Saturday, October 8, 2011

London Lord Mayor Coming To Do Business With Mumbai

London's Lord Mayor Alderman Michael Bear will arrive here on a two-day visit Tuesday at head of a high-level business delegation offering British expertise in infrastructure, financial and other sectors, an official said Friday. Bear will meet Reserve Bank of India (RBI) deputy governor Subir Gokarn, Securities and Exchange Board of India (SEBI) chairman U.K. Sinha, Infrastructure Development Finance Co Ltd (IDFC) CEO Rajiv Lall, and Mumbai Metropolitan Region Development Authority (MMRDA) Metropolitan Commissioner Rahul Asthana, the British deputy high commission official said. The lord mayor, whose principal role is ambassador for all Britain-based financial and professional services, will address a Sea Trade Summit Wednesday. "India is establishing itself as a global economic superpower. It is well documented that it is aiming to spend $1 trillion on infrastructure development by 2017 to sustain the outstanding levels of economic growth seen over the past decade," Bear noted ahead of his visit. Britain wants to be a key business partner with India to achieve this goal, he added. The visit is the outcome of the announcements made by Prime Minister Manmohan Singh and his British counterpart David Cameron on the latter's visit to India last year to target doubling the bilateral trade to 24 billion pounds of $38.4 billion by 2015. A civil engineer and Master in Business Administration (MBA), Bear has worked on community development and infrastructure and financial projects around the world in the past 36 years.

http://www.daijiworld.com/news/news_disp.asp?n_id=118322

Concerned Mukherjee in touch with RBI officials to tackle inflation

New Delhi : Emphasising that inflation is a matter of grave concern, Union Finance Minister Pranab Mukherjee on Friday said he was keeping in touch with Reserve Bank of India officials so that they can find an adequate solution to curb it. "Definitely, it is a matter of grave concern, and we shall have to see that how it can be brought at a moderate level. I am constantly in touch with RBI and other experts in this area," Mukherjee told the media here. India's food price index rose 9.41 percent and the fuel price index climbed 14.69 percent in the year to September 24, government data on Friday showed. In the previous week, the fuel price index had risen by the same margin, while annual food inflation had stood at 9.13 percent. The primary articles index was up 10.84 percent, compared with an annual rise of 11.43 percent a week earlier. The RBI has raised interest rates a dozen times in the past 18 months, but headline inflation remains at more than twice the bank's comfort level, confounding expectations that it was coming to the end of its tightening cycle. The RBI lifted its policy lending rate, the repo rate, by 25 basis points to 8.25 percent last month, in line with expectations, in a campaign that has done more to slow growth than contain near double-digit inflation. Headline inflation in August accelerated to 9.78 percent, it's highest in more than a year, from 9.22 percent in July.

http://www.newstrackindia.com/newsdetails/244555

Core inflation build-up could prompt more rate hikes

If the monetary policy tightening initiated by the RBI since early last year was aimed at limiting the spread of input cost pressures to the broader economy, the measures seem to have been less than adequate. After a brief hiatus late last year, when the contribution of manufactured products to the overall headline inflation dipped from levels in the earlier months, the trend has reversed sharply. Since the beginning of this year, the contribution of manufactured non-food items to overall inflation has risen perceptibly. This surge in the manufactured non-food inflation, or core inflation, effectively signals the cascading of input cost pressures despite frantic attempts by the central bank to cool down prices by way of the 12 repo rate hikes since March last year. According to RBI data, while inflation remained high throughout, the underlying drivers changed during three distinct phases in the year. The changing inflation dynamics during 2010-11 was evident from changes in the weighted contribution to the overall WPI over three distinct phases. During the April-July 2010 period, the increase in WPI was quite significant and was largely driven by high food prices. In the second phase between August and November 2010, the magnitude of price rise was moderate but primary non-food articles witnessed strong price pressures even as the contribution of non-food manufactured products came down. During the third phase between December 2010 and July 2011, inflationary pressures rebounded strongly, driven largely by resurgent price pressures in the non-food manufactured products group, indicating a generalisation of price pressures. Though the headline inflation tells people the rate at which prices are currently rising, it is said to have a limited role in forming inflation expectations. Core inflation, or the long-term rate, carries considerable significance as a more accurate predictor of the future inflation rate. Rising core inflation thereby spells more bad news for policy makers.

HBL

Why the recent drop in net interest margins

..... As we are going to see some more hardening of interest rates in the next quarter even as growth in advances remains muted, it is time for nationalised banks to consolidate their balance sheet so that the yield on interest-earning assets remains competitive and the NPAs are contained............

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

Kill inflation, or inflation theories?

If inflation must really be brought down, there's no substitute for blunt instruments — pulling in liquidity or impounding incomes...........

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

Friday, October 7, 2011

Despite protests, Rs 500, Rs 1000 notes to stay

NEW DELHI: The government has decided not to discontinue circulation of higher denomination notes of Rs 500 and Rs 1,000 despite demands from civil society groups that big currency notes were breeding black money in the economy and were the primary causes of inflation. While giving details of various currency notes in circulation, the finance ministry recently made its stand clear that there was no thinking on the government's part to discontinue such notes. Though RBI prints currency notes, it is the government that decides the denominations in which they would be printed. Of the total Rs 9.70 lakh crore worth currency notes in circulation as on June 30, 2011, more than 80% are in the denomination of Rs 500 and Rs 1,000. The total value of notes of Rs 2, 5, 10, 50 and 100 in circulation is less than Rs 2 lakh crore. The demand to curb higher denomination notes has been made to check the menace of unaccounted money, stop fake currency circulation and curb anti-national and terrorists using these counterfeit currency to destabilize the economy. According to the civil society groups demanding withdrawal of higher denomination notes, even US and European countries where the per capita income is much higher than India's, the denomination used is much smaller in comparison. For instance, the largest denomination note in the US is of $100. The demand also has the support from revenue intelligence agencies which have been grappling with the menace of counterfeiting. A recent report prepared by the Directorate of Revenue Intelligence (DRI) in association with the Intelligence Bureau, RAW and CBI has said that fake Indian currency notes in circulation in India could be as high as worth Rs 6,000 crore and that this is seriously undermining the credibility of the rupee.

TOI

Right policy mix for the rupee – S.S.Tarapore

The time-tested policy of intervening in the forex market (both ways) would need to be blended with monetary policy tightening supported by stabilisation bonds. It is best to keep the current account deficit within 3 per cent of GDP. The major international currencies are in turbulent waters and many currencies are facing volatility with downward swings. As per the analytical construct of the Impossible Trinity, it is not possible to have a fully open capital account, an independent monetary policy and a managed exchange rate; one of these objectives has to be jettisoned. In India there are still a number of capital controls and monetary policy is not fully independent. As such, it is reasonable to have some hold over the exchange rate. Given the fragile financial structure it is hazardous to totally give up one of these objectives and it should be possible to optimise policies following the general theory of the second best.

EFFECTS OF CAPITAL FLOWS

In the 1990s, the Reserve Bank of India (RBI) considered the real effective exchange rate (REER), based on the five-country model, as a ‘policy polestar'. As capital inflows gathered momentum there were fears that a marauder could “break the Bank”. While after 1997, the RBI continued to be guided by the REER, there was a move from the explicit REER basis to an implicit REER policy. As capital inflows increased, there was a growing concern that in the absence of forex intervention, the current account deficit (CAD) could rise substantially above the level of 3 per cent of GDP. Between 2003 and 2008, there was decisive action to avoid excessive appreciation through aggressive forex intervention combined with sterilisation of the increased domestic liquidity. In the more recent period it would appear that the RBI has been reluctant to intervene if the rupee appreciates but is willing to take action if it depreciates.

The recent movements in the exchange rate are revealing. The REER six-country index (with 2004-05=100) rose from 98.48 in September 2009 to 119.16 by July 2011 and then depreciated to 113.87 by August 2011 (there has been further depreciation in September 2011). The RBI last undertook purchases in November 2010. It was only in September 2011 that the RBI undertook sales to stem the depreciation of the rupee. If the exchange rate policy is strictly non-interventionist, a la New Zealand, then there would be no need to hold any forex reserves. A policy of not intervening when the rupee appreciates has a corollary that there should be no intervention when the rupee depreciates. An asymmetrical policy of intervening only when there is depreciation is obviously unsustainable. Although capital inflows are much higher than the CAD, they are capricious and, as such, it is best to keep the CAD within 3 per cent of GDP. If the surplus capital flows are mopped up through forex intervention there would an increase in domestic liquidity. If the surplus capital flows are not mopped up by forex intervention, domestic liquidity would swell or the CAD would widen. It would be preferable to bolster the forex reserves and then deal with excessive domestic liquidity rather than try and contain the CAD by reducing domestic liquidity. A purist policy of non-intervention in the forex market would require that there are effective monetary policy instruments to deal with the evolving liquidity situation. As it is, monetary policy is bartered away to handle the fiscal excesses. An increased burden on monetary policy would imply a quantum jump in interest rates and reserve requirements. The time-tested policy of intervening in the forex market (both ways) would need to be blended with monetary policy tightening supported by Stabilisation Bonds. This provides for a more equitable burden-sharing among the overall policy instruments.

Given the interest rate differentials between India and the major industrial countries, the rupee should be at a discount in the forward market whereby the interest rate differentials are reflected in the forward exchange rate. Forward market intervention can be more effective than spot intervention. The net forward purchases/sales have been zero since November 2011 and the RBI could significantly reduce domestic liquidity pressures through aggressive forward intervention. Whichever way one looks at it, the authorities need to have a fix of some sort on what they consider an equilibrium exchange rate. Considering the nominal exchange rate, the secular depreciation since 1993 has been of the order of 1.5 per cent per annum which is insufficient to cover the inflation rate differentials and the interest rate differentials. Hence, there is a need for the nominal exchange rate to depreciate. An iconoclastic approach of abjuring the REER as a reference point, without a new creed in place, could be dangerous. The present exchange rate policy articulation emphasising “volatility” leaves market players without a reference point and creates confusion in the forex market. A dedicated, clear enunciation by the RBI top management of the present exchange rate policy is the need of the hour.

HBL

You have to be decisive on fighting inflation – Bimal Jalan

Whatever option you finally choose and what you feel should be done, must be done irrespective of its popularity and you have to succeed........

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

Banking M&As may be kept out of competition regulator’s ambit

The Reserve Bank of India has found a way to keep the banking sector out of the Competition Commission of India’s (CCI) ambit on mergers and acquisitions (M&As). The Banking Laws (Amendment) Bill, 2011, currently being vetted by a parliamentary standing committee, has a new clause — Section 2A — inserted after Section 2 that specifies, “Notwithstanding anything contrary contained in Section 2, nothing contained in Competition Act, 2002, shall apply to any banking company, the State Bank of India, any subsidiary bank, any corresponding new bank or any regional rural bank or cooperative bank or multi-state cooperative bank in respect of the matters relating to amalgamation, merger, reconstruction, transfer, reconstitution or acquisition under respective Acts.” With the move of the central bank of getting an “indirect exemption” for the sector from Section 5 and 6 of the Competition Act, pertaining to mergers and acquisitions (M&As), the CCI has been effectively kept away from the banking sector.

First ‘total banking’ state yet to achieve financial inclusion

Kerala added another first to its credit last week when it became the first state in India to have banking facility in every village. It achieved the unique distinction with banks opening either ‘brick and mortar’ branches or appointing customer service providers in 127 villages without bank branches.It came four years after the state attained total banking by providing at least one bank account to every family. Under the total banking programme, families without bank accounts were provided with “no-frills accounts”, a pass book and an automated teller machine (ATM) card. With these, Kerala has marched close to the target set by the Reserve Bank of India for financial inclusion, which is the delivery of banking services at an affordable cost to the poor, the disadvantaged and the low-income groups. The financial inclusion that the state has achieved is confined to providing merely a bare minimum access to a savings bank account without frills. The state has to go a long way in achieving the larger objective of ensuring easy credit to the poor. Taking the banking service to every family in the state has not been a difficult task since a vast section of the population had availed the banking service due to high literacy and large scale migration. The families of the migrants, who number over two million, are forced to maintain savings accounts since they get remittances through banks. In fact, the banks have been wooing the NRI customers by opening branches in all major migrant pockets. Kerala witnessed a sporadic increase in the bank network following nationalisation of banks in 1969. The state accounted for 5.3 per cent of the total number of offices of the commercial banks in India in 1987. In addition to the commercial banks, Kerala also has large number of cooperative banks and non-banking financial institutions, mobilising deposits and disbursing credits. The state at present has 3.6 cooperative institutions in each village. As a result of these, the average population per branch in Kerala came down steadily over the years. It stood at 10, 000 in 1996 as against 15, 000 in the whole country. The savings in the state is also high compared to other states. The deposits in the commercial banks alone crossed the Rs1.5-trillion mark by the third quarter of 2010. About 30 per cent of this is non-resident deposits. These provide the right infrastructure for targeting higher financial inclusion in the state but sadly the performance of the commercial banks in credit disbursement has been very dismal. There has been a sharp decline in the credit-deposit (CD) ratio of the commercial banks in the nineties. The CD ratio declined from 64.77 in March 1988 to 44.9 in September 1997. Although it has gone up to 74.32 per cent at the end of September, 2010, it is very low compared to the neighbouring states. The DD Avari Committee appointed by the RBI endorsed the State’s view that the CD ratio commercial banks functioning in Kerala was totally inadequate and also observed that the philosophy of banking needs a new orientation and human touch under the Kerala situation. The low CD ratio has hampered the general investment tempo in the State. Politicians have been accusing the banks of diverting deposits mobilized from the state to other states. Chief Minister Oommen Chandy said that the banks were reluctant to provide education and agriculture loans. He said that he has been getting a number of complaints from people regarding the negative approach of banks towards their loan applications. Chandy said that the state will be able to achieve total financial inclusion only if the banks adopted a more liberal approach in lending money to the vulnerable sections of the society.

Khaleej Times

Banks against proposal to hike deposit insurance cover five-fold

Mumbai : Banks have opposed the Damodaran Committee's proposal for a five-fold increase in deposit insurance cover as it could have serious cost implications for them due to higher premium outgo. They have represented to the Reserve bank of India that the current deposit insurance cover per capita gross domestic product in India is adequate when compared with the global benchmark. The RBI's Committee on Customer Service in Banks (chaired by former SEBI Chief Mr M. Damodaran) had, in August 2011, recommended that the deposit insurance cover should be raised five-fold to Rs 5 lakh from Rs 1 lakh so as to encourage individuals to keep all their deposits in a bank convenient for them. Banks, under the aegis of the Indian Banks' Association, have buttressed their case against a hike in deposit insurance cover using RBI's own data. According to the RBI, at the current level, the deposit insurance cover in India works out to 1.63 times per capita GDP as on March 31, 2011. This is comparable with the international benchmark of around 1-2 times per capita GDP prior to the financial crisis. Another reason why commercial banks are not favourably inclined to an increase in deposit insurance cover is that smaller banks, especially from the co-operative sector, could possibly use this fact and the above average deposit rates that they invariably offer to lure depositors into their fold. “There is a moral hazard involved in raising the deposit insurance cover five-fold,” said Mr K. Unnikrishnan, Deputy Chief Executive, IBA. Moral hazard could arise because a financial intermediary does not take full responsibility for the consequences of its actions. Hence, it has a tendency to act less carefully than it otherwise would, leaving the other party (depositors) to bear the brunt of its actions. Commercial banks also want the deposit insurance premium halved to 5 paise per deposit of Rs 100 from the current 10 paise as there are hardly any claims from them on the Deposit Insurance Credit Guarantee Corporation, the wholly-owned subsidiary of the RBI. The deposit insurance premium that commercial banks are paying is cross-subsidising the claims arising from the co-operative banking sector, said a banker. Commercial banks, including regional rural banks and local area banks, account for about 93 per cent of the total deposit insurance premium paid to DICGC, with co-operative banks accounting for the rest. Commercial banks and co-operative banks paid deposit insurance premium aggregating about Rs 5,000 crore in FY-11. During 2010-11, the Corporation settled aggregate claims for Rs 379 crore in respect of one commercial bank (supplementary claim) and 73 co-operative banks (28 original claims and 45 supplementary claims) as compared with claims for around Rs 655 crore during the previous year. In the current financial year so far, DICGC has paid depositor insurance claims aggregating Rs 144 crore on account of eight co-operative banks.

HBL

HSBC, Royal Bank of Scotland to meet Reserve Bank of India on acquisition of select assets

MUMBAI: HSBC and Royal Bank of Scotland (RBS) are set to meet banking regulator RBI to resolve issues concerning the impending acquisition of select assets of RBS. "The senior management from RBS and HSBC will meet the RBI. The regulator is yet to clear the deal as it is not in favour of transferring branch licences to HSBC as part of the deal since it was a portfolio sale,'' said a source in the know of the development. "Transfer of branches is critical to the valuation and the fate of the deal,'' the person said on condition of anonymity. RBS, which had acquired 31 branches in the country when it bought out ABN Amro Bank's Asian operations in 2007, had decided to retain five branches and surrender the remaining to RBI. Following this, HSBC was to apply for fresh licences. "We are working closely with the regulators and HSBC to complete the deal,'' said RBS spokesperson Jane Ong in an email response. An email sent to HSBC did not elicit any answer. In a recent interview to ET, HSBC India CEO Stuart A Davis had said, "When we first looked at the business, we thought this acquisition would give us distribution and customers, and bring in one to two years of growth... We have made an application to RBI on a certain basis and the RBI has given us indications on what we can expect. Our discussion with RBI was such that we thought what we got would be satisfactory to us.''. In 2010, HSBC agreed to buy the commercial and retail businesses of the erstwhile ABN Amro in India that RBS received as part of its share in a 3-way split of the Dutch bank with Fortis of Belgium and Santander of Spain. The exclusivity deal signed by the two banks lapsed in September. However, it could not be ascertained if the bank will extend this agreement. While RBS has exited the retail business in most parts of Asia when it sold it to ANZ of Australia, it is yet to conclude the India leg of the deal. In India, the bank's retail and commercial banking book is likely to be around Rs 1,800 crore. Of which, the home loan portfolio will be Rs 800 crore, personal loans Rs 300 crore and credit card outstanding would be to the tune of Rs 700 crore. In July 2010, HSBC said it would buy select assets of RBS for a premium of $95 million over the net asset value, which has not been set as yet. The price will be subject to claw-backs, depending on losses in unsecured lending in the two years after the deal is completed. The RBI does not allow automatic transfer of bank branches to buyers in a portfolio sale. The RBI, in line with the WTO guidelines, grants around 12 branches annually to foreign banks.

ET

Capital inadequacy

....Naturally, there is no surprise in RBI Deputy Governor K.C.Chakrabarty’s observation that profits in public sector banks follow the entry and exit of the incumbent. The word he did not use is “cooking the books”, but the comments by themselves should have raised concerns among the rating agencies earlier.....

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AADHAR to be linked to MGNREGS wages

Bid to add social content to UID scheme, otherwise in limbo

With the AADHAR scheme apparently in limbo, the Centre is making a desperate effort to provide it social content. As of now, only 3.5 crore unique identification cards have been issued as against an enrolment of 10 crore people across the country. Matters turned worse when the Reserve Bank of India issued a directive that bank accounts could not be opened on the basis of UID cards. But later it issued a clarification accepting AADHAR cards as proof of identity and residence. What is bothering the Union government is that AADHAR will be judged not by the coverage in terms of numbers but by the impact it creates as a card-bearing benefit. But possession of the AADHAR card is not mandatory. Rural Development Minister Jairam Ramesh has taken the initiative to link AADHAR with payment of wages under the Mahatma Gandhi National Rural Employment Guarantee Scheme in the five States where the ministry has been appointed registrar for issuance of UID cards. To facilitate this, Mr. Ramesh held a meeting with Unique Identification Authority of India (UIDAI) Chairman Nandan Nilekani. Under a Memorandum of Understanding the UIDAI signed with the States, the ministry has been appointed registrar for collection of data in Assam, Bihar, Jharkhand, Tripura and West Bengal. Other Central government departments such as Food and Civil Supplies and Information and Technology have been assigned the role in other States. Within its limited jurisdiction, the Ministry is seeking to provide the UID card a social content. The MGNREGS wages will be paid in these States through AADHAR-linked bank accounts.The Ministry will hold a meeting of officials on October 23 and 24 to decide whether to start the project across these five States or make a beginning by concentrating on a few districts in each of them, and the time frame to implement the scheme. Mr. Ramesh favours a reasonable timeline of 12 months to issue UID cards to all job cardholders. But that seems an uphill task as of now, even if linking AADHAR to MGNREGS wage payment is limited to these five States. For, as against the 3.09 crore job cards issued in these States, only 39 lakh BPL households have been provided with bank accounts. Out of these households with bank accounts, West Bengal accounts for 22.16 lakh, way behind the 1.08 crore job cards issued there. In Assam too, only about 20 per cent (7.42 lakh) of the job card holders (38.4) have secured bank accounts. It is pretty bad in Bihar, where only 1.73 lakh MGNREGS workers have bank accounts, though the number of job card holders is 1.16 crore, and in Jharkhand, where only 2.6 lakh out of 39.5 lakh job card holders have bank accounts.Tripura is the only State which has done well, ensuring that four lakh MGNREGS workers out of 5.9 lakh job card holders have bank accounts.

HBL

SBI downgrade to impact Indian banking sector: Ficci

SBI's credit rating downgrade by Moody's could have far reaching implications on the Indian banking system as bad debts are expected to rise on account of high interest rates..........

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Thursday, October 6, 2011

'We've given a solution to the co-op bank dual control problem' -Y H Malegam, Chairman, RBI panel

Y H Malegam, chairman of the Reserve Bank of India’s panel on the licensing of new banks in the urban co-operative sector, in conversation with Abhijit Lele, gives his assessment of changes in the sector. Edited excerpts:

The panel has suggested allowing setting up of new urban banks in the co-operative sector. What issues impacting their working?

There is the issue of dual control. Action against the management, etc, can only be taken by the registrar of co-operatives (RoC). That registrar is often subject to political and other pressures. RBI, which is responsible for banking supervision, makes an inspection, finds problems but is not able to enforce discipline because it has to always go through the registrar. The situation has improved after RBI and state governments formed a task force of urban banks (Tafcub) to coordinate work on improving the financial health and management of urban banks.

Tafcub panels have been operating for four-five years. Is their work satisfactory? Can we allow new banks?

There has been significant improvement in the health of urban banks but the process is still time-consuming. What we have said is when you look upon a co-operative bank, conceptually you say it is a co-operative which owns the bank. Therefore, you can get out of the problem of dual control if you recognise this factor. As the co-op regulator is RoC, the bank regulator is RBI. Make it a condition that in addition to having a board of directors (BoD) under the Co-operative Act, you have a board of management. The latter is appointed by the BoD, but it has all the characteristics of the board of a commercial bank. That means it has people with professional qualifications and a chief executive officer. It is subject to RBI discipline. We make this a condition of the licence.

Would this arrangement limit or minimise the room for interference of political or other interests in the working of the board of management?

It will reduce the interference because they (political elements) have no role to play on the board of management. They have a role to play in the board of directors. The directors are not going to run the bank; BoM is going to do so. So, RBI has the power to remove people from the BoM and to approve the appointment of a chief executive officer. The same powers as in the case of a commercial bank.

You have recommended that co-operative societies working in urban areas need to be given preference in setting up a new urban bank. What is the rationale?

Look at it in a different context. First, there was the proposition problem of dual control. This is solved by having a board of management. Second, our statistics showed the geographical distribution of urban banks is not even. There are certain states like Maharashtra, Andhra Pradesh and Gujarat where there are a lot of UCBs. There are other states with a few urban banks. We do not know whether people starting these new banks will in fact run these well. But you already have credit societies, which are large and running like banks. So, we said, if we have an existing credit society, well run and meeting all parameters, then give it preference in becoming a bank.

Some of the existing primary credit societies are in a controversy and face political interference at a local level.

They will be subject to the same organisation structure. When they become a bank, they must have a board of management and corporate governance and all the specified conditions. If these are not fulfilled, their licence will be cancelled.

Do you expect RBI to do some ground work to improve the quality of oversight capability, to improve regulation?

RBI has a very large urban co-operative bank department. It does a tremendous amount of inspection. In the past two-three years, the licences of more than 100 urban banks have been cancelled. So, the health has improved significantly. It is not as if we have not identified what needs to be done. It was always a problem of dual control. With this being solved, we hope it will not be a problem for the new banks. From the start itself, they will be monitored and work well. The problem is of existing banks. Therefore, we have suggested Tafcub be persuaded to adopt this model (for existing banks).

'Be cautious in interpreting HSBC PMI data'

The Prime Minister’s Economic Advisory Council (PMEAC) on Wednesday advised caution in interpreting the data released by HSBC Purchasing Managers’ Index (PMI) on services sector. Its chairman, C Rangarajan, said other parameters do not suggest that services are contracting, as is shown by PMI data. “We should exercise caution in interpreting PMI services numbers,” he told Business Standard. However, Rangarajan agreed there were other parameters that suggest a slowdown in the growth of manufacturing, as the PMI revealed. On their part, industry chambers like Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry (Ficci) and the Associated Chambers of Commerce and Industry of India (Assocham) point out that the PMI data showed a growth slowdown that is spreading to sectors, and blamed successive Reserve Bank of India (RBI) rate hike for a moderation in the growth momentum. PMI data showed that private sector services activities contracted last month, for the first time since April 2009, which was a period of global financial crisis. Also, manufacturing index was almost close to contraction point. Rangarajan’s remarks today assume importance since various parameters point to a slowdown in manufacturing growth, but services sector growth indications are difficult to get as they are released once in a quarter as part of the gross domestic product (GDP) numbers. According to India’s official figures, eight core industries grew at the slowest pace in 11 months at 3.5 per cent this August — down more than half of their highest growth in a year at 7.8 per cent in July. Already industrial growth plummeted to a 21-month low of 3.3 per cent in July and that too when core sector performed stupendously. Within industry, manufacturing growth fell to just 2.3 per cent in July. Ficci said the slowdown in PMI reflects that the slowdown fears were becoming all-encompassing. “The Index of Industrial Production data, recently released export data and the balance of payment data all point towards a deteriorating macro-economic environment-both external and internal,” according to Soumya Kanti Ghosh, director (economics & research), of the industry chamber. Exports were quite high in August year-on-year, but have sequentially shown a decline in the month. Industry constitutes over 18 per cent of India’s GDP, while services (including construction) account for 63 per cent. Assocham, while attributing the main blame on RBI’s rate hike spree, said high input costs amid global economic uncertainties – especially in the Eurozone – were adding to negative sentiments.

Bank licences for private sector entities agitate MPs

The Reserve Bank of India (RBI)'s draft guidelines for granting licences to new private sector banks has come under the scrutiny of Parliament's standing committee on finance. The panel has summoned RBI governor D. Subbarao for an explanation, particularly on the issue of allowing corporate players to start banks in the country. The committee, reconstituted in September, is learnt to have taken up the issue for discussion in its next meeting, scheduled on October 17. At its first meeting, certain members, cutting across political lines, are learnt to have expressed doubts about the RBI's decision. They want the committee to address the issue because the guidelines, if implemented, could impact the banking sector in a big way. Former finance minister and chairman of the standing committee on finance Yashwant Sinha said a response from the RBI had been sought on the issue. "We have called them (RBI). The committee has taken cognisance of the draft guidelines," Sinha told Mail Today. Subbarao is likely to appear before the panel since that has been the practice in general. A majority of the committee members are likely to oppose the guidelines. The bone of contention is a provision that makes private sector entities or groups, owned and controlled by residents, eligible to promote banks. The minimum stipulated capital requirement is Rs 500 crore. Several corporate players have hailed the provision and expressed interest to start new banks. "Promoters, promoter groups with diversified ownership, sound credentials and integrity that have a successful track record for at least 10 years in running their businesses shall be eligible to promote banks. The RBI may seek feedback on applicants on these aspects from other regulators and enforcement and investigative agencies such as Income-Tax, CBI, Enforcement Directorate, etc. as appropriate," says the provision. Sources in the parliamentary panel said the entry of corporates into the banking sector could undermine the functioning of nationalised banks. "We need some clarifications from the RBI. Will the entry of corporates lead to outflow of money from public sector banks? What will be the nature of foreign direct investment (FDI) in these banks? Will the RBI regulate the FDI inflow?" a member asked. The senior MP said if the corporates were allowed to start new banks, the essence of nationalisation of banks could be lost. "Is the UPA government trying to revert to the pre-1969 system when private banks were allowed to operate?" he asked, hinting that many Congress members were also taking the RBI's guidelines with a pinch of salt. The RBI, however, maintains that the draft guidelines have been prepared on the basis of responses received, extensive internal discussions and consultation with the Centre. The Left parties are vehemently opposed to the move. "This is outrageous. We will oppose this tooth and nail. It's a deviation from the Centre's existing banking practices. We will raise the issue in and outside Parliament," CPI leader Gurudas Dasgupta, who is also a member of the standing committee, said.

India Today

Indian banks healthy but stress signals showing

The past three months have been tough for Indian banking. High interest rates and threats of a global recession have taken their toll on bank stocks. The NSE banking index fell 15 per cent compared with the Nifty’s 11 per cent slide in the past three months. Indian banks, ironically, have never been in a better state of health in the past 10 years. A recent study by Boston Consulting Group (BCG) found that bad loans fell from a peak of 11.4 per cent in 2001 to just 2.4 per cent in 2010, showing the efficiency of management of capital. In fact, Indian banks have been performing better in controlling defaults with only 0.6 per cent of loans handed out last year turning sticky, compared to 1 per cent in the US and China. Indian banks also have a cost-to-income ratio of 47 per cent, which is lower than Germany, France and the US. The main reason for the robustness was the banks’ focus on return on investment, cost-to-income ratios and the efficient use of technology. BCG expects that by 2025 the Indian banking sector will be the third largest in the world on assets, behind China and the US. But now stress signals are showing up. The Reserve Bank of India expects non-performing assets (NPA) to inch up to 2.9 per cent during 2011. IDFC Securities, a broking firm, recently said at least 17 per cent of loans are stressed and some could go bad. Total bank credit to the industrial sector stands at about Rs 17,60,600 crore. “Credit to power and infrastructure sectors has grown 40 per cent in the past four years and the proportion of the same has gone up to 14 per cent in terms of total credit offtake, which has created additional risks to the banking segment,” says Ajay Parmar, head of institutional research at Emkay Global. State-owned banks have a higher allocation to small industries, which could get hurt early if there is an industrial slowdown. Additionally, the central bank’s battle with persistent inflation is raising the cost of money, pressuring net interest margins that are expected to continue to narrow for at least another two years. But no one is pressing the panic button yet because there is no dearth of liquidity in the system. Says Rajeev Thakkar, CEO, Parag Parikh Financial Advisory Services, “If margins are high then NPAs are not a cause for concern... There is a difficulty in the system but we are certainly not into recessionary territory.”

IBN Live

RBI increases domestic money transfer limits

The Reserve Bank of India (RBI) has provided an impetus to financial inclusion by liberalising money transfer across the country. The apex bank has issued guidelines to open up the formal banking channel to facilitate fund transfers of small value, subject to monthly ceilings and monitoring. Currently, only banks are permitted to initiate money transfers in the country, subject to the adherence of 'know-your-customer' guidelines. As a result, many individuals, particularly the migrant population, have no access to formal banking channels to transfer funds back home, owing to the lack of proofs of identity/address. However, following the guidelines issued by RBI, the amount that can be transferred from the customer's bank account to beneficiaries not having a bank account has been liberalised. The transaction cap has also been increased from the current limit of Rs 5,000 to Rs 10,000, capped at Rs 25,000 per beneficiary per month. The remitting bank would also have to obtain the complete details of the beneficiary (name and address) for the transaction. Walk-in customers, too, can transfer up to Rs 5,000 per transaction to bank accounts of family members, or subject to a maximum of Rs 25,000 per remitter, after providing the details to the remitting bank. Fund transfers among domestic debit/credit/pre-paid cards would also be subject to the same transaction/monthly cap. Until now, prepaid cards could be used only for payments of goods and services. However, after reviewing the 'potential reach of such cards', RBI decided to allow card-to-card transfers, subject to the notified limits. According to RBI's operational guidelines, these fund transfers are expected to be effected on a real/near-real time basis. And, banks may levy 'reasonable charges' to popularise the scheme.

Banks breathe easy as liquidity improves

For the first time since the start of this financial year, liquidity in the banking system has turned to surplus mode, as banks garnered deposits towards the end of the second quarter. Most banks have parked funds worth Rs 41,530 crore with the Reserve Bank of India (RBI) in the last two days under the liquidity adjustment facility (LAF)....

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Cabinet nod sought for converting IIFCL into NBFC

NEW DELHI: The finance ministry has decided to go ahead and seek cabinet approval for converting the dedicated infrastructure financier India Infrastructure Finance Company Limited (IIFCL) into an infrastructure finance company despite opposition from the Planning Commission. The IIFCL escapes regulatory oversight of the Reserve Bank of India, as it is currently regulated by the finance ministry. "Converting IIFCL into an NBFC (non-banking finance company) will strengthen risk management and avoid concentration of risk," said a finance ministry official. The finance ministry says the RBI has also supported the finance ministry proposal and even agreed to relax the risk weight norms to 50% instead of 100% for PPP projects at par with infrastructure development funds.

'Be cautious in interpreting HSBC PMI data'

Is RBI aiding creation of black money in India?

NEW DELHI : Due to deficiencies in its monitoring mechanism for exports, India's central bank might be inadvertently abetting the creation of black money outside the country. These Reserve Bank of India (RBI) deficiencies were first pointed out in July by the Karnataka anti-graft agency's report on illegal iron-ore mining in the state, but had gone unreported. A follow up by ET with various parts of the banking sector and the export transaction chain not only confirms the same, but also suggests similar shortcomings could exist in other sectors of India's $252-billion goods exports. In order to establish a money trail, every transaction involving the export of goods is broken into two parts. One, when goods leave India, the customs department at ports and airports record it, and send the information to the RBI. Two, when the payment comes into India, the receiving banks record it, and send the information to the RBI. By matching the two databases, the RBI can find out which payments have not come in during the designated time of 180 days (extendable by 180 days). The Karnataka Lokayukta, while following the trail of iron-ore exports from the southern state, found bank records with the RBI for only 20% of the 5,000 iron-ore export bills scrutinised by the anti-corruption body between 2006 and 2010. For the remaining 80%, the RBI could not confirm whether export proceeds had come into India within the stipulated period or not. "The RBI is supposed to collate and compare the two databases, and monitor whether the realisation of export proceeds is as per law," says the Lokayukta report. "This is not happening effectively." The RBI, in an email reply to ET, says its software can match the two databases. However, it adds: "The matching procedure is often fraught with throwing of mismatched/erroneous entries due to the involvement of multiple agencies handling the documents." It further says the daily volume of transaction reports coming from the customs department made the matching exercise "cumbersome and time consuming". The RBI did not disclose the quantum of the mismatch. In 2010-11, according to Directorate General of Commercial Intelligence and Statistics (DGCIS) data, India's exports stood at $448 billion, of which $252 billion is related to goods. Service exports accounted for most of the rest; service transactions, however, do not face this issue because, being a service, they don't have a customs leg. PV Raghunathan, a foreign exchange expert and a consultant to ITC and Ashok Leyland, says 90% of export remittances are remitted to India within 180 days. He says the RBI could be doing more. "Even when the two databases do not match, a random checking of transactions is possible," he says. "But the RBI, in general, lacks supervisory skills because a majority of its workforce does not have a commercial background and their training is entirely academic." The numbers from Karnataka provide a worst-case illustration of illegal business and transactions thriving in a deficient system. According to the Lokayukta, 126 million tonnes of iron ore was exported from Bellary, Karnataka, between 2006 and 2010. Of this, it says, 30 million tonnes, valued at Rs 12,228 crore, was illegal. Extrapolating this to all iron-ore exports from the region yields a value figure of Rs 51,702 crore. If 80% of this was unaccounted for in the banking system, then the unexplained amount could be as high as Rs 41,360 crore (about $8 billion).

DIPP advises RBI to pause rate hike

....the Department of Industrial Policy and Promotion is of the opinion that RBI's strategy to control inflation is wrong. The industry department has suggested an alternative to the central bank to control inflation....

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Stop the dribble game

...Some time ago, Reserve Bank of India Governor Duvvuri Subbarao expressed grave doubts regarding the reliability of basic statistics in India for real time policy formulation....

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Wednesday, October 5, 2011

Dr.Y.V.REDDY : A Practical Banker with the Courage of Conviction

ET Lifetime Achievement Award seeks to salute those who have conquered the peaks of corporate achievements & set examples for the current generation of India Inc leaders

Sometime in late 2008, when Prime Minister Manmohan Singh met his British counterpart Gordon Brown, a fair bit of their conversation revolved around the role of Yaga Venugopal Reddy, the governor of the Reserve Bank of India until September 2008. Brown was lavish in his praise for Reddy, especially for his handling of the financial sector in India - one of the few economies to emerge unscathed from the crisis in overseas credit markets. Much of the praise for Reddy since then has been from his peers and topnotch economists abroad. Ironically, for the better part of his tenure as Governor of the RBI between 2003 and 2008, Reddy had to cope with a lot of criticism for being somewhat conservative in his stance on a range of issues - opening up the Indian banking sector, free flow of capital, placing fetters on the real estate sector, the use of the country’s foreign exchange reserves, innovation in financial products and so on. But in hindsight, several of the former RBI governor's moves appear prescient, whether it's tightening of home loans or restrictions on securitised assets. Indian banks are far more safer and well-capitalised today, thanks to his policies. The ET jury recognised some of these in choosing him for this year’s Lifetime Achievement Award. In faraway London, Reddy was happy to hear about it. Reddy had recognised much earlier that financial regulation in the rest of the world had developed a life of its own. And having sensed the infirmities, he charted out a different path. Unlike many other central banks, RBI has had to do a deft balancing act in fulfilling several objectives: ensuring price and financial stability, regulating banking and non-banking segments, and acting as the merchant banker to the government. During his stewardship, Reddy tried to blend continuity with change - something he set out to do when he took over in 2003. And he did succeed, going by the fact that the Indian economy grew at over 8% during the better part of his tenure while keeping average inflation at a tad over 5%. Prime Minister Manmohan Singh, a former RBI governor himself, had once described the Indian central bank governor’s job as the loneliest. That thought must have crossed Reddy’s mind too when he resisted tremendous pressure from fiscal policy managers to ease monetary policy levers. Although the RBI is not fully independent, he came across as one determined to stand his ground. It’s a measure of his success that the government finally saw merit in his views, especially on the bank ownership issue. Reddy has often shown, albeit subtly, signs of being an independent central banker, quite like many of his peers. Reddy’s first love has been academics. It's not that there haven't been civil servants-turned-central bankers earlier at the Reserve Bank. Former finance secretaries such as M Narasimham, RN Malhotra and S Venkitaramanan had made the transition in the past, but Reddy had to operate in an era when each nuance of monetary policy was closely tracked by the financial markets. Comparisons are often made, however unfair they may sound. In comparison to Bimal Jalan -- his predecessor -- Reddy is seen as more of a micro manager. Some would blame this on his training as a civil servant. But Reddy does not lack backers either. His predecessor Jalan was perceived as a governor with vision, a clear thinker, more practical, yet distant. But there's little doubt about Reddy’s intellectual prowess; his personal skills set him apart from the rest. He was also seen as far more practical than many of his predecessors, and perhaps what’s more important, he had the courage of conviction to go that extra mile.

The intervention question redux

In short, RBI should actively build reserves when the currency is appreciating and build enough of a buffer to fall back on when there is a sharp swing to the other side. The other is to intervene more strategically and manipulate market expectations to ensure its efficacy. Appearing to defend a level for the rupee might not be a bad idea after all and might just induce exporters to sell at that level, increasing the chance of successful intervention. Intervention might not always be a viable option for RBI but when it does choose to intervene, there are perhaps ways to make it work better.

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God and the central banker

Can central bankers play god to the markets? India’s central bank chief Duvvuri Subbarao does not believe so. In doing so, the Reserve Bank of India governor, a physics student, has taken refuge in quantum mechanics. Subbarao takes the example of Einstein, who could not reconcile to the probabilistic nature of quantum mechanics all through his life. Einstein famously said – “God does not play dice”. Less known perhaps is the retort of his friend and mentor Niels Bohr who said – “Albert, stop telling God what he can or cannot do”. Subbarao draws this parallel in arguing that a central bank cannot tell markets what to do. “We have to take market signals as given,” Subbarao said in New York at a recent IMF meeting.

In fact, he went on to say that central bank decisions get more validity if the market endorses them. Central bankers have always enjoyed an elevated status in the financial world, possibly because of the wide-ranging powers they have enjoyed. True, the sheen has come off at times. Liaquat Ahamed referred to this in Lords of Finance when he wrote about central bankers ruling the financial world in the late 1920s — Benjamin Strong Jr of the New York Federal Reserve, Montagu Norman of the Bank of England, Émile Moreau of the Banque de France, and Hjalmar Schacht of the Reichsbank. The Wall Street crash of 1929 and the depression that ensued crippled an entire generation and set the stage for the second World War. The orthodoxy of the central bankers of the day in trying to adhere to the gold standard was a prime cause. The media, of course, has played a big role in creating this mythical creature called the central banker. In 1999, Time magazine ran a cover story titled ‘The Committee To Save The World’ featuring then Federal Reserve Chairman Alan Greenspan along with Robert Rubin and Larry Summers (then secretary and deputy secretary of Treasury) for their role in averting a global meltdown after Asia’s tiger economies faced a debt repayment crisis. This stereotype was particularly so of Alan Greenspan, under whom interest rates were ultra low and the market was flooded with dollars. To many, Greenspan, whose career at the Federal Reserve spanned nearly two decades, was god. All that came crashing down when the financial crisis broke in 2008 and the very same low interest rates were blamed for the subprime mess and housing bubble in the United States. Subsequently, it’s been mostly downhill for central bankers. The Economist, in a piece in Oct 2010, accused Bank of England Governor Mervyn King of playing god when in a speech he savaged the performance of Britain’s banks before the crisis and criticised the new Basel 3 proposals as too soft. Tongue in cheek, the Economist said trying to reinvent finance was a lot more fun than shifting interest rates by 25 basis points once in a while. But to be fair, most central bankers haven’t claimed a god status. It was something that was mostly thrust on them. But the one who takes the cake is Goldman Sachs boss Lloyd Blankfein who famously said that banks serve a social purpose and are doing “god’s work”. This was after reckless investment banks, in search of supernormal profits, plunged the advanced economies into recession. It was the central bankers who had to rush in with trillions of dollars to ward off armageddon.

http://blogs.reuters.com/india/2011/10/04/god-and-the-central-banker/

Restore loan servicing facility to customer, bank told

Thiruvananthapuram : Is it within the legitimate rights of a bank to seek to move a standard asset in the form of a vehicle loan to a non-banking finance company (NBFC) located at a place away from the customer and without taking him on board? No, according to the ruling given by the Office of the Banking Ombudsman (BO) attached to the Regional Office of Reserve Bank, Thiruvananthapuram. In a case reported by the BO for Kerala, the Union Territory of Lakshadweep and Mahe, the complainant had taken a loan for a light commercial vehicle from a bank branch near to his house. Despite the account being a standard asset, the bank had gone ahead to sell it to an NBFC which had an office 100 km away from the transferee bank branch and the residence of the complainant. On taking up the matter, the bank submitted to the office of the BO that his loan was part of a loan portfolio assigned to a registered NBFC. The NBFC had also taken over the servicing responsibilities of the loan. The bank said the assignment was in terms of the terms and conditions accepted by the complainant at the time of sanction of the loan. But the office of BO found that as per the terms and conditions, it was stated inter alia that the borrower would continue to discharge in full all his obligations under the loan terms and other transaction documents to the bank only. It observed that the borrower cannot be put to inconvenience by requiring him to approach an NBFC for the monthly repayments. The bank was advised that the complainant's request to the bank to continue the servicing of his vehicle loan at the original branch was legitimate and the bank had to consider it favourably. The bank eventually complied with the BO's instruction in the matter.

(Disclaimer: RBI does not vouch the propriety or legality of orders passed by the Banking Ombudsman. The object of releasing the details of cases is merely for the purpose of dissemination of information on the working of the BO Scheme.)

HBL

States told to make electronic payments

Only 5% of the 600,000 villages, towns and cities in India have a bank branch, and only 40% of the country’s population has access to a bank account, according to the Reserve Bank of India (RBI). As part of its financial inclusion (providing banking and other financial services to the unbanked) road map, RBI has asked banks to cover 73,000 villages with population of at least 2,000 by the end of this fiscal. The ensuing action by banks has resulted in several million new accounts being opened, but many of these see no action. The finance ministry’s plan could address that issue, too.......

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HC directs Centre, RBI to act tough against online fraud firms

CHANDIGARH: Tightening noose around the companies involved in online frauds, the Punjab and Haryana high court on Tuesday directed the Centre as well as the Reserve Bank of India (RBI) to act tough against the companies involved in online fraud, including seizing their bank accounts. The HC directed the Centre to proceed with any action in order to stop the fraudulent practices, which are being perpetrated by various companies based in India and abroad. It added; " Authorities may take steps, including the seizing of bank accounts, which have been opened by those companies in various banks in order to siphoning of funds of gullible public." While issuing the directions, division bench of the HC, comprising acting Chief Justice M M Kumar and Justice R N Raina also issued notice to the Centre as well as the UT administration and state governments of Punjab and Haryana for November 8 to file response on the issue. The case would come up for further hearing on November 8. The matter had reached before the HC through public interest litigation (PIL) filed by a Zirakpur resident Nardeep Saini and 29 other petitioners from Punjab, Haryana and UT. The petitioners had alleged that three companies had fleeced a large number of innocent persons to the tune of Rs 1,500cr. It was also contended that a large number of Indians were lured in the online investment scheme with assured results of doubling the amount within 10 months.

TOI

Bankers want a break from monetary tightening measures

Top bankers on Tuesday dropped ample hints to the Reserve Bank of India that it's time it took a breather from its monetary tightening cycle............

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Banks take up exchange rate volatility with RBI

The volatility in exchange rate and increased liability for companies are issues that bankers took up with the Reserve Bank of India (RBI) in pre-policy meet ahead of the second quarter review of the monetary policy on October 25. For companies that have taken large foreign currency loans, rupee depreciation was resulting in foreign currency liabilities going up sharply which could lead to stress in repayments. “When the domestic interest rates were rising, firms were arranging credit from overseas with interest rate differential of at least 300 basis points. This helped them keep the credit cost under check but with rupee depreciating by 12 per cent since June 2011, foreign currency liabilities have gone up further,” said a banker. The capital expenditure has come to a complete standstill and fresh investments into projects are also strangulated as high interest rates are eating into the profitability of companies, bankers told the central bank. Bankers have asked RBI to pause for a prolonged period by not raising interest rates. IBA chief executive officer R Ramakrishnan told reporters after attending the meeting that the capex has come to a complete naught. "The credit growth that is happening only for the pipeline of proposals sanctioned. So the bankers have asked for a pause in interest rates for a prolonged period of time so that credit can pick up.” Bankers also appraised the RBI about how the extra government borrowing of Rs 52,800 crore will impact the treasury income of banks as most banks have extra government bond holding — SLR (statutory liquidity ratio) holdings. The additional borrowing, which came as a surprise to the government securities market, has hardened bond yields by 10 to 15 basis points. “It will also result in a bit of crowding out as banks and companies will find it difficult to raise money from the debt market,” said a senior banker. Head of the Indian Banks Association MD Mallya said, “Credit growth is a big concern for banks. The rise in NPAs is also another problem. Exposure to select sectors like power was discussed at length.” The year-to-date credit growth is about 2.4 per cent while for the corresponding period last year it was 3.1 per cent. Though the year on year credit growth is a 20 per cent, it is more due to a poor base effect. After the pre-policy meet, RBI also had a special meeting on resource mobilisation. CEOs of all large state-owned banks such as SBI, Bank of Baroda, Canara Bank, Punjab National Bank and private banks such as ICICI Bank and HDFC Bank were among who attended the meeting chaired by RBI governor D Subbarao. Three Deputy Governors Subir Gokarn, K.C.Chakrabarty and H.R.Khan were present in the meeting.

CEOs of foreign banks told to oversee audit reviews

Tightening regulatory norms, the Reserve Bank asked chief executive officers of all the foreign banks to oversee their audit reviews. The notification comes against the backdrop of Rs 460 crore fraud of at a branch of foreign lender Citibank. " The reviews ( placed before the Audit Committee) may be put up to the local management committee or chief executive officer (foreign bank)," RBI said in a notification addressed to chief executives of all foreign banks operating in India. The notification also said that for all foreign banks operating in India, the CEOs would be responsible for effective oversight of regulatory and statutory compliance as also the audit process and the compliance thereof in respect of all operations in India.

FPJ

Oversee audit reviews: RBI to foreign banks

Tightening regulatory norms, the Reserve Bank of India (RBI) today asked chief executive officers of all the foreign banks to oversee their audit reviews. "The reviews [placed before the Audit Committee] may be put up to the local management committee or chief executive officer [foreign bank]," the RBI said in a notification addressed to chief executives of all foreign banks operating in India. The notification also said that for all foreign banks operating in India, the CEOs would be responsible for effective oversight of regulatory and statutory compliance as also the audit process and the compliance thereof in respect of all operations in India. The RBI said the banks should identify areas or aspects which, as per their assessment, require to be brought up for review. These areas may be incorporated in a policy and approved by the board or local management committee, it added. The notification comes against the backdrop of Rs 460 crore fraud of at a branch of foreign lender Citibank. As many as 34 foreign banks, including global leaders such as HSBC and Deutsche Bank, are operating in the country.

RBI removes restriction on FIIs buying MSI stock

MUMBAI: The Reserve Bank has removed the restriction on FIIs purchasing the shares of Maruti Suzuki India, following the compliance of their prescribed investment limit in the company. "RBI has...notified that the aggregate share holdings in MSI by FIIs under the Portfolio Investment Scheme (PIS) have gone below the prescribed trigger limit. Hence, this company has been removed from the caution list for FII investment and the restrictions placed on the purchase of shares of this company are withdrawn with immediate effect," the apex bank said in a statement. It, however, did not provide details as to when the prescribed limit was crossed and by how much. Maruti Suzuki is the country's largest carmaker. RBI monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, RBI has fixed cut-off points that are two percentage points lower than the actual ceiling. The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company and 10 per cent for NRIs/PIOs. FIIs held 18.71 per cent stake in MSI as per the June quarter shareholding pattern. In another statement, RBI notified that FIIs can now purchase equity shares and convertible debentures of Mahindra & Mahindra Financial Services Ltd through primary market and stock exchanges under the Portfolio Investment Scheme.

ET

Moody's downgrade not a downgrade per se: SBI Chairman

According to chairman Pratip Chaudhuri, the downgrade is not a downgrade per se. "It is a downgrade of a small segment of the bank's debt," he clarified adding, "SBI's overall rating is still a notch above the sovereign."

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