Low-income people want appropriate products and quality service and MFIs which focus on meeting client needs in an ethical manner will be the most successful in the long-term ....
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Wednesday, September 14, 2011
Digital Payment Industry Needs Multiple Models To Push Financial Inclusion
Economist S.S.Tarapore added that the absence of banking technology, reach and coverage, absence of a satisfactory delivery model and absence of a business model were the reasons behind India not achieving financial inclusion…..
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Wanted: ‘Out of the box thinking’ from RBI
New Delhi: The Reserve Bank of India, which reviews monetary policy on Friday, should “think outside the box”, the chief economic advisor to the finance ministry told CNBC TV18 on Tuesday. “We live in a very unusual world where some countries have very, very low interest rates whereas other countries have high interest rates so we must think outside the box in terms of monetary policy and that is what I would stress to the Reserve Bank of India,” Kaushik Basu said. Despite industrial output growth slumping to a near 2-year low in July, inflation data for August to be released on Wednesday is expected to sway the RBI to raise rates this week for a 12th time since March 2010. The wholesale price index in August probably was rose 9.6 percent, a Reuters poll showed, well above the central bank’s comfort zone of 4 to 4.5 percent.
Firstpost
Paying the price
This is with reference to the editorial “Unfair penalty” (Business Line, September 13). Certainly, floating rates are impacting home-loan borrowers due to frequent changes in interest rates, and have hit their shoestring budgets. Bankers, in order to protect their margins, have almost completely done away with charging of fixed rates and invoking reset clauses, which is difficult to digest. We are aware that banks are enjoying more income by levying high commission on all instruments they deal with, and for issuing statements from time to time. This is nothing but daylight robbery. On top of this, imposing penalties for pre-payment of loans is adding to the customers' misery. Banks should find out innovative ways to avoid this unpleasant situation. I daresay account-holders are entitled to this privilege?
K. N. V. S. Subrahmanyam (BS)
Analysts divided over RBI move on Friday
Conflicting macroeconomic data on inflation and factory output have made the analysts and economists a divided house on the direction that the Reserve Bank will take on Friday at its mid-quarter policy review........
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RBI justified
“Why we still need a rate hike” (Business Line, September 13) raises some valid points. The RBI's efforts in controlling inflation are commendable. It has been merciless in hiking interest rates and the impact of industrial growth is now becoming evident. The Government, which has more tools to combat inflation has been in slumber mode. Unless concerted action is taken by the Government on various fronts — preventing logistics delays due to bad roads, rationalising State levies, better supply chain management, and helping farmers improve yields — the RBI has no choice but to raise rates again.
Vivek (BS)
IIP blues
The Reserve Bank of India is in an unenviable position ahead of its monetary policy review meeting scheduled on Friday. It has to take a call on interest rates — whether to raise them further in the face of continuing inflationary pressures or pause temporarily based on the latest disappointing factory output data. To its credit, the central bank has been much more realistic in turning the spotlight on the Indian economy's blind-spots than North Block. In its successive policy reviews, the RBI has not simply focused on inflation's stubborn persistence, but even warned of business mood dips impacting investment and consumption growth declining as interest rate-sensitive sectors face increasingly reluctant buyers. In fact, while New Delhi has tended to exhibit a misplaced optimism about growth prospects with its eyes shut, the RBI was ahead in scaling down its GDP growth forecast for 2011-12 by a full percentage point to below eight per cent. The latest industrial growth figures for July suggest that the slowdown that many experts and most policymakers thought would be temporary and narrow is, indeed, broad-based. The overall index of industrial production (IIP) registered a year-on-year expansion of only 3.3 per cent, the lowest in 21 months. Manufacturing and mining grew by 2.3 per cent and 2.8 per cent respectively, while the 13.1 per cent increase in electricity was mainly a result of the good monsoon, which has helped boost generation from hydel stations. More disturbing has been the 15.2 per cent dip in production of capital goods, a proxy for investment activity. Even if one discounts for the unreliability of data for this sector — leading to extreme growth volatility — the fact that investment sentiment has been vitiated by recent political developments and concerns over ambiguous laws and tangled procedures among foreign investors cannot be missed. If industrial growth is slowing, there is the possibility of weakening demand on account of high interest rates further dampening it. Persistent increases in its key policy rates over the past 20 months may have somewhat dented non-food ‘core' inflation resulting from excessive demand. But the problem is that while demand in the manufacturing segment may have dipped, general inflation has not. For once the Finance Ministry may be right when its Chief Economic Adviser, Prof Kaushik Basu, says inflation will stay high till December. So the RBI, in a way a victim of its own success, will now have to battle high inflation and the prospect of falling output driven by weakening demand. For policymakers it would be tempting to pass off the slowdown as partly the outcome of global woes just as earlier they claimed that inflation was also stoked by global commodity prices. But unlike the US and the European Union, India did recover from 2008 with a smart pick-up in 2009. The current slide actually began in the past six months or so. And that has been the result of very successful monetary and very slothful public policies.
HBLUnfair penalty
Doing away with the pre-payment penalty may help reduce the distortions arising from new loans being cross-subsidised by existing ones...........
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Customer is king !
The Reserve Bank of India has initiated a series of measures to make banking a customer-friendly experience. While, earlier, it was the M Damodaran Committee that had come out with a report on customer services in banks, now, the Banking Ombudsman Conference has made a host of recommendations to protect the interests of small investors and bank customers........
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Tuesday, September 13, 2011
Two problems, one strategy for both RBI and the Fed
The Reserve Bank of India and the U.S. Federal Reserve were confronted with two different problems but used the same monetary strategy for solution. Neither succeeded…..
Basu: RBI has to balance high inflation, slowing growth
The Reserve Bank of India (RBI) will have to balance high inflation and slowing growth, the chief economic adviser to the finance ministry, Kaushik Basu, said on Monday after a sharp drop in industrial output growth. Growth in industrial output in July slumped to its lowest in nearly two years as high interest rates cooled Asia's third largest economy and put pressure on the central bank to pause its monetary tightening despite stubbornly high inflation. Industrial output rose just 3.3 percent in July, dragged down by a huge fall in capital goods production.
Reuters
RBI hawks may prevail ahead of policy review: Economists
The Reserve Bank of India (RBI) is widely seen delivering the last rate increase in its 18-month-long tightening cycle on Friday as inflation pressures continue to remain strong, a Reuters poll of 18 economists showed. Of those polled, 15 expect a 25-basis point increase in the repo rate, one expects a 50 basis point hike, and two expect no change. An increase would be the 12th in the current cycle and would take the repo rate, the central bank’s key lending rate, to 8.25 percent, where most economists see it staying until at least the end of the fiscal year in March. The median expectation for the rate at the end of March has been lowered by 25 basis points from the previous poll conducted in July, largely due to deteriorating global economic conditions. “We are expecting a 25-basis point hike. The RBI has been pretty clear about the fact that given the extent of the inflation pressures, more needs to be done,” said Abheek Barua, chief economist with HDFC Bank. “In this policy review, if they talk about the changing international situation, then they might as well build a case for halting with this rate hike,” he added. The European Central Bank, Bank of England, and Swedish Central Bank among others continued to hold rates steady at reviews last week amid easing inflationary pressures in the euro zone and concerns over weakening growth prospects. The RBI has been one of the most hawkish central banks globally. However, economists said the July industrial output data released on Monday and August inflation data due on Wednesday would be key determinants for the RBI’s actions on Friday. “If the core inflation number is still in the range of 7-7.5 percent, my sense is that the RBI will persist with a interest hike,” said Madan Sabnavis, chief economist at CARE Ratings. “So it’s only in case it comes substantially down, if it comes around 6 percent, will it take a pause. That number will be very critical.” Of the polled economists, 11 said the RBI’s tightening was appropriate, while 5 said less aggressive tightening was needed.
Firstpost
Monday, September 12, 2011
Unconventional mechanism needed to reduce debt: YV Reddy
Former Reserve Bank of India Governor YV Reddy said the government should adopt unconventional mechanism in both real and financial sectors to reduce debt. “Quality fiscal policy and primary distribution of income are the two major factors the government should focus on,” Reddy said at a seminar here on Friday. He said globally it had been a major concern for the government to maintain the equal distribution level. Over the last two decades, the gap between rich and poor was getting immensely wider and that was creating economic uncertainty. The middle class segment is not much impacted, whereas the upper class is getting richer and the lower strata of society is getting poorer. “To solve this problem, the government should improve the quality of fiscal adjustment,” he added. Household savings have come down in India, whereas corporate savings have gone up. When the micro economic weakens, it makes the structural problem even worse. So, quality fiscal policy is an answer to that, Reddy said. Former United Nations Development Programme (UNDP) director Kemal Dervis said this was a major global problem. Citing the US, he said, “During 1970s-1980s, the top 1 per cent of the upper top US population received 8 per cent of the countries GDP, whereas now it has increased three-fold to 24 per cent.”
BS
Depositor of failed bank questions premium charged by DICGC
Nagpur : A petitioner here has alleged through a public interest litigation that the Reserve Bank of India (RBI) and Deposit Insurance & Credit Guarantee Corporation Ltd. (DICGC) have "extorted" crores of rupees from about 200 "failed" banks including the Nagpur Mahila Nagari Sahakari Bank Ltd. Justice Sharad Bobde and Justice MN Gilani have granted further time of four weeks to the respondents to make their submissions through affidavits in reply to the allegations and prayers made in the PIL. One Sunil Prabhat Khare had filed the PIL and earlier on June 22 last, Justice Bhushan Dharmadhikari and Justice PD Kode had issued notice to the respondents. Khare alleged that DICGC has recovered premium up to the year 2009 from the Mahila Bank, though its license was suspended and the Mahila Bank was placed under restrictions issued by RBI from 2004. The petitioner has also alleged that both the respondents have violated the provisions of sections 15(1) and 13C of the DICGC Act, 1961 and forced the Mahila Bank to part with about Rs 50 lakhs during the years 2004 to 2009 from the funds/ assets belonging to the petitioner-depositors in the name of "insurance premium". Khare also claimed that DICGC has retained such amounts though it is not entitled to do so. The petitioner appeared in person. Advocates SN Kumar and Swapnil Lautewar represented the RBI. Advocate Sumant Deopujari also appeared in the matter.
http://www.lawetalnews.com/NewsDetail.asp?newsid=4701Finance ministry rejects bank ESOPs, okay with rural stint for newcomers
"At a time when attrition is high and is expected to grow further as private banks expand, letting remuneration be decided by trade unions is not a positive approach," said the chairman of a state-run bank. RBI governor D Subbarao, too, had said the compensation structure of public sector banks has to change if they have to compete with private banks..........
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Expand rural ATM network to enable subsidy, entitlement transfers: Govt tells public sector banks
With financial inclusion being one of the top social agendas of the UPA Government, the ATM procurement process by public sector banks is likely to undergo a sea change. The Finance Ministry has asked public sector banks to work out the modalities of joint sourcing of ATMs, State/district wise.......
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Pak-India quest for Asian supremacy
In conclusion it can be said that while both the countries continue to face similar problems India has collectively turned their weaknesses into their strengths……….
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Another rate hike cannot be ruled out
Read..........It will be a close call for RBI on 16 September. I would like to believe it’s slightly tilted in favour of a rate hike, possibly the last before it presses the pause button as inflation continues to be a bigger problem in the Indian context than an economic slowdown. But one won’t be surprised if the Indian central bank takes a breather and allows the impact of four rate hikes in the past five months to be felt before going for another hike. A pause doesn’t mean the end of the tightening cycle, but RBI will have to communicate that message well to the market, if indeed it decides to do so.....
Final norms on new bank licences after Banking Bill amendment
The Reserve Bank is likely to issue the final guidelines for granting bank licences to corporates only after Parliament approves the Banking Laws (Amendment) Bill, 2011. The final guidelines on new banking licences would be released only after the necessary amendments to the Banking Laws (Amendment) Bill, which seeks to give more power to the regulatory powers of the RBI, sources said. The central bank had last month issued the draft guidelines which pegged the minimum capital needed to set up a commercial bank by a corporate house having successful track record of 10 years at Rs 500 crore. It is to be noted that the Banking Laws (Amendment) Bill was introduced in Parliament in March this year. Sources added that empowering the RBI is essential for obtaining information about the other businesses of the corporate houses seeking banking licences in order to protect depositors' interests. Banking companies are engaged in multifarious activities through the medium of associate enterprises. It has, therefore, become necessary for the Reserve Bank, as the regulator of the banking companies, to be aware of the financial impact of the business of such enterprises on the financial position of the banking companies, sources said. It is, therefore, proposed to confer power upon the RBI to call for information and returns from the associate enterprises of banking companies also and to inspect the same, sources added. The amendment seeks to allow the RBI to supersede the board of a banking company for a total period not exceeding 12 months. The proposed amendment moved by the government also exempts mergers and acquisitions in the banking sector from the scrutiny of the Competition Commission of India. According to the draft guidelines, companies which are primarily engaged in the real estate or stock broking will not be eligible for promoting bank. "Entities or groups having significant [10 per cent or more] income or assets or both from real estate, construction and broking activities individually or taken together in the last three years will not be eligible to set up new banks," the draft said. On foreign holding, it said the aggregate non-resident shareholding in the new bank should not exceed 49% for the first five years. At present, the foreign shareholding in private sector banks is allowed up to 74% of the paid-up capital.
BS
NBFC policy: Devil in the detail? - Somasekhar Sundaresan
A working group set up by the Reserve Bank of India (RBI) on non-banking financial companies has recommended a very progressive framework to regulate non-banking financial companies (NBFCs) but the path ahead can be treacherous and needs to be treaded upon carefully. The working group on issues and concerns of the NBFC sector has recommended a strong focus on the big picture and refraining from regulating for the sake of it. The group has recommended that the RBI should exempt every NBFC with an asset size of below Rs 50 crores from registration with the RBI. Such an exemption would mean that such tiny NBFCs need not be bothered with having to comply with various statutory and regulatory requirements imposed by the RBI on NBFCs. The working group has also recommended that NBFCs with an asset size of below Rs 1,000 crores that do not access “public funds” (a term different and much wider than public deposits, and essentially meaning exposure to debt) also need not be registered with the RBI. The central theme of the recommendations of the report is to focus on the big picture in regulating the NBFC sector, which is a segment in the financial system, which can do quite much of what banks can do. The approach also seems to be take away as many NBFC licences as possible, since once a licence is issued, an entity would pretty much be able to do everything that the licence entitles it to do. Towards this end, the working group says that NBFCs that do not accept public deposits and have an asset size of below Rs 50 crores should be “encouraged to de-register” with the RBI. If such an NBFC were to not de-register, the NBFC would have to apply afresh for a registration as and when its asset size exceeds Rs 50 crores. Having narrowed down the scope of who would be regulated, the working group has also tightened the screws on change of control of NBFCs. Any change of ownership in excess of 25 per cent in an NBFC would now need RBI approval. So would any change of control and any restructuring such as a merger or a de-merger of an NBFC. Current requirements of the RBI bring an extremely wide range of companies within the scope of the definition of the term “NBFC”. So long as more than 50 per cent of the assets of a company were financial assets, and more than 50 per cent of the income of any company were income from financial assets, such a company would be regarded as an NBFC. The working group has now proposed to enhance this threshold to 75 per cent - again a move that would ensure that only entities that really have the profile of a financial sector player would need to be within the remit of the RBI’s jurisdiction over NBFCs. The active disinclination to have many NBFCs in the system is also writ large in a recommendation to give existing NBFCs three years to meet these requirements of a minimum 75 per cent of financial assets and minimum 75 per cent of income from financial assets. If a company registered as an NBFC that does not accept public deposits, fails to meet these criteria in three years, it would be de-registered as an NBFC. The report also says deposit-taking NBFCs that do not reach the standard of having more than 75 per cent in financial assets and income from financial assets should stop taking further deposits and should prepay existing deposits. However, the zeal to throw companies out of the NBFC space should be tempered with caution. Not having to register with the RBI is great. However, a company that is not required to register could legitimately require that it should be permitted to continue its existing operations, which avowedly fall outside the scope of regulation. In other words, if the operations are such that income is materially not financial income, and assets are not materially financial assets, they should be capable of being continued without registering with the RBI. Of course, such an approach may pose systemic risks and the RBI should be tempted to intervene. Therefore, a reporting requirement without any compliance obligation should be conceived. The devil will indeed be in the detail. In implementing the transition to the proposed policy, the RBI should work in close co-ordination with market players to understand the implications of each move. It need not accept all it gets to hear, but it will profit from openly listening to everything that has to be said.
(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own. – BS)
Running out of steam
The advisories indicate that caution will spread and if banks get wary about lending, the economy could wind down even faster...........
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Limited benefits
This refers to the report “No prepayment penalty on floating home, auto loans” (September 7). The Reserve Bank of India’s (RBI’s) move to ask banks to charge no pre-payment penalties on floating rates loan will provide relief to customers who have been burdened with extra payment liabilities as a result of the steep increase in the interest rates. However, I am surprised that RBI has restricted this move to only floating rate loans. It should have been made applicable to cases of fixed rate loans too, where interest rates have gone up after borrowing by a customer. Banks should not charge pre-payment penalty to customers who had availed of fixed rate loans around two years ago and want to pre-pay the loan now since the rates have increased steeply in the last two years. Also, the upper ceiling of pre-payment penalty should be defined by RBI for all types of loans. RBI should allow banks to charge a maximum pre-payment penalty of 2.5 per cent and it should also be slab-based. This means if the loan amount is high, pre-payment penalty should be low, which will be less burdensome for a borrower. I feel that RBI’s current suggestion can only help customers in a limited way.
Vivek Sharma, Navi Mumbai (BS)
Bank loans may dry up for truant discoms
Power distribution companies using bank loans to fund their recurring losses might find this door shut soon, with the Reserve Bank of India (RBI) agreeing to the Union power ministry’s proposal to tighten lending norms for discoms.......
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Economy in for a double whammy
Making sense of the latest official numbers on economic growth throws up the old question: Is the glass half empty or half full? Do the numbers confirm an expected slowdown or reveal unexpected resilience? While economists and observers take their pick, the economy is likely to get a double whammy in the form of another interest rate hike in the face of sluggish investment. To state the facts baldly, India’s economy grew by 7.7 per cent in the first quarter (April-June 2011) of the financial year 2011-12, compared with 8.8 per cent growth in the same quarter last fiscal. Growth in the manufacturing sector dipped to 7.2 per cent from 10.6 per cent, and that in the mining and quarrying sector to 1.8 per cent as against 7.4 per cent. Farm output expanded by 3.9 per cent, much higher than 2.4 per cent in the same quarter last year. The services sector, which contributes almost 55 per cent of India’s GDP, offered a mixed bag. This is the fifth quarter in a row that the economy has reported a lower year-on-year growth. It is much lower than official estimates of eight to 8.5 per cent.The data comes at a time when India is vulnerable to global economic developments, especially in the United States and the eurozone. The Reserve Bank of India, or RBI, is unlikely to be impressed by these arguments. It has warned last week against accepting high inflation (9.22 per cent for July) as the new normal. There is a consensus among professional economists that the central bank will put up key policy rates by at least 25 basis points (0.25 per cent), if not 50, in the next policy review due on September 16. According to them, the performance of the economy in the June 2011 quarter has to be seen against the several domestic and global headwinds it has been facing. Although growth is slowing down, it is not collapsing as feared by some. Also, with full-year growth number still above seven per cent, it allows the central bank to keep focus on fighting inflation. Therefore, a 25 basis point rate increase on September 16 is very likely. The decline in GDP growth may turn into a sustained trend — unless the RBI realises its hawkish policy has served its purpose. Given the fragile state of the global economy with both the US and the eurozone on the brink of a recession, China slowing down and the home economy losing pace, corporate India’s confidence levels are fairly low. A recent survey by Morgan Stanley revealed that for a second successive year, corporate India is unlikely to up capital spending by more than a tepid 10 per cent. Moreover, while 15 per cent of those polled are unlikely to spend at all, about a third of those who do invest would do so more with a view to improving productivity rather than adding greenfield capacity. So we are unlikely to see companies rushing to set up too many new plants or build more roads. Having exhausted the fiscal stimulus, the government can no longer spend its way back to higher growth. However, fiscal reform, consensus on land acquisition policy, labour reform, facilitating private investment in food processing, logistics and supply chains, and liberalisation of investment policy in the strategic and defence industries could once again help stimulate the “animal spirits” of entrepreneurs. If the government could convince industry that it will push through legislation and be less bureaucratic, that in itself would go a long way in boosting industry’s morale.
Khaleej Times
India Struggles to Tame Inflation, Spare Economy
The Reserve Bank has gotten more aggressive in recent months, surprising markets with a series of half-percentage-point rate increases. In a Sept. 3 speech, the RBI's Executive Director, Deepak Mohanty, acknowledged that inflation has become "generalized" in the economy, but predicted the rate increases would begin to bring down inflation later this year and in early 2012...........
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Asia offers rate status quo hope
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The central bankers at four Asian countries — South Korea, the Philippines, Indonesia and Malaysia — have hit the pause button on rate increases even though they have been battling the spectre of rising inflation just as India. Is there a cue here that Reserve Bank of India governor Duvvuri Subbarao and his bunch of policymakers will take when they hunker down for the mid-quarter review of the monetary policy on September 16?
Key indices likely to retreat at opening
...When the RBI board members meet this week for a policy review, they will, perhaps, have an inflation figure close to 10 per cent, and a weakening fiscal position. Against this backdrop, Deutsche Bank thinks that the RBI will be inclined to deliver one more 25 basis points rate hike. It also predicts that there may be scope for a prolonged pause after this policy measure. ....
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Sunday, September 11, 2011
Much ado over DCM van carrying scrap
Andhra Pradesh : A DCM van hired by a contractor of the Reserve Bank of India to dispose of soiled currency notes created flutter on Saturday at Trimulgherry with some passers-by believing that it contained huge unaccounted cash. Some persons rang up the Trimulgherry police in the morning stating that they found a vehicle on roadside and suspected that large amounts of cash were illegally being transported using it. The police rushed there only to realise that it was a vehicle used to transport scrap. It was revealed that one of the RBI contractors used the vehicle to shift shredded pieces of soiled and mutilated currency notes, the Inspector, P. Sreedhar, said. The RBI disposes of the vast volumes of soiled currency notes by getting them shredded and assigns the work of dumping them to contractors, he explained. “Somehow, shredded pieces of currency notes of rupees five and ten denominations slipped from the van and fell on the road prompting passers-by to suspect that something was fishy,” he said. The RBI contractor and the van owner, who rented it out, too were called to the police station for clarifications.
HBL
Small change big problem!
HYDERABAD: 'Paanch Rupaiya Baarah Aana' was never more precious, at least in Hyderabad which is currently reeling under a severe shortage of change. Traders say both banks as well as the Reserve Bank of India have been unable to meet the demand for currency in various small denominations over the last few months. The problem, they say, has only worsened in the last one month with banks, big or small, putting up the 'no change' board on their counters.
City businessmen who deal with thousands of rupees of change everyday say that the shortage is acute with even brokers who charge them a commission not being able to supply the much-needed stock of small denomination. "I need Rs 1,000 to Rs 2,000 in change everyday but I have not been able to get it in the last couple of months. I need a stock of enough coins so that customers who pay in bigger denomination are not inconvenienced," says the owner of a sweet shop which has branches across the city. Bigger players like restaurateurs say their requirement for change every month is close to Rs 25 lakh and hence they use the services of brokers. There is a well-established broker network that operates in the twin cities selling small change, but retailers say that the commission has shot up in the last one month. The commission for Rs 100 change in Re one coins has gone up from Rs 10 to Rs 14. "To exchange Rs 1,000 with Rs 5 coins, the going rate is Rs 100. In the last 15 days the commission has gone up by Rs 2 to Rs 4," said a retailer. Traders mostly need coins of denominations of Re 1, Rs 2, Rs 5 and Rs 10 which are issued by RBI to select banks. The notes and coins are distributed by these banks to their counterparts. The change is also directly available to the public at RBI, where people take tokens and await their turn to collect it at the counters. However, the otherwise smooth system of procuring 'chillara' in the city has turned into an ordeal. "I have been making trips to my local bank everyday this week but there is no change. They tell us to come back the next day but they never have stock," said a grocery store owner in Begumpet. A broker in Madhapur told STOI that he had no change and that there was an acute shortage of Re 1 coins.
At the root of the problem, say observers, are brokers themselves, who have managed to bag a good chunk of change from banks and RBI. The hard-to-find small change can be found in heaps on the pavements adjoining the Reserve Bank of India. With bags filled with currency notes and coins, these individuals get their stash either from the counters of RBI directly or from other brokers who have easy access to the counters, they say. When STOI visited the bank under the guise of procuring change, the counters had exhausted their 'quota' for the day but a broker was able to provide the change. "Those who come regularly cannot get change without paying a commission. During the start of the month it can get very difficult for us as the crowd is more. During Dussera and Diwali the commission goes up because the demand for change is very high," says a trader. A shop owner in Banjara Hills further stated that there was a shortage of even Rs 100 notes and added that it was the broker mafia at RBI that was solely responsible for the menace. RBI officials, however, maintained that there is no shortage of coins. They said that the RBI does temporarily moderate the quota of coins it disburses based on the supply from mints. "There is too much for Rs 5 coins now but mints send as per their schedule," said A.S.Rao, Regional Director, RBI. He, however, said that there was no problem of change being faced by the bank currently. There is also the additional burden of the Reserve Bank of India supplying coins and notes to 410 currency chests across the state, the highest number of chests that any regional RBI centre in the country supplies to in the country. Also, the bank had its limits when it came to traders needing change for thousands of rupees everyday, he said.
TOI
Talking ATMs for the visually challenged!
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Students blindfolded to get a feel of the daily lives of the visually impaired during ‘Antarchakshu - The Eye Within,’ an event organised by the Xavier’s Resource Centre for Visually Challenged (XRCVC), at St Xavier’s College in Mumbai on Friday |
Mumbai : “This is the first time that I have seen the world through the eyes of a visually challenged person and it's an experience that I will never forget,” said a participant at Antarchakshu, an event organised by the Xavier's Resource Centre for the Visually Challenged (XRCVC). From buying groceries, playing foot ball and even withdrawing money from an ATM, participants were blindfolded and put through a maze of daily chores by the Xavier's volunteers, to sensitise people on a day in the life of a visually-challenged person. In fact, the highlight of the event was the talking ATM for the visually-challenged which was displayed at the college. “There are partially talking ATMs which have been deployed in many banks, but they are useless for us as they say the bare minimums like – welcome and thank you,” said Sam Taraporevala, Director of XRCVC who is also visually challenged. The Reserve Bank of India had stated in its circulars (2008, 2009) that “Banks should make at least one third of the new ATMs installed as talking ATMs with Braille keypads and place them strategically in consultation with other banks to ensure that at least one talking ATM with Braille keypad is generally available in each locality for catering to the needs of visually impaired persons.” “The visually challenged need an ATM that can guide them properly. We have developed a software which will ensure that the visually impaired can operate the machine themselves keeping in mind safety of the transaction,” said Nagesh M Nayak, Partner – professional services, NCR. The company has been developing these specialised machines for different banks. Many of them have deployed these machines on a pilot basis. Each ATM has headphones attached to it so that the visually challenged can hear the instructions and fill in the required data. “The labels on the ATMs are written in Braille. There is also an option to blank out the screen as a safety mechanism to ensure that no bystander misuses the pin,” said Nayak. Apart from the machine displayed by NCR, there was also another talking ATM with similar features displayed by Diebold. “We only provide the machine, the voice clips are added by the bank which the ATM is supplied to,” said Rakesh Suryavanshi from Diebold. Although the ATM manufactures were tight lipped about the banks they were supplying their machines to, they were hopeful that the they would be deployed by the banks soon and visually-challenged customers would truly benefit.
HBL
Cheque it out
Under any other circumstances, it would have been a philosophical question. But the woman who had just asked "What is money?" was standing on the floor of Reserve Bank of India's monetary museum. Clearly, she wanted a scientific answer. Her target group of impoverished kids in yellow T-shirts, however, wasn't prepared. They stared blankly at the coins displayed on the walls in response. It was difficult to define money, which for them was always an elusive entity. It was something Mahatma Gandhi smiled from and their parents cried for. It was something which their father, whenever he ran short, would beg the neighbourhood money-lender for. Something that they hid inside notebooks or pencil boxes for the same reason that they believed affluent people deposited it in banks-"for protection from rats".
Thankfully, however, such innocent perceptions of cash and the notions that banking is only for the rich would not last very long in their young minds. Driven by the firm belief that "unless you know how to manage money, you can't make more of it", many banks, NGOs and social institutions are now trying to equip underprivileged kids with the all-important life skill that no school curriculum currently accounts for-financial literacy. These two words, which the RBI has been emphasising for a while now, form "the first step towards achieving our larger focus-financial inclusion", says Alpana Killawala, RBI's head, Department of Communication. That is why the bank organises regular museum, bank and clearing house visits for street children and even kids of sex workers, during which Killawalla answers innocent questions such as "If you have the power to print money, why can't you print unlimited money and abolish poverty?"
In 2007, the RBI had even come up with a series of comic books where a teenage protagonist, Raju, helps kids learn how to save, how to open a bank account and how to apply for a loan while another character Moneykumar, an RBI employee, explains how his bank works. At the various workshops on financial literacy that are now being held by banks as part of their corporate social responsibility (CSR), these characters are handy visual aids. Besides these, role-play games, jigsaw puzzles, quizzes, videogames and most importantly, bank visits, also help the assimilation of concepts such as fixed deposit accounts, savings acccounts and interest rates. "The experience of entering the air-conditioned premises of a bank and getting a first-hand feel of its functioning is something that always elicits very positive reactions from the kids," says Subhayu Mishra, vice-president and head, corporate communications, Barclays (India). The bank had partnered with a US-based NGO to conduct financial literacy workshops for 9th-, 10th- and 11th-standard students across various cities last year and has even tied up recently with UNICEF in a flagship project to improve the lives of slum girls between the age of 12 and 18 by explaining the "basic working of a financial arithmetic".
To make the otherwise staid subject of finance fun, the trainers consciously keep the lessons conversational. Divya Dayal, group head, human resource management and CSR at Mizuho Corporate Bank which has conducted 12 such workshops in municipal schools, says their lectures usually begin with a discussion on the meaning of the movie title Aamdani Atthanni Kharcha Rupaiya, which the students can identify with. "People at the bottom of the pyramid find different informal ways for alternate sources of income but due to less access to the related information on financial literacy, such people are cheated and exploited by unscrupulous elements, so-called financial advisors and touts," explains Dayal who, during her interactions with students, was startled to discover their overly casual approach to "living on borrowed money". Usually, after drawing up a list of their monthly family expenses, when students were asked how they would make up for the deficit, they would all chorus, "lala" or "sahukar". "This local money lender is seen as the saviour, and the students have no idea that his usurious rates of interest from vulnerable borrowers are wrong," muses Dayal, who is now endeavouring to change that perception.
While many of the students are aware of basic banking, they believe that such facilities are available only to the affluent, she says. "Also, they have heard and seen credit cards but the concept of credit and debit has to be explained," reveals Dayal, whose bank is planning to groom women taxi drivers, night-school students and parents of slum students. "You have to be careful not to lapse into financial jargon," says Vidya Venkatiswaran, a volunteer with SIFE (Students in Free Enterprise), which has been conducting workshops for physically challenged students at Chembur's NASEOH and for vocational training students. "Some students work two to three shifts and are inquisitive about share markets, DMAT accounts and insurance schemes," says Venkatiswaran, who has even screened movies like Rocket Singh-which showed the protagonist launch a successful startup company-to encourage them to develop entrepreneurial skills. "We even give them a small financial reward and encourage them to open bank accounts," she adds. There's no doubting the benefits of catching them young. Rajesh Alphanso of Mizuho Corporate bank, who was initially amazed by how much kids at a Colaba municipal school were ready to spend on festivals such as Ganesh Chaturthi, asked them to make a distinction between their needs and wants. He now notices a visible change. Not only do some students commit to educating their parents about refraining from borrowing from the money-lenders, but a boy's mother even advised him to "pay close attention during the financial literacy class", making Alphanso feel triumphant. And yes, the kids' definition of money is no longer philosophical. "The local money lender is seen as the saviour, and the students have no idea that his usurious rates of interest from vulnerable borrowers are wrong".
http://timesofindia.indiatimes.com/city/mumbai/Cheque-it-out/articleshow/9941099.cmsBanker hunt leads NBFCs to headhunters
The draft guidelines for licensing of new banks in the private sector released last week, have set off a flurry of activity among stakeholders seeking to eye a number of candidates with the help of headhunters. Non-banking finance companies (NBFC) have given out mandates to recruiters to look for suitable candidates for the corner offices.
Business groups and enterprises who are seriously looking at a banking foray have also engaged consulting firms for charting out a road map. This involves looking at the existing competitive landscape; emerging opportunities and business focus – corporate, retail and geographical coverage of banks. Headhunters, whom Business Standard spoke to, said companies have sent out feelers to eligible candidates seeking their interest to join their companies, as and when it takes shape. R Suresh, MD-India, Stanton Chase International, is busy with two new NBFC clients, one from Chennai and the other from Mumbai, to meet their need of C-level executives. “We are working with two large companies which expect to get a banking license. One of them is setting up certain additional functions also. We are involved in the recruitments.” According to Viren H Mehta, director, Ernst & Young, top priority for the NBFCs is to zero in on people who could be part of the top management team. Along with chief executive officer, risk management, operations and treasury, there are other key appointments which would merit attention. “The profile of the leadership team is the most important aspect as it would carry a lot of weight in the Reserve Bank of India’s assessment of the company’s capability to run the new entity,” says Mehta. For Uday Sodhi, chief executive officer of headhonchos.com, selections at the top and senior management level, will be a long process of evaluation and could take over six months. “Many companies and groups which are interested in setting up banks have approached us. Now they would access our vast and rich data-base on banking sector professionals. Then, they will interact with bankers.” The demand for covering unbanked areas and bringing them under financial inclusion, will help those companies with rural banking experience. Those with experience of setting-up operations or businesses will also be sought after. However, headhunters say there was no dearth of talent in the market which may severely impact dynamics. Advent of new banks will create new openings and people will get a chance to showcase their capabilities. Entry of new banks may also impact compensations, albeit at some point in future. “Those looking for people will have to structure innovative packages. Those at the receiving end (read banks or financial entities that become target for talent search) will have to employ defensive strategies, including an improvement in pay packages to retain talent,” says Sodhi. “Existing banks, especially foreign and private ones, would take a cue from the emerging competition. This may push compensation packages and rewards for professionals in key functions. The real change would happen once they start feeling the heat. The war to retain and woo talent is not going to be easy,” says Mehta.
BS
Kotak Mahindra Bank to expand branch network
Ahmedabad: Kotak Mahindra Bank on Saturday said it would expand its branch network in the country from the existing 325 to 500 over the next 18 to 24 months period, a senior official said. "We shall be increasing our branch network by 22 to 25 percent every year. The immediate target is to increase the network from the existing 325 to 500 over the next 18 to 24 months," Kotak Mahindra Bank Executive Vice President and Head Branch Banking, Virat Diwanji, told reporters here. "We shall be opening four new branches in Ahmedabad in next nine to 12 months," he said. The bank currently has 11 branches in the city. As per a RBI statement, Ahmedabad ranks seventh among the top 200 centres in the country arranged in terms of aggregate deposits at Rs 72,215 crore, showing an annual growth of 20.2 percent as on March 2011. Replying to a query on what if RBI goes in for another round of hike in key rates Diwanji said, "As a banker I would like to have lower interest rates". "But, the current situation in the economy where inflation is rising you really need to control that and one of the ways in which we in this country have done it very well is by regulating the interest rates," he added.
Zee News
RBI diktat on failed ATM transactions – Pushpa Girimaji
Banks are particular about time when it comes to recovering EMIs from customers. But when it comes to re-crediting amounts wrongfully debited from a customer’s account, they suffer from sudden amnesia. Refer here to the RBI guidelines on resolving customer complaints pertaining to failed ATM transactions. As per the revised RBI directive issued on May 27 this year, banks have to remit to the account of the customer, amounts wrongfully debited following a failed ATM transaction within seven days. If not, banks have to pay the customer penalty at the rate of Rs 100 per day till the date the amount is credited to the account. This time-line has come into effect from July 1. Earlier, through its circular of July 17, 2009, the RBI had given banks 12 days’ time for re-conciliation of the account. If the bank failed to stick to this deadline, it had to pay Rs 100 per day to the aggrieved consumer. Now it has reduced this time limit to seven days and has directed banks to widely publicise this`A0change at all ATM locations and also by individual intimation to customers. I wonder how many banks have followed the last advice. In fact it was way back in October 2008 that the RBI responded to a large number of complaints about this issue and directed banks to pay back the money to the consumer within 12 days. Said the RBI in its circular dated October 23, 2008: " Of late, we have been receiving a number of complaints from bank customers, regarding debit of accounts even though the ATMs have not disbursed cash for various reasons. More importantly, banks take considerable time in reimbursing the amounts involved in such failed transactions to card holders. In many cases, the time taken is as much as 50 days."
"After examining the procedures involved in verification and resolution of such complaints, the Reserve Bank has concluded that delay of the magnitude indicated above is not justified, as it results in customers being out of funds for a long time for no fault of theirs. Moreover, this delay can discourage customers from using ATMs. Therefore, it has been decided that, to start with, banks shall reimburse to the customers the amount wrongfully debited within a maximum period of 12 days from the date of receipt of customer complaints", the RBI said. As banks failed to adhere to the deadline and consumer complaints continued, the RBI decided to get tough with the banks. So in its circular of July 17, it not only mandated a penalty`A0for delays, but also insisted that banks place before the board of directors, a quarterly report on the quantum of penalties paid and action taken to avoid recurrence, and the board shall send this report along with its observations to the Reserve Bank, it said. It also warned banks that non-adherence to the directives would invite regulatory action. In its latest circular of May 27, 2011, it has reiterated these points while reducing the time limit for remitting the account to seven days. So whenever the ATM fails to dispense the money that you asked for, check your account to make sure that the amount is not wrongly debited from your account. If it has been, then follow these steps:
(1) First and foremost, give the bank a written complaint giving details of your case, including the ATM transcript. This has to be done within 30 days.
(2) Refer to the RBI directive of`A0May 27, 2011, titled "Reconciliation of`A0transactions at ATMs failure — time limit." Remember, your money has to be credited within seven working days of your complaint. If not,`A0the bank has to pay you penalty at the rate of Rs 100 per day.
If the bank fails to follow the RBI directive, complain to the Nodal Officer of the bank, and if he fails to act, too, go to the Banking Ombudsman for redress of your complaint. You can get the details, addresses and e-mail IDs of the Banking Ombudsmen on the RBI website (www.bankingombudsman.rbi.org.in) and can complain online.
The Sunday Tribune
Setting the bar for new banks
The banking sector has been in a consolidation phase over the last few years. This is evidenced by the fact that only two banks were issued licences in the last decade, while there have been around 19 bank mergers and acquisitions. New banks have not had it easy either since only seven of the 12 banks set up since 1993 are currently operational. Given this backdrop, the Ministry of Finance's announcement of new bank licences in February 2010 came as a surprise. The Reserve Bank of India (RBI) has now gone ahead and prepared the draft guidelines for issuing bank licences. This time around, there is a significant dilution from the RBI's stubborn stance with respect to allowing big industrial houses to set up a bank. While preparing the guidelines, however, the central bank has managed to set the bar high so that only serious players can enter the system. It also made sure that the core objective of improving financial inclusion is not compromised by the new entrants. However, this skews the cost-benefit equation of the new entrants towards the former (cost). We also expect non-banking finance companies (NBFC) to benefit more than un-related entrants.
Draft guidelines
The RBI has made it clear that only private entities owned by resident Indians can own a bank. This rules out government-owned companies such as Power Finance Corporation and Rural Electrification Corporation. The companies that can spare cash to set up a bank would be big corporate houses such as such as the Tata, Birla, Bajaj, Mahindra, Larsen and Toubro and Reliance. The RBI intends to ring-fence the bank from the parent entity by setting up a non-operating holding company (NOHC) that will be governed by the RBI. There are other quantitative and qualitative requirements that corporates have to adhere to beyond capital infusion. Diversified shareholding of corporates and more than 10 years of track record are also necessary. The central bank may seek feedback from various regulators, investigation and enforcement agencies on applicants. Good corporate governance is the RBI's trump card which will allow it to ignore companies that have flouted rules historically. The RBI has ruled out banking licences for groups with income or assets of more than 10 per cent of the total from real estate and/or capital market. This excludes capital market majors such as India Infoline Financial Services, Indiabulls group, Religare and Edelweiss from setting up a bank.
Issues with the regulation
The regulation stipulates that new banks should list two years from the date of receipt of licence. As the operation may commence two-three months after receipt of the licence, the bank may have very little operational history before listing. This will prevent it from demanding an attractive price in the offer. Also, post-listing, the bank will have an inflated capital which would prolong the improvement in profitability. That the promoters have to bring down the proportion of ownership to 40 per cent by end of year two is also tricky. The banks can raise fresh equity from the capital market to meet this requirement, but that would bloat the capital unnecessarily. Alternately, they can divest stake from existing equity but this would mean no additional infusion of capital for another three years since the regulation stipulates so. Weak equity markets can also derail such capital raising or divestment. The last time Yes Bank listed we were in a bull market which allowed it to demand a 2.25 times price-to-book valuation. It was the lone new private bank to list in that period. Prospective bank licences may crowd the primary market and capital raising might not be that easy. Another drag on profitability is the requirement that 25 per cent of the total branches have to be set up in under-banked areas where cost of breaking-even for a branch may be high. Since in the initial year of operations, access to low-cost deposits is low, higher cost of funds coupled with high wholesale borrowing, will impact the spreads and profitability adversely. For incumbent banks only a quarter of incremental branches have to set up in unbanked areas. This puts new banks in disadvantaged position. New bank licencees are also required to adhere to 40 per cent priority lending sector norms from the outset. Also, they cannot use the NBFCs to meet most their priority sector lending targets post-RBI regulation. The way out for new banks could be to look out for acquisition candidates immediately after getting a licence. They may, however, have to pay a premium for acquiring old private banks (which have been attractive acquisition candidates for long). This would lead mean sub-optimal allocation of capital. Additionally this wouldn't serve the Finance Minister's vision of having more banks.
Threat to existing players
Yes Bank and Kotak Mahindra Bank, the latest entrants, have garnered a market share in advance of 1.5 per cent over the last seven years. If one notices the market share patterns of banks, public sector banks have bigger market share in advances as compared to what they had six years ago. They had 71.4 per cent share of advances in June 2005 which currently is at 74.8 per cent. Private banks' share has remained unaltered in this period. This means that the new entrants dented old private banks' and foreign banks' share. It can, therefore, be surmised that the competition from new banks would hurt the newer players before posing a threat to incumbent players.
NBFCs best placed
As of March 2010, NBFCs assets were around 11 per cent of the total bank assets. So any transfer of assets from these companies to new banks would give them a head-start over other new entrants. The RBI has recently reduced the regulatory arbitrage for NBFCs through a series of regulations. These changes could provide the impetus to push some of them into converting into banks. NBFCs have a choice to convert into a bank or transfer a part of their asset book to newly set up a bank. In both the cases, they are not allowed to duplicate lending done by newly set up bank. This augurs well for the NBFCs which have a rural presence as it will allow them to adhere to priority sector norms. Shriram Transport and Mahindra Finance stand to gain in this way as they have a strong rural presence. Existing NBFCs that convert into banks have to stick to the norm of setting up branches in unbanked areas (with less than 9,900 population) for only the branches in Tier-1 and Tier-2 cities. For branches in Tier-3 to 6 areas, these norms need not be applied. This places them at an advantage to other private banks that have to open a quarter of their branches in areas in unbanked areas.
HBL
Pranab to lead Indian delegation for Fund-Bank meetings at Washington
The Finance Minister, Mr Pranab Mukherjee will embark on a week-long visit to the United States from September 21 to attend the 2011 Annual IMF World Bank meetings, which are scheduled September 23-25 at Washington. He will lead the Indian delegation that would comprise the Reserve Bank of India (RBI) Governor, Dr D Subbarao besides senior officials from the finance ministry and RBI, official sources said. This will also be the first time that Mr Mukherjee will personally interact with the IMF Managing Director, Ms Christine Lagarde after she assumed charge at the helm of this multilateral lending institution.
HBL
Can RBI move ahead of the curve?
There is now increasing apprehension that, for the 12th time in succession (since February 2010), RBI will resort to monetary tightening in September. For the statistically minded, there is also a contrarian view within RBI against rate hikes (RBI minutes of monetary policy meeting). .......
Read.........
RBI may pause on policy rate rise this time, says Deloitte
Financial advisory company Deloitte does not expect the Reserve Bank of India (RBI) to raise policy rates at its monetary policy review next week, even as inflation stands at 9.2 per cent in July. However, it also expects the central bank to continue with its tight monetary policy to tame inflation till it reaches six per cent, though not this time around. "Our perspective is the RBI will pause this time following a 50 basis point rise in policy rates in its July review," Deloitte, Haskins & Sells Director Anis Chakravarty said. The RBI has raised policy rates 11 times since early 2010 when it reversed its soft monetary stance as the ripple effects of global financial crisis had waned by then. In its July review, RBI had raised repo (short-term lending) rate by 50 basis points, following which reverse repo (short-term borrowing) rate automatically rose by 50 basis points. “It is not that RBI will raise policy rates every time to tame inflation,” explained Chakravarty, while stressing the central bank will not completely pause the rates tightening process unless inflation falls to six per cent. In its recent report on global economic outlook, Deloitte said, "Inflation is unlikely to subside in the near term and the RBI will probably continue raising interest rate until it stabilises at six per cent". Chakravarty expects inflation to be in the range of 9.2-9.5 per cent in September. The August number will come next week. He said the RBI is determined to fight inflation and is not going to focus on gross domestic product and Index of Industrial Production numbers. It is not the prime responsibility of the RBI to look at GDP and IIP numbers, that is the government's job, he said. The Reserve Bank's hawkish monetary stance has been blamed for stifling India's economic growth. India's GDP growth declined to 7.7 per cent in the first quarter of the current financial year from 8.8 per cent in the corresponding period of the previous year and 7.8 per cent in the fourth quarter of last financial year. This is despite the revision in the growth rate in the first quarter of last financial year to 8.8 per cent from 9.3 per cent estimated earlier. Had the growth rate remained the same then economic growth rate would have decelerated to 7.2 per cent.
BS
Asia awaits India rate decision in week ahead
LOS ANGELES (MarketWatch) — An Indian interest-rate decision and a possible legislative battle in Australia are among events that may impact Asian markets next week. The Reserve Bank of India is slated to hand-down its mid-quarter policy decision on Friday. The RBI has hiked benchmark rates 11 times since March 2010 as it seeks to battle heavy inflation in India, and a Dow Jones Newswires survey is showing expectations for another half-point increase at the upcoming meeting. In addition to any surprises on the rate moves, analysts and investors will also watch for any details on plans to bring back inflation-indexed bonds, as announced earlier this month by the central bank’s Gov. Duvvuri Subbarao.
RBI may hike the key interest rates again
The mid-term Credit Policy review is scheduled for next week. There are talks of a possible interest rate hike by the Reserve Bank of India (RBI). The inflation rate is still strong and this indicates further monetary tightening. However, the RBI has already tightened the monetary policy several times in the last one and half years, and they have reached a level where they are beginning to impact industrial growth. On the other hand, the developed countries in the West are facing tough challenges - keeping their economies on the growth path and warding off a possible double-dip recession. A double-dip recession there will certainly impact the GDP growth here to a certain extent. Analysts believe it is crucial to maintain a fine balance between inflation, industrial growth and monetary policy tightening. Policymakers would consider some major parameters while taking a decision on the monetary policy tightening. The headline inflation based on the Wholesale Price Index (WPI) data here as well as on the food articles is still in an uncomfortable zone. There are various domestic as well as international factors that are responsible for this high inflation rate. The demand-supply mismatch here and the soft monetary policies in the international markets are behind the volatility in the prices of international commodities. Analysts believe the high inflation rate will play on the minds of policymakers during the forthcoming midterm monetary policy review. The RBI is expected to maintain its tough stance. The sustainability of economic growth in the developed markets in the West is being questioned ever since they came out of recession last year. There are issues with respect to rising government debt and possibility of cracks in the financial /banking systems. Although the domestic economy is not significantly dependent on exports, some impact on the economic growth here in case of a double-dip recession in the West is certain. This will be a major factor given the fact that the global economies are on uncertain growth paths. A further tightening of the monetary policy can dent the economic growth here too.
ET
Saturday, September 10, 2011
Banks can lend below base rate to tribals, differently-abled: RBI
The Reserve Bank today said banks can lend below the base rate, or the minimum lending rate, to tribals and physically challenged persons. "Such lending (to tribals and handicapped), even if below base rate, would not be considered as a violation of our base rate guidelines," the central bank said in a circular. At present, banks get refinanced from National Scheduled Tribes Finance and Development Corporation (NSTFDC) and National Handicapped Finance and Development Corporation (NHFDC) for loans extended to tribals and differently-abled people. Such lending would not be in contravention to the apex bank's rule, which restricts lending below base rate to borrowers, the RBI added. Banks may charge interest at the rates prescribed under the schemes of NSTFDC and NHFDC to the extent refinance is available. As per micro credit scheme of NSTFDC, banks can provide subsidised loans at interest rates not exceeding 8 per cent, where refinance at 3-5 per cent from the corporation is available. Similarly, under various schemes of NHFDC, loans are provided at concessional rates to beneficiaries, subject to refinance option from the development corporation. At present, base rates of banks are hovering around 10 per cent and the lenders are not allowed to lend below this rate.
NDTV Profit
Public Provident Fund panel report may not mean much
The suggestion of the committee on comprehensive review of National Small Savings Fund to improve the state of the Public Provident Fund (PPF), 1968, may sound great on paper, but it has drawn less enthusiasm from experts. Headed by former Reserve Bank of India (RBI) Deputy Governor, Shyamala Gopinath, the committee has suggested that the deposit limit under the PPF scheme be raised to Rs1 lakh per annum from Rs70,000. “The limit of Rs 1 lakh is never enough because it is plugged with every other tax savings instrument. So this is not going to increase the benefit much. The deduction amount itself has to be increased so that the benefit increases,” says Sandeep Shanbhag, director, Wonderland Consultants. It also suggest that interest rate on advances against deposits be fixed in PPF scheme at 2% against 1%. “In conjunction for the rise in limit for the demand to sustain, there should also be status quo on other benefits. For example, if they make the interest rate market linked, automatically some bit of allure is gone. If they remove the EEE benefit, the allure is reduced,” said Jayant Pai, vice president, Parag Parikh Financial Advisory Services. The committee is of the view that the interest rates on small savings schemes need to be market linked. Few financial planning support this. “This makes the scheme sustainable. One of the big subsidy is that even the interest is tax free. Linking it to the market will be fair. Otherwise, it is unnecessarily creating a government handout during times when interest rates are low,” says Harsh Roongta, chief executive officer, Apnapaisa.com. Roongta agreed that increasing the limit will also benefit investments. The committee has further recommended benchmarking interest rate on small saving schemes to interest rate on government securities of similar maturities with a positive spread of 25 basis points on all schemes. The National Savings Certificate and Senior Citizens Savings Scheme would be exempted, where the spread would be 50 bps and 100 bps, respectively.
DNA
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