Maharashtra urges RBI to end govt guarantees for loans

The Maharashtra government on Wednesday requested the Reserve Bank of India (RBI) to do away with the practice of state government guarantees sought by banks and the National Bank for Agriculture and Rural Development (Nabard) for loans extended to private entities, including cooperatives. At a meeting of bankers’ committee chaired by RBI Governor D Subbarao, the government said it was time the bankers stopped the practice of treating taxpayers’ money with the government fungible with the deposits money with the banks under the garb of prudential norms circulated by RBI. A state government official, who attended the meeting, said it was brought to the RBI governor’s notice that the Maharashtra State Cooperative Bank and 10 district central cooperative banks were yet to receive licences. Subbarao heard their request, but did not give any comment, he added. The licences are required as per the Rakesh Mohan Committee’s recommendations before March 2012. “Most of these banks have negative net worth or capital to risk (weighted) assets (CRAR) ratio much less than four per cent. Some of these banks are also under the directions from RBI under section 35(A) of the Banking Regulation Act. It seems unlikely that the state cooperative and district central cooperative banks will be able to satisfy the conditions for securing the licence before March 31, 2012. The state government, therefore, requested RBI to reconsider the time limit prescribed for obtaining the licence by these banks so that the flow of agricultural credit is not hampered in those areas where these banks operate,” the official told Business Standard on the condition of anonymity. The official further said, “The judiciary has objected to such a treatment to be given to the taxpayers’ money by way of giving guarantees to the loans extended by banks to the private entities, including cooperatives. Such guarantees are being asked for the amount given as loan by Nabard for rescheduling crop loans after natural calamities and these guarantees are also asked for loans extended by Nabard to cooperative sugar mills and spinning mills.” “However, the basic premise of asking such guarantee has been questioned by the courts and, therefore, the courts have opined that the amount as a default against loan which has been guaranteed by the government should be first recovered by selling of the assets of the borrower who was defaulted before the banks approach the government to meet its obligations against the guarantee,” he added. The official said the state government insisted that the let the cooperative banks take their commercial decisions without clutches in the form of government guarantee.

BS

Your Bank Experience may Soon Get Better

RBI panel moots changes. Here’s how you can tackle issues till they are in place

Customer service at banks in India has come a long way since the days when accountholders had to spend a large part of the day for routine banking transactions like cash withdrawal. In yet another step towards making banking more customerfriendly, the Reserve Bank of India had last year constituted a committee to study customer service in banks and suggest ways to improve it. The committee submitted its report last week, detailing the issues faced by customers and the possible remedial measures for such grievances.  It may take a while for these suggestions to be implemented, but you can bank on the current redressal system to make yourself heard. Here’s a look at some of the issues concerning depositors and borrowers as highlighted by the committee, and the course of action you can adopt to tackle them in the existing framework.

ACCOUNTS AND DEPOSITS - MINIMUM BALANCE REQUIREMENTS: Many customers fail to maintain the minimum balance stipulated by banks and realise this only after banks debit charges from their accounts for breaching the limit. The RBI committee has recommended that banks alert customers through SMS, email or letter immediately when the account balance falls below the required minimum also inform them about the applicable penal charges for not adhering to the requirement. As of now, you need to monitor your balance constantly to avoid such charges. “As per the BCSBI (Banking Codes and Standards Board of India) code, banks are obligated to mention the penalty chargeable in case of non-maintenance of minimum balance in their schedule of fees and charges,” says VN Kulkarni, chief counsellor with the Bank of India-backed Abhay Credit Counselling Centre.

RENEWING TERM DEPOSITS: The report advises banks to not automatically renew maturing deposits without notifying the depositors. “Such notices should be sent to customers preferably in the electronic form to enable them to decide the renewal term. Further, the banks should not auto-renew the deposit accounts without the customer's consent in writing,” notes the report. “This rule is already in force, but some banks do not follow it,” says Madan Mohan, chief counsellor, Disha Financial Counselling, an ICICI Bank-supported credit counselling centre. “We intimate customers – at least those who have provided their cell numbers – about a week before the FD’s maturity,” says R K Bansal, executive director, IDBI Bank. Auto-renewal may also happen if you have given your consent while starting the FD. Therefore, make sure you choose carefully the option on the FD application form.

LOAN DISBURSAL: The RBI report states that banks should inform borrowers upfront about the time schedule for disposal of loan applications. Also, banks should take responsibility for not disposing of the application within the time limit. A personal or unsecured loan can take anywhere between 1 and 5days to be approved. In the case of a housing loan, the processing of application can take 10 to 20 days because of the sheer size of the amount. Any delay in the disbursal of loans can have other implications. Typically, an individual borrows due to an urgent liquidity need, which is mostly met by unsecured loans. If the individual is borrowing to buy a house, he/she has to stick to the payment schedule. Otherwise the builder slaps a penalty, which can go up to 21%.

LOAN STATEMENTS: The RBI panel suggests banks issue loan statements to borrowers periodically. These statements should include details of loan disbursed, demands and repayments effected along with the interest and details of charges. “In such long-tenure loans, which span over 120 to 180 months, a borrower often tends to overlook if any cheque has been delayed or bounced for some reason,” Harsh Roongta, chief executive officer, Apnapaisa.com, says. “Then a bank/HFC slaps some penalty. If the borrower does not pay these additional charges, the bank/HFC terms him/her a defaulter even if the principal and the interest component of the loan has been paid regularly.” A statement would help a borrower keep track of such slippage.

LOAN CLOSURE: Another crucial recommendation made in the report is on title deeds, which have to be returned to customers within 15 days after a home loan has been closed. In case of delay or loss of documents, the boards of banks should put in place a suitable compensatory policy to compensate the customer, the report states. “It’s a time-consuming exercise to arrange for the duplicate title of deeds,” says Roongta. The report also says banks should go easy on prepayment penalties for customers who switch to lenders offering lower interest rates.

CREDIT INFORMATION REPORTS : Such reports have been a bone of contention between borrowers and banks. While banks point to their right to report information on defaults to the credit information companies (like CIBIL, Equifax and Experian), borrowers often complain that the information does not reflect the correct picture. The report suggests that in case of any adverse remark in credit report, the bank should inform the borrower for clarification so that errors, if any, can be corrected. It also recommends distinguishing between the various types of settlements. “The report seeks to differentiate between waivers granted to defaulters under a compromise settlement, where a part of the outstanding amount is written off and minor write-offs where, say, only the penal charges are waived off,” says Madan Mohan. At present, the only redressal channel for an aggrieved borrower is informing the credit information company, which can raise the issue with the lender concerned and rectify the error, if the latter admits to it.

RELATIONSHIP MANAGEMENT: Wealth management services offered by banks have been in news in the recent past due to the malpractices of some wealth managers. The RBI panel’s report has recommended that banks follow the “four-eyes” principle, which allows customers to look beyond their dedicated relationship manager. “We have implemented a matrixed engagement grid that provides customers with back up staff contacts - that of service managers and line managers of the main relationship manager,” said HSBC in an official statement.

ET

Banks issuing DDs for cash raise RBI hackles

NAGPUR: Two decades after Reserve Bank of India (RBI) directed banks not to accept cash to make demand drafts (DDs) exceeding .Rs 50,000, violations continue. The RBI, in a circular dated April 19, 1991, had stated that DDs, mail transfers and travellers cheques for .Rs50,000 and more should be issued by banks only through a debit to the customers account or against cheques and not cash payment. "It has been has noted that certain banks have issued DDs for .Rs50,000 and higher amounts against cash," states a recent communication from the RBI. The apex bank also issued a notification in this regard reiterating the old rule.  The notification adds, "in the current scenario, where the integrity of the financial system in general and the banking channel in particular is of paramount importance, breach of these guidelines is a matter of serious concern." The rule was put in place with the intention of preventing money laundering as issuing demand draft against cash was a convenient method of stashing unaccounted income. Either a cheque has to be issued to get aDD made or the amount has to be withdrawn from the bank account of the person. Sources in the banking and financial sectors admit certain institutions continue to flout the norms. The trend is seen especially in cooperative banks. Smaller cooperatives are used as a conduit to launder unaccounted money through DDs, says sources. A couple of years ago, one such bank in the region faced a probe from the income tax department for similar reasons. However some also find it to be a draconian rule. Denying use of legal tender (cash) for a legitimate transaction itself may be an illegal move, they said. Chartered accountant Rajesh Loya said often the common man and those living in places not having enough banking facilities are put in a fix due to the norm. The authorities can evolve better methods of keep a tab on black money. "Cooperative banks are known for issuing DDs against cash disregarding the RBI norms. It is a common practice in urban and rural centres," said Kailash Jogani, a chartered accountant.

TOI

How to use bank ombudsman

...The office was started by the Reserve Bank of India (RBI) as an alternate dispute resolution (ADR) mechanism, to settle those that could not be solved at the bank's level. Supposed to be impartial, the BO listens to arguments from both the bank and the aggrieved customer. When both parties acknowledge the decision, they need to sign an agreement and the case is considered settled.....

Read........ 

SBI opens first outlet for gold loans in north India

Chandigarh: State Bank of India (SBI) today opened an exclusive outlet for instant gold loans here. This is the first outlet of its kind at bank level where borrowers can obtain loan against their gold ornaments at attractive rate of interest, said a SBI release. SBI also inaugurated Self Service Kiosk (SSK) Project at Punjab University. This kiosk would de-congest the branch counters and increase the usage of Debit Cards.Customers can make various financial and non-financial transactions on these kiosks using their ATM-cum-Debit Cards.SSK is also expected to help in minimising the workload of Single Window Operators (SWOs) and reduce the waiting time of customers, said SBI CGM (Chandigarh Circle) S K Sehgal.

FE

Sa-Dhan launches Uttar Pradesh Chapter

Sa-Dhan, an association of microfinance institutions, launches its State Chapter of Microfinance Institutions (MFIs) in Lucknow, Uttar Pradesh, India. In lieu of the crisis faced in the sector, launching the State Chapter comes at a time when there is a need for transparency, client centered and ethical practices, and adherence to the RBI guidelines in microfinance. The Chapter will be engaging with key stakeholders such as RBI, NABARD, SIDBI, SLBC and other banks. Therefore, there will be a sharing and distribution of information among the stakeholders. “This is a significant step forward by the members in the State towards expanding socially responsible financial inclusion initiatives. Sa-Dhan State Chapter would also support its members to achieve double bottom line of social and financial self sufficiency”, said Mr. Vinod Jain, Sa-Dhan Board Member & President of Sa-Dhan Uttar Pradesh Chapter. Furthermore, Sa-Dhan will be conducting a state wide “Code of Conduct” workshop for its members. This will equip its members to implement the Code of Conduct necessary for MFIs. Sa-Dhan is the largest national level Association of Community Development Finance Institutions in India. Sa-Dhan has 251 member organizations across 20 states in India with a total loan outstanding of Rs. 18,344 crore (4 billion USD) and client outreach of 2.67 crore (26.7 million USD).

http://www.microfinancefocus.com/

Time on his side..................

 

Stability in crisis: RBI chief gets extension

Reserve Bank of India (RBI) Governor D Subbarao has been given a two-year extension, ending weeks of speculation about a change at the top in India's central bank amid increased uncertainties in the world economy. "It (extension) will be good because at this point of time, extension of the RBI Governor is needed. Though there was time till September, we decided (that) we should do it quickly to ensure that there is no uncertainty," finance minister Pranab Mukhjerjee said.  Subbarao is not the first serving governor to get an extension. While his predecessor YV Reddy was given a five-year term at the outset, Reddy's predecessor Bimal Jalan, who served for six years, received an extension as did C Rangarajan, who was governor before Jalan, for five years. "He (Subbarao) is (a) doing good job and he has already earned his reputation as central bank governor in the various deliberations of the G-20, where finance ministers and central bank governors meet and take decisions," Mukherjee said. Subbarao's tenure has been marked by policymakers' dilemma of balancing growth with price stability. Subbarao is an IIT-educated career civil servant who will turn 62 on Thursday. He took over as the RBI governor on September 5 in 2008, barely 10 days before the collapse of Lehman Brothers triggered a credit crisis that pushed the world economy into a tailspin. This forced the RBI to slash interest rates as authorities across the world announced a string of monetary and fiscal measures. The latter part of his term has been marked a harsh dilemma: a slew of fiscal and monetary measures to curb inflation has not tamed prices but yet cast side adverse side-effects on growth. Subbarao, who joined the Indian Administrative Service (IAS) in 1972 and was finance secretary before assuming charge as the central bank governor, has presided over decisions to raise the policy signal (repo) rate 11 times in the last 16 months to cool prices that seems to be heading towards double digits.  A higher repo raises banks' borrowing costs, which in turn would raise interest rate on final home, auto and corporate loans. Subbarao, who has studied at the Indian Institute of Technology, Kharagpur, and the Massachusetts Institute of Technology (MIT), has also ushered in key reform measures including savings bank rate deregulation.

HT

RBI chief Subbarao gets 2-yr extension, FM says doing good job

New Delhi, Aug 9 (PTI) The government today gave a two-year extension to Reserve Bank Governor D Subbarao to ensure continuity of India's monetary policy at a time when the whole world is reeling under the fallout of the downgrade of the sovereign rating of the US. "It (extension) will be good because at this point of time, extension of the RBI Governor is needed. Though there was time till September, we decided (that) we should do it quickly to ensure that there is no uncertainty," Finance Minister Pranab Mukherjee told reporters after announcement of Subbarao's extension as head of the country's monetary authority. Subbarao, who has played a key role in steering the country out of the global financial meltdown following the fall of America's iconic investment banker Lehman Brothers in September, 2008, will continue as RBI chief till September 5, 2013. "He (Subbarao) is doing good job and he has already earned his reputation as central bank Governor in the various deliberations of the G-20, where Finance Ministers and central bank governors meet and take decisions," Mukherjee said. Subbarao was to retire in September following the completion of a three-year term. "The Prime Minister approved the extension to D Subbarao, Governor of RBI, for two years," a PMO spokesman said. The 61-year-old former IAS officer, who had also served as Finance Secretary, was appointed the 22nd Governor of the central bank in September, 2008.

IBN Live

RBI chief D Subbarao gets 2-yr extension for 'good job'

Ending months of suspense, the government on Tuesday extended RBI Governor D Subbarao's tenure by two years till September 2013, aimed at ensuring continuity in monetary policy during uncertain global scenario. "The Prime Minister (Manmohan Singh) has approved the extension of the term of D Subbarao as Governor of the Reserve Bank of India for a further period of two years with effect from September 5, 2011 i.e. up to Sept 4, 2013," an official statement said. Former IAS officer Subbarao, 61, expressed happiness at his appointment. "I am happy that the Government has reposed its confidence in me at this difficult juncture in the world economy. I look forward to working with a great team in the Reserve Bank to meet the many challenges ahead," he said. Subbarao was to retire next month following the completion of a three-year term. During the past few months, there had been intense speculations on his extension. Today's announcement ended all that. Finance Minister Pranab Mukherjee said the extension of the term of the Governor was needed. "Though there was time till September, we decided (that) we should do it quickly to ensure that there is no uncertainty," Mukherjee said. Subbarao played a key role in steering the country out of the global financial meltdown following the fall of America's iconic investment banker Lehman Brothers in 2008 and is now steering the response to high inflation rate. His role will be keenly watched as India battles to control the fallout of financial market turmoil triggered by downgrade of US economy rating by S&P. "He (Subbarao) is doing good job and he has already earned his reputation as central bank Governor in the various deliberations of the G-20, where Finance Ministers and central bank governors meet and take decisions," Mukherjee said. A career bureaucrat, Subbarao was Finance Secretary before being appointed the 22nd Governor of the central bank in September, 2008. The continuation of Subbarao at the helm of RBI assumes significance as it comes at a time when the government and the central bank are gearing up to meet the challenge posed by the economic crisis in several eurozone nations and the downgrade of the US sovereign rating to AA+ from AAA by Standard and Poor's. The downgrade triggered a steep fall in stock markets throughout the world, including BSE and NSE in India. Subbarao, who steered the country through the economic crisis of 2008, is credited with taking a tough monetary stance to check inflation. It was under his leadership that RBI increased key interest rates 11 times in the past 16 months to control the rate of price rise, despite stiff resistance from industry. Under his governorship, RBI had doubled the frequency of monetary policy reviews from every quarter to eight times a year with a view to decrease the need for off-cycle rate moves. Subbarao had earlier served under Manmohan Singh in the Finance Ministry as a senior official in the early 1990s, when the latter was Finance Minister.

NDTV Profit

Firefighter Subbarao gets 2 yr extension as RBI guv

Two days before he turns 62, Duvvuri Subbarao got a birthday gift in advance from the Prime Minister, who extended his term as the Reserve Bank of India (RBI) Governor by two years—till September 2013.  Tuesdy’s announcement by the Prime Minister’s Office came as a surprise, since Subbarao’s current three-year term was to expire next month. However, observers said, faced with global economic instability, the government did not want to wait, and chose continuity over change at the central bank. Finance Minister Pranab Mukherjee was effusive in his praise of Subbarao who, he said, was doing “a particularly good job.” “Though there was time to decide on an extension till September, we decided we should do it quickly, to ensure that there is no uncertainty,” Mukherjee told reporters after the announcement. Subbarao’s immediate challenge is to prevent the crisis sparked by Standard & Poor's downgrade of US credit ranking from spreading to India. With global commodity and crude prices falling, he has to decide whether to stick to the anti-inflationary stance or pause the rate increases to revive economic growth.

HITS

* Focusing on making RBI a knowledge-driven institution

* Aim to bring openness, demystify the governor’s office

* Taking RBI to the masses by outreach programmes

* Driving financial inclusion, aiming for banking presence in all unbanked areas

MISSES

* Unable to bring down inflation, which stayed stubbornly high for more than a year now

* Not much progress on new bank licences

* The second phase of the road map for foreign banks still awaited

On his reappointment, the governor said he was happy that the government had reposed its confidence in him at this difficult juncture in world economy. "I look forward to working with a great team in the Reserve Bank to meet the many challenges ahead," he said. Subbarao was appointed the governor of the central bank in 2008, when his immediate task was to tide over the aftershocks of the global financial meltdown. He was also the first governor in recent times to join RBI directly from the government, where he was the finance secretary. He is also credited with tiding over the 2008 crisis in a rather smooth manner. Rakesh Mohan, former RBI deputy governor and a former colleague of Subbarao, said he wished the extension was for three years. "He has been the governor during very difficult years, from September 2008 until now. He is very competent," Mohan said. Subbarao's predecessor, Y V Reddy, said, "I always knew it would come, because it is appropriate. Continuity is logical and definitely is on the basis of performance. It is particularly valuable at this time of crisis." Bankers were also happy with the development, as they expect a continuation of policy. HDFC Chairman Deepak Parekh said he was expecting the extension to be given to Subbarao. "He has protected the Indian financial sector extremely well, even when the world was falling apart. This extension means there would be continuity, which would ensure consistency. In banking, it is always better to err on the conservative side," Parekh added.

BS

Coming into his own as a central banker

Ten days after D. Subbarao took over as Reserve Bank of India (RBI) governor in September 2008, US investment bank Lehman Brothers Holdings Inc. collapsed, leading to an unprecedented global credit crunch, something not seen since 1930. Subbarao got a two-year extension as India’s chief money man on Tuesday, roughly a month ahead of the date on which his term comes to an end. And it comes at a time when global markets have been reeling from the impact of an equally unique development—the downgrade of the US’ AAA credit rating, a status the country has enjoyed since 1941. There are uncanny similarities on the domestic front too. When Subbarao took over the assignment, India’s policy rate was 9% and inflation 10.78%. Now, when he begins his second term, the policy rate is 8% and inflation 9.44%. The collapse of Lehman Brothers and the liquidity crunch that followed forced him to cut rates and pump money into the system to prop up a sagging economy. This time around, a reversal of monetary stance may not be imminent, but one cannot rule out a pause in the Indian central bank’s aggressive rate-increasing cycle to ensure that economic growth is not badly hurt.

By extending his term, the Indian government opted for continuity as the world’s second fastest growing major economy grapples with persistently high inflation amid risks to economic growth. Extending the term of a serving RBI governor is not new. Subbarao’s immediate predecessor Y.V. Reddy had a five-year tenure at one go, but his predecessor Bimal Jalan, who served for six years, received an extension, as did C. Rangarajan, who was governor before Jalan for five years. But Subbarao’s extension is interesting because he has been fighting with the finance ministry openly for preserving RBI’s autonomy and has been vocal about the government’s failure in managing the fisc. In 2010, when the government decided to end the turf war between the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority on unit-linked insurance plans through an ordinance and proposed setting up a joint panel to resolve disputes among financial sector regulators, Subbarao was quick to write to finance minister Pranab Mukherjee​, saying that “the appearance of autonomy is as important as the actual autonomy itself” and “the very existence of a joint committee will sow seeds of doubt in public mind about the independence of regulators”. “The ordinance has seeming implications for regulatory autonomy and sows seeds of doubt where none exist. My earnest request to you is to allow the ordinance to lapse,” Subbarao had written. Mukherjee, an astute politician, did not listen to him and went ahead with the plan. By agreeing to his extension, the finance minister has shown the same political acumen as continuity is critical at the current juncture. Quite a few names had been doing the rounds for the coveted post— Raghuram Rajan​, a University of Chicago professor, an economic adviser to the Prime Minister and former chief economist of the International Monetary Fund; Kaushik Basu​, chief economic adviser in the finance ministry; economic affairs secretary R. Gopalan and former RBI deputy governor Rakesh Mohan. Typically, no search committee is formally appointed to identify an RBI governor; the Prime Minister’s Office picks the candidate with inputs from the finance ministry. What has Subbarao’s tenure on Mint Road been like? He has drawn flak from some quarters for his now-famous baby steps and many felt he was behind the curve in fighting inflation till his last policy action in July, when he raised the rate by 50 basis points (bps), surprising the market and shocking many members of the central bank’s technical advisory committee, who were pitching for a pause. One basis point is one-hundredth of a percentage point.  A physics graduate from the Indian Institute of Technology, and a master’s in economics from Ohio State University​, the 61-year-old former finance secretary started at RBI rather tentatively, but in 35 months has become a seasoned central banker through seven rate cuts and 11 hikes—something no governor has done in the Indian central bank’s 76-year history. His confidence was seen in the tone of the last policy when he justified the 50 bps hike, saying it was done to “maintain the credibility of the commitment of monetary policy to controlling inflation” and the objective was to “reinforce the point that in the absence of complementary policy responses on both demand and supply sides, stronger monetary policy actions are required”. At the beginning of his tenure, when he went for deep rate cuts and flooded the system with loads of money to ward off any impact of the global credit crunch, Subbarao held the finance ministry’s hand tightly and worked in close coordination. But as he learnt the tricks of the trade, he showed his true colour as a central banker and the July policy is a testament to that. In his next term, apart from taming inflation and ensuring economic growth, Subbarao also needs to complete quite a few politically sensitive projects, including private entities’ entry into banking and savings bank rate deregulation.  Speaking at a function in Mumbai last week, Subbarao poked fun at himself and his duties as the man in charge of monetary policy. He said he tosses a coin—heads it’s a 25 bps increase, tails it’s 50 bps. And if the coin lands on the edge, he asks the finance minister for advice.  Jokes apart, since RBI is answerable to Parliament, no central bank governor can afford not to consult the finance minister on critical policy decisions. There’s nothing wrong with that as long as the governor sticks to his stance. The July policy demonstrated that Subbarao has graduated from being a finance secretary sent to RBI to take up the governor’s job to being a central banker.

Mint

Subbarao starts another long haul

Duvvuri Subbarao completed a full cycle only last week. And now, he has to prepare for the next long haul. In 2008, within days of taking charge as the Reserve Bank of India’s (RBI) governor, Wall Street investment bank Lehman Brothers collapsed and the world went into a recession—the aftershocks of which were felt in India. In a startling similarity, his re-appointed comes only a few days after the sovereign rating of United States was downgraded by Standard & Poor's, for the first time in financial history and the world stares at another economic slowdown, with India preparing for the after effects. During his first term, Subbarao had to immediately react to the liquidity crunch that domestic banks and companies faced, by cutting cash requirement of banks and interest rates aggressively. This time, though, it is unclear if there would be another credit crunch, which economists think of as a low probability-high impact event, but the governor and his team have already taken fresh guard. It has said the central bank's priority is to maintain adequate liquidity in the rupee and the foreign exchange market to avoid any volatility. The proactive response of RBI, in tandem with the government, is now widely seen as the reason for the country emerging from the 2008 crisis rather unscratched. "Indian banks have emerged out of the crisis as strong as ever. The non-performing assets are low, there is reasonable growth in credit and deposit. Subbarao deserves credit for ensuring this. He has always said RBI would ensure there is adequate liquidity in the system and credit demand would not suffer due to liquidity tightness," said Deepak Parekh, chairman, HDFC. While RBI was aggressive in cutting rates in 2008, the same aggression was not visible in 2010 when inflation reached double digits. As a result, Subbarao's famous 'baby steps', that, is raising interest rates by a moderate magnitude, drew flak from several quarters, as inflation stayed stubbornly high for more than a year now. At the same time, policy commentators also say there were elements in inflation like supply-side constraints, which were beyond the control of the central bank. One of Subbarao's significant achievements was to take RBI beyond market participants and policy makers to the common man, explaining the importance of central bank in everyday life. His outreach programme, covering nooks and corners of the country, and thrust for financial inclusion is set bring more individuals under the ambit of formal finance. It was also during Subbarao tenure that RBI expressed its willingness to offer fresh banking licences to private sector players after nearly six years. More importantly, it was also open to offering licences to industrial houses. However, though the proposal was mooted last year, no major policy announcements have been made.

I always knew it will come because it is appropriate...Continuity is logical and is definitely on the basis of performance. It is particularly valuable at a time of crisis YV REDDY, Former Governor, RBI

The government has taken the right decision. Subbarao has done an excellent job in managing the financial system during the crisis that gripped the whole world C RANGARAJAN, Chairman, PMEAC

I was certainly expecting Subbarao will get an extension. He has protected the Indian financial sector extremely well even when the world was falling apart DEEPAK PAREKHChairman, HDFC

The continuity is welcome, particularly due to economic and global problems. It is an acknowledgement of Subbarao’s handling of difficult situations SS TARAPORE, Former Deputy Governor, RBI

I welcome the re-appointment. It should have been for at least three years. He has been the governor during very difficult years ...He is very competent RAKESH MOHAN Former Deputy Governor, RBI

It will be good, because at this point of time, extension of the RBI governor’s term is needed...We decided we should do it quickly, to ensure that there is no uncertainty PRANAB MUKHERJEE Finance Minister

BS

Subbarao’s ‘Approval Rating’ Soars

PM clears another 2-year term for RBI governor, move seen as a recognition of Subbarao’s policies in times of trouble

The government has approved a fresh two-year term for the governor of the Reserve Bank of India, Duvvuri Subbarao, reflecting the confidence in the way he has handled monetary policies and also signalling continuity at a time of turmoil in global markets. Prime Minister Manmohan Singh, a former RBI governor himself, approved an additional twoyear term for the RBI governor until September 4, 2013, which will make it five years in the job for Subbarao like his predecessors YV Reddy and Bimal Jalan. The extension comes two days before Subbarao, who is about to complete his threeyear term, turns 62 and instantly drew comparisons to September 2008 when he first took over and had to undergo a baptism by fire in handling the fall-out in India of the global financial crisis. This time around as well, he is squaring up to facing new challenges in the form of a collapse in the global stock markets after the downgrade of US debt by rating agency Standard and Poor’s, the looming threat of recession in the West and inflation at home.  Subbarao, a career civil servant who was India’s finance secretary before taking charge at RBI, is viewed as having synchronised policy making in tune with the economic agenda of the government and staying on course in taking steps to cool inflation. When Subbarao took over, he had to cut rates to bolster confidence when growth appeared to be faltering in the second half of 2008. However, over the past 17 months, he had to raise rates eight times to combat high inflation.  Yaga Venugopal Reddy, who was the governor before Subbarao, said on Tuesday that he was delighted that the “right thing has happened”. In an interview to ET over the weekend, Reddy had said his tenure was easier except that there was criticism. “Policy challenges for me were less than what it is for the governor now. Except that I had to face considerable criticism, particularly domestically, and so I had to defend. Problems were not so complex, but attitudes were. But now the problems are more complex.”  Both economists and bankers reacted positively to the news of a fresh term for Subbarao. Ajay Shah, senior fellow at the National Institute for Public Finance and Policy, who has worked with Subbarao, said the central bank had progressed enormously under his watch. “I hope that will continue. He has finally waged a war on inflation. I hope he will see it through to victory. Considering that he is a veteran of the 2008 crisis. His scale and judgment will help RBI shape things in the future,” Shah said. “Continuity is the best perceptive at this point in time, when the global economy is witnessing a crisis. Hence, a fresh term for the governor is a most suitable option. Alternatively (if a new person was appointed) in a crises scenario, the market would have had to figure out how the new governor thinks. Since we know the person, it makes it easier to understand his phyche,” said Kotak Mahindra Bank chief economist Indranil Pan. Ashutosh Khajuria, president-treasury operations, Federal Bank, too echoed this view, saying continuity in policy making would provide relief to markets. Subbarao, until he raised rates by 50 basis points in July, was seen as being behind the curve or a little late in reacting, compared to several other central banks in emerging markets in combating inflation. He was often criticised for not getting inflation projections right, with RBI revising its forecasts made at the beginning of the year. However, bankers and bond market traders revised their opinion only in the last couple of months, after he moved away from his approach of “baby steps” rate actions to a more aggressive interest rate setting policy. The RBI governor has adopted a direct line of communication with market participants, besides following a consultative approach. Subbarao is also not seen as dogmatic. For almost two decades now, the government has been granting five year terms for governors. C Rangarajan, Bimal Jalan and YV Reddy enjoyed five-year terms. With the exception of YV Reddy, both Rangarajan and Jalan were initially given a three-year term, which was later extended by two years. There have been several governors in the past who have had a five-year term, with the longest tenure being that of Sir Benegal Rama Rau, who was at the helm from July 1949 to January 1957 — for seven and a half years.

TOI

Subbarao gets extension: Bankers welcome govt's decision

The government today extended the tenure of RBI governor D Subbarao by two years. CNBC-TV18's Gopika Gopakumar and Latha Venkatesh sum up the market's reaction. The mild-mannered bureaucrat who was lost in unknown unknowns just three years ago is today the market's unanimous choice to continue as governor of RBI for another two years. Minutes after the finance ministry confirmed his extension, CNBC-TV18 polled bankers, economists and bond dealers, and an over whelming 90% said that Subbarao's extension is good for the economy. When asked to rate him in a scale of 1-10, 80% rated him high—ie between 8 and 10, only 20% rated him average between 5 and 7. Even those who rated him average in monetary policy rated him high on transparency, communication and clarity. Bankers said he has brought openness to the central bank. A small minority of bond dealers said he remained behind the curve on inflation till recently. Subbarao appears to have won his extension partly because of want of good alternatives and partly because in a situation of international and domestic uncertainty, it was important for the government to have a man in RBI who knows his job. True, Subbarao himself came into RBI a complete greenhorn and was faced with the Lehman crisis barely 10 days after taking over. But now having learnt on the job, it was only fair that the nation benefit from his experience. From his early diffidence Subbarao has certainly come a long way. In the latest policy he shocked the market with a half a percentage point rate hike. Not only that, he also read the Riot Act to the government for not doing its bit on controlling deficit. Chances are we are going to see a way more proactive and plain speaking governor in the next two years.

Moneycontrol

Watch the video................ 

Economists welcome Subbarao's extension

Chennai, Aug 9 : The two-year extension given to RBI Governor, Dr Subbarao has been widely welcomed by economists.  Reacting to the announcement, Dr Ajit Ranade, Chief Economist, Aditya Birla Group, said, "It is good to know about Dr. Subbarao's extension. Recently three former RBI Governor's had made a public plea and recommendation for continuing him at the helm of RBI”.  He said that he was appointed in early September 2008, and was immediately "baptized by fire" caused by the Lehman bankruptcy and subsequent financial and economic crisis. I think India withstood that turmoil, not least because of RBI's proactive and also creative response to the global turbulence.  Given the current upheavals in global markets due to the downgrade of sovereign U.S. debt by S & P, it would need someone like Dr. Subbarao with a proven track record at the helm, to steer matters here. “Of course one could pick bones about the RBI not having done enough about inflation. But there I think the RBI has a legitimate alibi about having been undone by the fiscal situation. I welcome the extension given to Dr. Subbarao, he said"

Expertise

Ms Shubada Rao, Chief Economist, Yes Bank, said, "It is very important to have someone capable at the helm in these uncertain and volatile times. The continuity through this reappointment spells something positive for the economy. He has demonstrated his expertise and that is reflected in this extension of his tenure." Mr S L Bansal, Executive Director, United Bank of India on Tuesday said that Dr D Subbarao’s extension will ensure continuity. “Dr Subbarao’s extension is a welcome step as there will be no uncertainty now,” he said.

HBL

Central bank rerun

Subbarao became RBI governor just at the beginning of the global financial crisis and therefore faced immense challenges right from the beginning — he handled them well and put together a speedy and appropriate policy response. The earlier, relatively more conservative, regime might have perhaps had a greater resistance to the kind of quick and bold steps that Subbarao was able to make......

Read.............

Introspection time for RBI

The one area where RBI has failed to provide more meaningful insight is the exceptionally strong export data in recent months, despite weaker global environment. It has concluded that these signal still-strong activity in the export sector.....

Read............. 

Ten heads 5 years in office

Banking access to rural poor

One of the more impressive aspects of India's growth story relates to the expansion of the banking infrastructure. Between 1969 and now, the banking network has grown ten-fold — from 8,000 branches to 80,000. The number of rural branches has increased phenomenally, from 1,443 to 32,000. This expansion was triggered by nationalisation, first in 1969 and again in 1980. However, it is a sad reality that, for all the impressive growth, nearly 40 per cent of the households in the country — many of them rural — do not have a bank account. This ‘exclusion' of a vast segment of the population — comprising mostly marginal farmers, agricultural workers, and casual labourers — is perceived as an impediment to ‘inclusive growth.' “Financial apartheid” is how Muhammad Yunus, reputed founder of Bangladesh's Grameen Bank movement, called this exclusion of the poor from the banking network. The term ‘financial inclusion', therefore, means delivering banking services such as savings, credit and insurance facilities to the left-out social strata.

Strategy

This book, by a senior RBI official, looks at the problem in the overall context of the country's economic policy and examines the strategies adopted over decades to tackle it. To start with, Joshi dwells at length on poverty and development theories and the need for providing access to financial services to the low income groups, and goes on to discuss the RBI's post-nationalisation initiatives to extend the banking network in the rural areas.  The central bank placed the commercial banks under regulatory obligation to open rural branches and to sponsor the Regional Rural Banks. Every bank was required to advance 40 per cent of its lending portfolio to certain specified sectors categorised as “priority sectors”; they included agriculture, lending to which must constitute at least 18 per cent. This stipulation enabled farmers to borrow for buying inputs. The RBI's “service area approach” by which the responsibility of meeting the rural credit needs of a specific area was assigned to a particular branch, and the provision of refinance facility by NABARD were among the other significant steps.

Low savings

The Central Government's Integrated Rural Development Programme (IRDP) and Swarna Jayanthi Swarozgar Yojana (SJSY), launched as part of the poverty alleviation endeavour, also brought about considerable attitudinal change among bankers towards lending to low-income households, although these subsidy-linked schemes met with only a partial success. What stood in the way of the poorer sections accessing bank credit was that their level of savings was so low that they were unable to provide collateral security for their borrowings. This barrier was overcome by creating the institution called ‘Self-Help Group' (SHG), an innovation of the 1990s. The banks lent money to the SHG, which in turn gave loans to its members. The SHG idea caught up fast and gained wider acceptability from the banks quickly. The NGOs also played a part in giving a push to the SHG movement by acting as sponsors and inculcating the savings habit in the poor and thus making them more ‘credit worthy'. Remarkably, loans to the SHGs were repaid more promptly than those under the poverty alleviation programmes, although they carried higher interest rates and had no subsidy component.  The success of the SHG movement, particularly in south India, led to the emergence of a large number of microfinance institutions, promoted by NGOs as well as private entrepreneurs. That the proliferation had a negative fallout — what with some of the MFIs resorting to sharp practices that got the borrowers into a debt trap — and the Central Government has had to step in and come up with legislation to regulate the microfinance sector is another story; it's a development this book has not covered.

More imperative

The advent of National Rural Employment Guarantee Scheme, under which wages payable to workers are routed through banks, has rendered ‘inclusive' banking all the more imperative. “No-frills” bank accounts without the requirement of a minimum balance and “Business Correspondents” for carrying out simple banking transactions in villages using ‘smart cards' are the two steps taken more recently towards financial inclusion. As it turns out, however, the thrust of the policy initiatives aimed at financial inclusion has been on the supply side. The demand side has not received adequate attention. For instance, the RBI's effort to spread financial literacy among the rural population and stimulate the demand for banking services is yet to gather momentum. Joshi has elaborately, and somewhat repetitively in patches, dealt with the various policies and programmes initiated for reaching the bank services to the rural parts, but has refrained from analysing them critically. Moreover, since the ‘last mile' is critical for financial inclusion, the value of the book would have been enhanced considerably, if the author had drawn material from field studies rather than rest content with summarising official reports.  

HBL 

RBI alters LAF timing to curb volatility in overnight rates

From August 16, the Reserve Bank of India (RBI) will hold reverse repo auctions between 4.30 and 5 pm on all working days, except Saturdays. The move will help curtail volatility in the overnight money market that emerged after the apex bank discontinued its second Liquidity Adjustment Facility (LAF) in May. The timing for repo auctions remains the same. Presently, repo and reverse repo auctions under the LAF window are conducted between 9.30 am and 10.30 am. In accordance with recommendations made by the Deepak Mohanty panel on LAF operations, the repo and reverse repo window open only once in the day. Banks would then turn to the money market to deploy surplus funds or cover any borrowing needs, which used to result in unusual rise or fall in the rates in overnight call and the collateralised borrowing and lending obligations. “We had requested RBI to conduct LAF auctions in the evening instead of the morning, as banks would have better understanding of their cash position by then,” said a senior treasury official of a large public sector bank. The new timing will allow banks to park the excess funds, if any, with RBI at a reverse repo rate of seven per cent. Deploying excess funds in call would result in rates falling below the LAF corridor. The weighted average interbank call money rate is the operating target of RBI’s monetary policy. “Now the call rate will not trade above the repo rate in the morning and will not fall below the reverse repo rate in the evening,” said a bond dealer with a primary dealership. The repo rate is now eight per cent. Also, the timings for Marginal Standing Facility (MSF) will be changed to 4.30-5 pm from 3.30-4.30 pm presently. Banks can approach the MSF window after exhausting all other sources. According to RBI, banks can borrow up to one per cent of their net demand and time liabilities at a penal rate if the Statutory Liquidity Ratio falls below the mandated 24 per cent. The MSF rate is now nine per cent.

BS

Subbarao to review crop loan disbursement in Maharashtra

Reserve Bank of India (RBI) Governor D Subbarao has convened a meeting tomorrow with a bankers’ committee in Maharashtra to review the disbursement of crop loans by commercial banks, regional rural banks (RRBs) and cooperative banks in the state. For the first time, commercial banks have agreed to increase their share to 45 per cent from 30 per cent in disbursing the loan, while cooperative banks would reduce their share to 49 per cent from 70 per cent. A state government official, who will attend the meeting, told Business Standard on the condition of anonymity, “At a meeting on June 8 attended by Chief Minister Prithviraj Chavan and RBI Deputy Governor K C Chakrabarty, the state-level banking committee had finalised a comprehensive plan for the disbursement of Rs 23,181 crore crop loan for the 2011-12 kharif season as compared to Rs 13,151 crore in 2010-11. It was also decided that the exposure of commercial banks would be increased from the current financial year reducing the share of cooperative banks in the state. Till the last financial year, the commercial banks disbursed a mere 30 per cent against 70 per cent at the all-India level, and therefore it was decided they would disburse 45 per cent of the total Rs 23,181 crore and six per cent by the RRBs.” The official said so far the cooperative banks had achieved 91 per cent of the disbursement target, despite constraints after the board of Maharashtra State Cooperative Bank was superseded. The commercial banks had achieved 43 per cent of the target, he added. “We are receiving reports from all districts where farmers are queuing up at the commercial banks for kharif crop loan. This is really a remarkable change,” the official noted. State Cooperation Minister Harshvardhan Patil said the state government was of the view that the share of commercial banks needed to grow further, especially when the government had proposed an annual disbursement of crop loan to the tune of Rs 40,000 crore from 2016.

BS

RBI signs MoU with Qatar Financial Centre Regulatory Authority

Mumbai: The Reserve Bank has entered into an agreement with the Qatar Financial Centre Regulatory Authority to promote greater co-operation and sharing of supervisory information between the two regulators. A Memorandum of Understanding was signed between the two sides in this regard on August 4, the RBI said in a statement. Commenting on the agreement, RBI Executive Director P Vijaya Bhaskar said that the apex bank is looking forward to enhanced cooperation and information sharing with the QFC Regulatory Authority. "India and Qatar are among the fastest growing economies in the world, and we are seeing greater economic ties and increased investment flows between both countries," "Our cooperation under the MoU will help to make certain that our organisations are appropriately positioned to ensure that financial institutions under our supervision are well regulated and supported," he said.

Zee News

Zero balance in a/c need not worry you anymore

BANGALORE: The high court on Tuesday observed that banks recovering penal charges from customers not maintaining minimum balance in their accounts might have to pay back the amount with penal interest once the RBI comes out with its decision. The court's observation came following a public interest litigation (PIL) filed by T S Muthukrishnan. The petitioner contended that in the name of non-maintenance of minimum balance, banks levy hefty penal charges. The petitioner said it is obvious that only the poor man, who struggles to make "both ends meet", doesn't maintain minimum balance. A division bench presided by Chief Justice J S Khehar, while disposing of the PIL, said: "The final determination will only emerge after objections from the stakeholders. It is apparent from the recommendations in the Damodaran Committee report that the final determination may relate to levy of penal charges. The issue has financial indications.  The banks concerned would be advised not to levy penal charges till Reserve Bank of India (RBI) lays down parameters."  The RBI counsel informed the court that objections have been invited from the customers and the banks concerned and a final decision will be taken after that.  The court observed that since the issue of maintaining minimum balance and penal charges also finds mention in the Damodaran Committee report, the RBI would take a decision. TOI

Vijaya Bank's ‘exporters meet' draws good response

Kochi, Aug. 9:  A number of exporters from different parts of the State have participated in the Exporters Meet organised by Vijaya Bank, which was presided over by Mr Upendra Kamath, Chairman and Managing Director of the bank. Speaking on the occasion, he said, that the meet was conducted with the active cooperation of RBI and Indian Chamber of Commerce and Industry.  He explained that the main aim of the meet was to provide a platform for exporters to interact directly with the bank and with the Regulator so that various problems faced by exporters, vis-à-vis their aspirations/ requirements, could be sorted out on the spot, for mutual benefit of all concerned.  The meet would provide valuable inputs to the bank for drawing up appropriate strategies for doubling its export credit as well as to increase its clientele base, he said adding, that the bank would be conducting such meets in various parts of the country regularly.  Mr C.V.George, General Manager, RBI, highlighted the unprecedented downgrading of the US economy for the first time, and opined that the same could have impact on export scenario.  He highlighted the various policy initiatives taken by the Regulator for the exporters, with special emphasis on timeliness and adequacy of loans and disposal norms to be followed by banks.  Mr P. Pratapachandran, President of the Chamber, touched upon various infrastructure facilities available, particularly on shipping facilities, which would go a long way in improving the export infrastructure of the State. Mr N. Devadas, General Manager, Credit, has spoken about the role of Kochi Region under export credit, and assured the exporters of full cooperation of the bank in meeting their credit requirements. Mr Harindranath Shetty, General Manager, Treasury Management, was also present. During the deliberations/ discussions with the exporters, General Managers and Assistant General Manager from Head Office, Bangalore, have clarified various issues raised by exporters and their problems were sorted out on the spot.  

HBL