. “We also discussed what could be the savings estimate for the proposed plan period,” a member of the committee said, and added it was also decided to form another sub-group to dwell upon financial issues on small savings.
Mobile Banking In India Dominated By State Bank of India
Mobile transactions in India have not yet reached the scale of online banking transactions yet, but a significant majority of transaction volumes are being dominated by one bank – State Bank of India, the country’s largest public sector bank. According to data retrieved from the Reserve Bank of India (RBI) by MediaNama using the Right To Information Act 707,496 mobile banking transactions, Rs. 61.61 crore were reported for the month of February 2011, of which as many as 529,318 transactions (74.81% of total) and Rs. 32.63 crore transacted (52.96% of total) were from customers of State Bank of India. There was a decline in transactions month on month, with 7,24,682 transactions and Rs. 62.77 crore reported in total for January 2011. Readers might recall that in February 2011, the One Time Password second factor of authentication was introduced by Banks, following a notification from the RBI. Cleartrip, for one, had reported a decline in mobile ticketing at the beginning of the month. All in all, there has been growth in transaction volumes and amounts since September 2010, when 499039 transactions of value Rs. 43.79 crores had been reported. As as aside, Central Bank of India reported just one mobile banking transaction in Feb 2011, worth Rs. 5000. We’ve received fairly granular information today – transaction volumes and value, segmented by bank, for every month since May 2009. Unfortunately, we’ll have to type out all this information, since what we have is in the form of printouts. Hopefully, by the end of next week, we should have responses to six other RTI requests, made of DAVP, DoT, the Income Tax department, Indian Airlines, MTNL and BSNL. As we’ve mentioned before, we believe government data should be made public, accessible and usable.
medianama.com
DARE TO LEAD: THE TRANSFORMATION OF BANK OF BARODA
The refurbishing of the BoB brand is one of the success stories of public sector banking in India. The story of how it was done, told by the former CMD Anil K Khandelwal . He presents it as a memoir, in problem-diagnosis solution format.
Sage, Rs. 795 THE WANDERING FALCON
Friday, April 15, 2011
Nashik's BoM branch gets rolling trophy Award presented for loan disbursals to SC/ST community
The Umrale (Nashik) branch of the Bank of Maharashtra (BoM) was awarded the 'Bharat Ratna Dr Babasaheb Ambedkar Best Branch Rolling Trophy' on Thursday. The Umrale branch's performance was the best among the 1,536 branches of BoM in India. The award including a trophy and a cash prize of Rs25,000 was handed over to VV Varahagiri, manager of Umrale branch, by S Karuppasamy, Executive Director of the Reserve Bank of India (RBI). Explaining the concept behind giving away the trophy, J Somnath Sastry, assistant general manager, marketing and publicity, BoM, said, "This is the first-ever Bharat Ratna Dr Babasaheb Ambedkar award for excellent performing branch in the area of disbursement of loan and recovery from the scheduled castes (SC) and scheduled tribes (ST) community. Twelve branches were short listed for the award but the Umrale branch bagged the trophy." This award is given away on the birth anniversary of Dr Babasaheb Ambedkar on April 14 every year. The function took place at Appasaheb Jog Hall, Bank of Maharashtra Central Office. Sastry said the Umarale branch had distributed an amount of over Rs5.62 crore with a recovery rate of around 90%. Chairman and managing director of BoM, AS Bhattacharya, who conceptualised the idea of instituting a rolling trophy in the name of Babasaheb Ambedkar, was also present at the function.
RBI launches industrial outlook survey
The Reserve Bank of India on Thursday, launched its Industrial Outlook Survey for the April-June, 2011 period. The survey gives an insight into the perception of non-financial public and private limited companies engaged in manufacturing activities about their performance and future prospects. The assessment of business sentiments for the present quarter and expectations for the ensuing quarter are based on qualitative responses to 20 major parameters. These include overall business and financial situations, demand indicators, price and employment expectations, profit margins, etc. The survey provides useful forward looking inputs for policymakers, analysts and businesses, it said. The RBI has mandated the Centre for Research Planning and Action (CERPA) to conduct the survey for the current quarter on its behalf.
Thursday, April 14, 2011
25 paise? Not acceptable
KOCHI: The announcement of the Reserve Bank of India to withdraw 25 paise coin has raised confusion among the people with many refusing to accept it. The worst hit are the bus operators who have to bear the brunt of this announcement. The bus conductors are facing problems to convince people that the coin is still in circulation. The RBI has made it clear that the 25 paise coin is still a legal tender and will continue to remain in circulation until June 29. Sources in the RBI said that refusing to accept the coin would be a crime. They said the RBI had announced the decision much ahead, and it had specifically stated that the date on which it would cease to function would be announced later. “This is a big headache. We have to take the wrath of the public for no reason,” a bus conductor said. “Some passengers can be convinced easily. But a few insist for higher denomination coins.” The RBI officials have further said that the 25 paise coins can be exchanged at listed banks after June 29.
RBI halts NBFC licenses till review of finance co rule: Report
MUMBAI, APRIL 13: 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, Economic Times said Wednesday citing unnamed sources. 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 that it may not issue one till the new rules come into force, the paper said. It might take RBI two to three months to come out with its new guidelines. Jain Irrigation and German electrical equipment-maker Siemens 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 license for such a company. 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 former Deputy Governor 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 Rs. 15 trillion.
Insurance on bank accounts
Even if you have multiple accounts, when the bank goes into liquidation, it will pay only Rs 1 lakh. When a bank goes into liquidation, what happens to our hard-earned money that we believed was safe? The government has constituted the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures and covers all accounts of schedule banks recognised by the Reserve Bank of India (RBI). Deposits in scheduled banks are insured up to Rs 1 lakh. So, if a bank goes into liquidation, the depositor is paid up to a maximum of Rs 1 lakh. However, there are some interesting points. Even if an individual has multiple accounts spread across various branches of the bank, the amount paid would be Rs 1 lakh. In other words, the insurance cover is for the actual amount of loss, subject to a maximum of Rs 1 lakh per individual per bank, regardless of the number of accounts and branches in which the amount is deposited. However, if the same individual operates different accounts in different capacities, each account would be insured up to Rs 1 lakh separately. In the case of joint accounts, accounts in various combinations of the same persons are added together and the combined total is insured up to Rs 1 lakh. Thus, when there are two accounts — one in the name of husband and wife and the other wife and husband — the insurance on the two accounts will be Rs 1 lakh. However, if the husband has one independent account and the wife has another, each account would be separately insured up to Rs 1 lakh. Although, logically, this may sound absurd, the scheme of insurance has been drafted in this fashion. A company called Hardayal Singh Patel was engaged in civil and government contract works. It was required to furnish security by way of fixed deposits for undertaking the contracts. It deposited various amounts in 29 different fixed deposits, placed with Indira Priyardarshini Mahila Nagrik Sahakari Bank Maryadhit.Due to financial bungling and internal misdeeds, the bank went into liquidation. Its licence was revoked by RBI, and an official liquidator was appointed by the state government under the Cooperative Societies Act. When the company asked for a repayment of its deposits, only Rs 1 lakh was paid. So, it filed a consumer complaint, but it was dismissed. Next, the company appealed to the National Commission, alleging the state government had failed to exercise control over the bank and the audit inspections were not carried out in time, because of which the bank’s office bearers could misappropriate large amounts. The company contended that its deposits should not be clubbed for the purpose of the DICGC scheme, as these pertained to security for different contracts. The National Commission observed that its arguments were neither reasonable nor justified in view of the provisions of the DICGC scheme. It held that it was not entitled to any preferential treatment over other depositors, who have also to be paid from the funds made available under the scheme. Since the entitlement under the scheme had already been paid, the dismissal of the complaint was in order. However, the commission clarified in case the liquidator succeeds in recovering the amounts from the defaulters and from those who have misappropriated it, the amount so recovered would have to be distributed proportionately to all depositors. With this observation, the company’s appeal was also dismissed. We must ensure that we deposit our money in well-established banks to minimise risks. Also, considering the present times, the DICGC scheme requires to be revised to increase the insurance limits.
Jehangir B Gai - The author is a consumer activistBanking facilities for select MP villages by 2012
After a slow progress of the financial inclusion drive last year, bankers have set a target to provide banking access to each village above a population of 2,000 by 2012. The state, according to bank data, has only 2,736 villages out of a total of 52,000, which have a population above 2,000. Bankers in the state have, however, no immediate plans to cover those villages which have a population below 2,000. “We will cover all villages above 2,000 population under the financial inclusion programme by 2012,” S Sridhar, chairman of Central Bank of India, and state level bankers committee said here. The state government had earlier refused bankers’ demand of two per cent commission to execute the task. During year 2008-09, a huge amount under various government sponsored schemes like NREGA was lying in the state’s kitty, as the Central government had made payment of these schemes mandatory through banking. Last year, the state government had warned the bankers it would otherwise use its own cooperative and regional rural bankers’ network if the financial inclusion programme or banking facility in rural areas was not ensured. “Now, private bankers are also actively participating in financial inclusion programme,” Sridhar said. Adding, “We will hopefully attain the targets by December. We will also be covering more villages through IT-enabled financial inclusion programme in unbanked (sic) villages”. The state has 5,460 bank branches and 2,673 automatic teller machines. Labourers and farmers have to either toil miles to reach a bank or wait for more than a month for the payment to come into their accounts. “There are cases in tribal-dominated areas where bankers deny immediate payment to labourers and it takes a month or more for them to claim their remuneration,” a senior state government official informed Business Standard, adding, “The state government is persistently urging bankers to ensure banking facilities in rural areas through IT-enabled financial inclusion programme but there is no breakthrough”. In February, Reserve Bank of India Governor D Subbarao, on his visit to Bhopal, had also asked bankers to achieve the target of providing banking facility to all villages with more than 2,000 population by 2012.
Bank of America can continue to lend to RIL
Bank of America, one of the largest banks in the US, can continue to lend to Reliance Industries (RIL), the largest Indian conglomerate in terms of market capitalisation, according to sources in the Reserve Bank of India (RBI). Following RIL Chairman Mukesh Ambani’s induction on the Bank of America board, there were issues whether the US banking behemoth, which operates in India through branches, could lend to RIL. According to the Banking Regulation Act, a bank cannot lend to a company whose promoter is on its board. Since Ambani was an independent director and not a member of the bank’s local management committee, the US lender can continue to lend to RIL, sources said. According to laws, if a bank inducts a member into its board, it cannot grant fresh loans to the company, which the board member represents. Existing term loan facilities would continue till the contract expires, but the bank needs to stop working capital loans immediately, once an individual becomes a board member of the bank. Last month, Ambani became the first non-American on the board of one of the largest financial institutions of the world. Ambani would serve on the board’s compensation-and-benefits committee and the credit committee. The bank has sought shareholders’ approval for Ambani’s appointment in its upcoming annual general meeting on May 11. Bank of America had informed the US market regulator that it had allotted 1,835 shares, worth over $24,500 (about Rs 11 lakh), to Ambani as a “portion of the annual retainer” payment to its directors. Ambani may get a total of over Rs 1 crore of annual compensation in cash and stocks, going by the bank’s director compensation policy. However, Bank of America has not disclosed its specific director fees for Ambani. As chairman and managing director of RIL, Ambani was paid Rs 15 crore for the financial year ended 31 March, 2010.
Rural services: RBI unhappy with banks' performance
SRIKAKULAM: Reserve Bank of India is dissatisfied with the poor progress of the banks in providing banking facilities for the rural areas with more than 2000 population. The RBI officials have identified that 6,999 villages in Andhra Pradesh could be provided banking facilities, but in reality only 840 villages have been given an opportunity to transact with the nearby branches. Districts such as Srikakulam are also lagging behind in achieving the targets of RBI officials. As per the new guidelines, the banks have to appoint business correspondents to open new accounts and take up transactions where there are no branches for the respective banks. Only State Bank of India and Andhra Bank are ahead of others in implementing the guidelines of the RBI in Srikakulam district. SBI-Ramalaxmana branch has started ‘banking on bike' two months ago to provide hassle-free services to customers of the villages where there are no branches for the bank. The business correspondents of the bank will have to complete transactions within Rs.10,000 in the village itself as they are equipped with Internet connected laptop and scanner. They can open new accounts also. The facilitators, who move on bikes, will complete the transactions in the villages and update the information immediately after reaching the respective branches. Reserve Bank of India Assistant General Manager T. Kiran Kumar has told the The Hindu that the banks might overcome the teething problems and reach the targets by March 2012. He has said that the RBI and banks are trying to provide attractive remuneration to the persons who join as business correspondents in villages.
RBI IMPOSES FINE OF Rs. 9 LAKH ON THREE COOPERATIVE BANKS
The Reserve Bank of India has imposed penalties of Rs. 9 lakh on three cooperative banks for violation of regulations and guidelines relating to anti-money laundering. Two of the banks, Ankola Urban Co-operative Bank and Kushtagi Pattana Sahakara Bank Niyanit, are based in Karnataka, while Salal Sarvoday Nagrik Sahakari Bank is a Gujarat based lender. The apex bank has imposed a penalty of Rs. 2 lakh on Ankola Urban Co-operative Bank for violation provisions relating to the Banking Regulation Act, 1949. The Kushtagi Pattana Sahakara Bank Niyanit has been told to pay a penalty of Rs. 5 lakh for similar violations.
NABARD appoints new ED
Mr. B S Shekhawat has been appointed as Executive Director of the National Bank for Agriculture and Rural Development (NABARD). Earlier, Shekhawat headed the NABARD State Projects Department as Chief General Manager. Shekhawat has over 33 years of experience in various roles with the RBI and NABARD. He has headed NABARD's regional offices in Kerala and Gujarat and has worked in areas of foreign exchange and currency management, watershed development, microfinance, cooperatives and rural Infrastructure development. As Executive Director, Shekhawat will handle departments dealing with economic analysis and research, institutional development and technical services.
Wednesday, April 13, 2011
Bank of Maharashtra – Awarding ceremony of Rolling Trophy
The awarding ceremony of Rolling Trophy to the best performing branch in extending banking services to SC/ST community during the F.Y. 2010-11 on the eve of the birth anniversary of Bharat Ratna Dr.B.R.Ambedkar is going to be held at 11.30 a.m. on 14th April 2011, at Joag Hall, Lokmangal, Shivajinagar, Pune. The trophy will be awarded at the hands of Shri.Karuppasamy, Executive Director, Reserve Bank of India.
India Post to offer prepaid debit card
These cards can be loaded with amount ranging from Rs 1,000 to Rs 50,000. The department of post (DoP) will soon launch a pre-paid smart card that can be used like a debit card to pay bill at stores, make transactions on internet as well as on mobile. These cards will be issued at post offices and can be loaded with amount ranging from Rs 1,000 to Rs 50,000. DoP has partnered with HSBC, ICICI Bank and IDBI for this project. The card can be operated at merchant establishments or ATMs where Master Cards are acceptable and in the respective post offices. DoP is awaiting approval from the Reserve Bank of India and hopes to launch it by May 15.
Vasco Optimistic About RBI OTP Guidelines
Two-factor authentication provider Vasco Data Security has said that the recent guidelines by the Reserve Bank of India (RBI) that mandates all merchants in India to collect an OTP (One Time Password) in addition to information written on the credit cards for all transactions done over phone (IVR) is a welcome policy move and would boost the security of online and offline banking transactions. As per the new policy, Indian banks are required to provide OTP directly to their customers for a secure transaction over IVR. This can be done either through the card user's registered mobile number or email ID or both. “This will require Indian banks to invest in a technology platform that integrates various communication channels like phone, email, SMS, Web and fax with the CRM and database applications. Now, with passwords being generated and sent for individual customers on request, a detailed and granular customer profile can be maintained and fetched whenever required. With a mandate of OTP added to other financial transactions-related regulations, merchants of e-commerce enabled businesses, banks and other financial institutions are facing a challenge of ensuring compliance. Both generation and distribution of the OTP requires a tight interoperability among the various underlying business applications,” said Jan Valcke, Vasco’s President and COO. “With a user base of over two million consumers in financial services in India; Vasco is the largest authentication partner to Indian Banks. DIGIPASS for Mobile is our authentication solution which uses the capabilities of Internet enabled mobile phones for authentication purposes. Most phones also employ phone applications for using IVR which enables customers to access their bank using a touchtone telephone or voice recognition,” he added. According to Vasco, India has 27 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks. “Mobile phone users are becoming less hesitant towards the adoption of mobile applications as the security of these devices is enhanced. While RBI has taken a step in the right direction by mandating additional password, it is the authentication strategy adopted by banks which is of great importance. It should be based on enhancing security and providing convenience to the banking consumer,” he averred.
RBI penalizes two Co-operative Banks for Money Laundering Violations
Mumbai (ABC Live): The Reserve Bank of India has imposed a monetary penalty of one lakh Rupees on The Rander People's Co-operative Bank Limited, Rander and Shree Mahalaxmi Mercantile Co-operative Bank Limited, Dabhoi of Gujarat for certain violation of Reserve Bank of India instructions by non-adherence to Anti Money Laundering (AML) guidelines in regard to submission of reports of cash transactions above ` 10.00 lakh to Financial Intelligence Unit-India (FIU-IND), New Delhi. Information to this effect was made by Ajit Prasad, Assistant General Manager through press releases 2010-2011/1473 and 2010-2011/1472. The Reserve Bank of India had issued a show cause notice to the bank, in response to which the bank submitted a written reply. After considering the facts of the case and the bank's reply and also personal submissions in the matter, the Reserve Bank came to the conclusion that the violations were substantiated and warranted imposition of the penalty.
Banks get more time on new NPA norm
After requests by public sector banks, the government has given a six-month extension for classifying non-performing assets (NPAs) using technology. Last year, the finance ministry had asked banks to have a system in place through which NPAs would be identified using technology, without human interference, by March 31. Now, the deadline has been extended by six months to September 30. According to bankers, the ministry has allowed the banks to complete the task in a phased manner. In the revised scheme, for accounts of over Rs 1 crore, the new method was to be put in place by March 31. For accounts of Rs 50 lakh and Rs 1 crore, the deadline is June 30, and for others, the new deadline is the end of the first half of the current financial year. Although most banks have adopted the core banking solution (CBS), a few are facing certain problems with the software. As a result, some banks are yet to bring all their operations under CBS. Punjab & Sind Bank, which recently started the CBS rollout, has been kept out of the purview of the ministry circular. The New Delhi-based bank’s CBS implementation was delayed because of the Satyam fiasco. It initially appointed Satyam to implement CBS, but after the technology provider was charged with financial irregularities, the process had to be started afresh. The ministry will review the progress made by the banks in the area of classifying NPAs using technology, in a meeting scheduled for the end of the month. Financial services’ secretary S K Sharma will meet the chiefs of government-owned banks in New Delhi for the review. In the meeting, banks’ financial performance for the year will also be reviewed. In addition, banks will present targets on various parameters such as credit growth, low cost deposit, net interest margin, etc. The government had introduced targets for financial inclusion from 2010-11 and banks were asked for their financial inclusion plans. The ministry is also expected to have views from banks on the macroeconomic environment and on interest rates. “With the annual policy of the Reserve Bank of India scheduled a few days after the meeting, it is quite likely the ministry will like the banks’ views on interest rates. Lending rates have already hardened significantly over the last six months, and a further increase will put pressure on credit growth and asset quality,” said a senior executive of a government-owned bank.
Indian Bank 's e-banking lounge
Indian Bank has set up its first e-banking lounge, launched here by C Rangarajan, chairman, Prime Minister’s Economic Advisory Council. The lounge, which includes an ATM, and offers all kinds of services like cash deposit, cash withdrawal, cheque deposit with acknowle-dgement, internet banking and touch screen banking. Bank’s CMD TM Bhasin said they aims to set up 10 such lounges all over the country in another year. It has also launched Inter Bank Mobile Payment services and an exclusive debit card for senior citizens.
Playing favourites
The government has tweaked the eligibility rules for those aspiring to the posts of chairman-cum-managing director (CMD) and executive director (ED) of nationalised banks. There’s nothing wrong with that since these rules are arbitrary beyond a point. But look at the nature of changes made. You need to have at least 18 months of residual service – and not two years, which was the rule last year – to be considered for the post of CMD. But in the case of EDs, there has been no such change. Why is it that what is good for CMDs is not good for EDs? The absence of a rational explanation will give the impression that such tinkering is aimed at accommodating one or more candidates with high-powered connections. The last thing a government that is under a cloud over pervasive corruption should do is give cause for speculative allegations to be made, particularly when public-sector banking circles have long lived with the notion that large corporate borrowers with political clout make good godfathers for top management aspirants. In fact, there is every reason to raise, not lower, the period of residual service left for an aspirant to be in the running. No leader can make a mark in less than three to five years in an organisation and the best-run private- sector organisations typically have CEOs who serve for five years or more. Having a three-year cut-off will be unkind to many managers who have served the sector well in careers spanning decades but frequent changes at the top of an organisation can only do it serious harm. And if there is anything worse than tinkering with the cut-off, it is the failure to fill a top post in time and allowing it to remain vacant – as is the case with one bank at present. This can cause serious damage to the direction and morale of the organisation. What the government urgently needs to do if it wants to win back a certain degree of public faith in its ability to govern is publish a discussion paper on the policy for selecting top public-sector positions. The paper must pay attention to smooth succession, reasonable tenure and the nurturing of organisational ethos. Exceptions will need to be made – say, when a particularly capable manager has less than three years to go – but they should not become the rule, and a public explanation should be given every time an exception is made. An appropriate management policy for public-sector institutions has to balance between two seemingly opposing considerations. Organisations should develop their individual ethos, a strong management cadre and the certainty among all bright people that they have an equal right to go up to the top if merit and health or age permit. Simultaneously, there should be a small quota, say 20 per cent, for lateral entries — the controlled induction of talent will prevent the development of a closed shop and, thus, discourage complacency and cronyism. Perhaps the worst of all possible worlds is what currently prevails among nationalised banks — a game of musical chairs is conducted by the government, in which EDs and CMDs are periodically switched around so that it is impossible to figure out if a bank is doing well or not because of those who lead it.
An inflationary fire in the mind
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.
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.
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