The fourth branch

.... You can make a regulatory organisation as autonomous on paper as is imaginable, but will fail unless you ensure its members have incentives to stay independent, too. There’s currently much comment about former RBI deputy governor Shyamala Gopinath joining board of the National Stock Exchange. Yet Ms Gopinath’s new job is hardly unusual. Unfortunately, former regulators frequently join those they were regulating. And, similarly, many new regulators are IAS officers pronouncing on policies that they themselves had helped draft.......

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The Indian state needs more regulatory capacity. But that demands autonomy not just for institutions, but for the people in them

RBI notifies change in single brand retail FDI policy

The Reserve Bank of India (RBI) today operationalised the change in FDI policy by removing restrictions on foreign investment limit in single brand retail. "...it has now been decided that FDI up to 100% would be permitted in single brand product trading under the government route..., the RBI said in a circular. The Department of Industrial Policy and Promotion (DIPP) had earlier increased the limit of foreign direct investment (FDI) in single brand retail from 51% to 100%. "Necessary amendments to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000...are being notified separately," RBI added. Removal of the investment cap is likely to help global fashion brands, especially from Italy and France, to strengthen their interest in the growing Indian market. The government had said the move was aimed at enhancing competitiveness of Indian enterprises through access to global design, technologies and management practices. Though 51% FDI in single brand was allowed in February 2006, not much investment has come in the sector. During last three-and-a-half years, FDI worth only Rs 196 crore was received in the sector.

Moneycontrol

Bankrolling the banks

A fiscally challenged government would have to infuse large sums of money into PSU banks, leading inevitably to doubts about its ability to do so.

The Reserve Bank of India's (RBI) recently released draft guidelines on the proposed implementation of international norms of capital adequacy (Basel–III) would require Indian banks to mobilise huge sums of capital during the next five years. Under the existing Basel-II norms, the Indian banking industry has to maintain total capital — drawn from a combination of equity and preference shares plus long-term debt, both accorded lower priority to monies belonging to depositors — amounting to 9 per cent of their assets calibrated suitably for riskiness (‘risk-weighted assets' or RWA). While the overall ratio has been retained under the proposed new norms, a minor reshuffle has been attempted between equity/preference stock holders and long-term bond holders in the event of a bank failure, with the former having to contribute an additional one percentage point capital to their existing 6 per cent of the total 9 per cent. Further, equity/preference share holders have to come up with an additional 2.5 percentage points in capital as a buffer for any unforeseen contingencies. That takes the aggregate capital adequacy ratio (CAR) to 11.5 per cent, of which common equity alone would make up 8 per cent. The emphasis is clearly not just on meeting a broadly defined overall CAR of 8 per cent (as it was two decades ago), but also on improving the transparency and quality of the capital base. The implementation period for all these is from January 1, 2013 to March 31, 2017.  The rationale behind fashioning a tighter capital (especially core equity) regulatory regime for banks stems largely from the banking crises that followed the global recession of 2008 and also the ongoing European sovereign debt troubles. These have created renewed concerns over the banking sector's ability to withstand financial shocks and minimise risks of spill-over to the real economy. But implementation will be a huge challenge, with the estimates of fresh capital needed to be raised by all Indian banks ranging anywhere from Rs 1.4 lakh to Rs 3 lakh crore. Given the dominance of public sector banks, it would necessitate large government infusion of funds. Where this money is going to come from, if the Centre would not even be prepared to dilute its stake below 51 per cent, is a huge question mark. This issue came to the fore not too long back, when Moody's downgraded the State Bank of India's credit rating, after its Tier-1 CAR fell below the Government's own 8 per cent prescription. Related to this is the more immediate problem of rising non-performing assets (NPA) on account of loans to a host of troubled sectors from telecom and airlines to power. As these mount – under pressure from high interest rates and the general economic slowdown – banks would have to find resources to maintain even existing capital adequacy levels. The RBI, under the circumstances, cannot be totally oblivious to concerns over the proposed implementation schedule for Basel-III, which is seen to be rather frontloaded.

HBL

None yet celebrating rise in numbers

... “If IIP numbers continue to go up consistently, one could say the economy was on a recovery path. I doubt that RBI will begin reducing rate immediately,”.....

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Policies hinder realty sector

.... The Reserve Bank of India (RBI) believes that financing real estate is highly risky. Banks have to keep 1.25 times of the loan amount in bonds as security to the RBI. This gives rise to higher interest rates for the developers. Eventually, these high interest rates are pushing the costs of the property up. “The RBI has to change its perception and has to offer at reasonable interest rates,”.....

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Basel-III norms may hit banks' credit growth

.... The stringent norms by the Reserve Bank of India to implement BASEL III standards will bridge the gap between India and its Asian peers for the risk-adjusted capital criterion. But, it will also pose a challenge of constant capital infusion......

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Embracing Basel III

It is good on the part of RBI to make sure that Indian banks are ready to embrace Basel III, two years ahead, by 2017. Capital is going to become an increasingly scarce commodity in the coming times and especially for public sector banks (PSB) raising capital would be a big challenge (“Core Banking solutions”, FE, January 3). If PSBs are to need an additional capital of R5 lakh crore in the next five years to sustain the growth of 20% per annum, the government is quite unlikely to make this huge budgetary allocation. If the past experience regarding the global financial meltdown is anything to be believed, then the idea of having capital conservation buffer proposed in Basel III is a welcome move aimed at maintaining renewed stability of the financial system.

Srinivasan Umashankar, Nagpur (FE)

TEXT-S&P reports says RBI's basel III norms will benefit banks

......According to the report, the RBI's conservative approach should enhance capitalization in a country where Standard & Poor's views economic risks to be relatively high. The RBI's stringent capitalization requirements will also help improve Indian banks' risk-adjusted capital ratios, which are currently lower than those of many Asian peers....

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Why print rupee notes here when Pakistan is doing it for free?

On Thursday, the Delhi Police seized fake currency notes of the face value of over Rs 6 crore from two tempos – the largest haul in five years. That’s more than three-quarters of the Rs 8.4 crore seized in the previous five years. There are no prizes for guessing where these notes—all bundles of Rs 500 and Rs 1,000 notes—came from.....

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Counterfeit currency—the new pandemic

The “funny money” problem in India is no longer a minor bump; it is severe, it is suspected to be much more than the readiness to blame ISI of Pakistan, and requires a total overhaul of the laws pertaining to counterfeit currency...............

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Cash seized from ATM vans in UP

.... The EC has written to RBI to instruct the two large private banks, for which the ATM vans were transporting the cash, to produce bank scrolls explaining the cash movement.....

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Gopinath's appointment on the NSE board kicks off debate

Opinion divided on whether there is a conflict of interest

Seven months after she retired as Deputy Governor of the Reserve Bank of India (RBI), Shyamala Gopinath has been appointed on the board of the country’s largest bourse, the National Stock Exchange (NSE). Gopinath was practically No 2 with the central bank until June 20 last year, when she retired. Earlier, economist Vijay Kelkar joined NSE as its chairman soon after laying down office as the Chairman of the 13th Finance Commission. This latest appointment has started a debate on whether giving lucrative high-profile posts of independent directors to those who were once its watchdogs, would trigger a conflict of interest and whether such appointments raise a serious issue of “ethics”. This is because both RBI and the finance ministry are super-regulators to the exchanges. Though the finance ministry may not be a direct regulator in the strict sense, RBI is a regulator to the NSE— in both letter and spirit over its currency derivative segment operations. As Deputy Governor, Gopinath was RBI nominee on the Securities & Exchange Board of India (Sebi) board, where she was a direct regulator of NSE. There are, however, no rules to prevent her from joining the stock exchange. Many, though, dismiss such apprehensions. This camp says RBI doesn’t regulate exchanges; only Sebi does. If a policy has to be made for the currency segment, the market regular consults the central bank and makes the policy for all exchanges. They also say a uniform policy should be made in this regard for all sectors and not exchanges alone. While the debate continues, NSE is certainly not alone. MCX-SX has also appointed former regulators and bureaucrats on its board. It had appointed Ashok Jha and Vepa Kamesam on its board in 2009 and 2010 respectively. Jha was finance secretary in 2007 and Kamesam served as Deputy Fovernor of RBI between 1998 and 2003. Some others have directly regulated MCX in the past. But there was a gap between their retirement and taking up the MCX SX job. Jha, for example, superannuated in April 2007 -- and joined the MCX SX board only in August 2009. Kamesam retired as RBI Deputy Governor in 2003, and joined the MCX SX board in April 2010. Similarly, G N Bajpai, who retired as Sebi chairman in 2005, joined the advisory board of Financial Technologies in 2008. S A Dave, who headed Sebi in the late 1980s, joined the MCX board in 2009. Prior to that, Dave after retiring, worked on the board of several private companies including Housing Development and Finance Corporation. Both NSE and MCX did not want to comment on the issue. Gopinath could not be contacted. On the Bombay Stock Exchange, there are several retired government officials on the board. But, all of them joined after a cooling off period of at least a year. Being autonomous bodies, the RBI and Sebi do not have a “cooling-off” period in their respective service rules. The Forward Market Commission, the commodity market regulator, has however set a one-year cooling off period, before its members join any private firm. With the exception of G V Ramakrishna and C B Bhave, who retired only recently, all other former Sebi bosses are on boards of at least four or more listed companies, but this they did after a cooling off period of at least one year.

BS 

NSE to have 5 women on board; ropes in Gopinath, Umarjee

....“…responsible and effective decision-making at the highest levels requires representation of views from people with different backgrounds. Yet such diversity of thought is not possible if all individuals are of the same gender or from the same social grouping. The creativity and innovation that comes through diversity of thought is critical to remaining competitive in the fast changing global market in which we now operate,”......

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Monetary policy at crossroads – S.S.Tarapore

Monetary easing should always be slower than tightening; since the RBI opted for baby steps while tightening, it cannot easily relax monetary policy. A long pause makes sense at this stage.

All eyes are on the Reserve Bank of India (RBI) monetary policy announcement of January 24, 2012. Some top policy advisers in the government have explicitly stated that the RBI should reduce interest rates. Governor D. Subbarao, as part of forward guidance, has said that a decline in interest rates is on the cards, but has cautiously added that it is not possible to indicate precisely when monetary policy will be eased. Those pleading for a reduction in interest rates point to the year-on-year fall in food prices to minus 3.36 per cent. There are shrill noises that this signals deflation, and hence the case for reduction in interest rates. The expected slowdown in real growth to 7 per cent (some analysts expect it to be lower) and the sluggish industrial growth makes out the case for industry to be given a stimulus by way of an interest rate reduction. Pronab Sen, Chief Economist of the Planning Commission, in a percipient observation, says that the fall in food prices is essentially because of the base effect and in the next few months food inflation is likely to rise back to the 6-7 per cent range. When food inflation was at the higher reaches of the teens, no hearts bled asking for a sharp increase in the repo policy rate to double digits! The overall inflation rate is persistently over 9 per cent and although it may fall in the ensuing period, largely because of the decline in food prices, there are as yet no signs of a significant and enduring reduction in the overall inflation rate. Moreover, fuel inflation is still over 15 per cent. The fiscal situation is precarious and the gross fiscal deficit of the Centre, in 2011-12, could be 6 per cent of GDP or even higher. With the government's borrowing programme being raised sharply over the budgeted figure, crowding out is inevitable. To minimise the disruption in the commercial sector, as also to prevent yields on government securities rising, the RBI is undertaking substantial purchases of government securities under its Open Market Operations (OMO).  The upshot of all this is that inflation is likely to remain stubbornly high. Unlike in 2008, when the RBI rapidly brought down interest rates, the present macro indicators are not encouraging and a premature easing of monetary policy could rekindle inflationary pressures. The external payments position is a cause of some concern as the current account deficit (CAD) is likely to be around 3 per cent of GDP and there have been substantial outflows of portfolio capital. Advocates of monetary policy easing would argue that political economy imperatives warrant a reduction in policy interest rates. While baby step reductions would appease the strong commercial lobbies, such reductions would not meet political economy compulsions. In the past, monetary policy has remained unaffected by political economy constraints of impending elections. In 1977, just before the elections, the RBI undertook a sharp tightening of monetary policy with a 10 per cent incremental cash reserve ratio (CRR).  Again, during the foreign exchange crisis of 1991 and the absence of effective governance, the RBI went ahead with a massive monetary tightening of interest rates, reserve requirements and direct controls. As such, the RBI should not take account of the present political compulsions. Any easing of monetary policy should be on the merits of the case. When inflation hits double digits, there is strong support for monetary tightening, but the moment inflation falls back into single digits, the lobbies for interest rate reductions gather momentum. As monetary policy is eased, inflation raises its ugly head. Needless to say, monetary tightening should always be faster than the subsequent easing. The old central banking dictum is that interest rates should go up by ones and down by halves.  Given that in recent years the RBI has opted for baby steps while tightening, it cannot easily relax monetary policy. As such, there is great merit in a long pause before reductions are made in policy interest rates. There is a viewpoint that if policy interest rates cannot be brought down, the CRR could be reduced. The CRR is the most potent monetary policy instrument and if the situation is such that policy interest rates cannot be reduced, it would be a serious error of policy to reduce the CRR. After the easing of monetary policy in 2008, the tightening of policy interest rates has been of the order of 3.75 percentage points since March 2010, but the CRR was raised by only one percentage point. As such, a reduction in the CRR would not be an appropriate policy response. It would be best to wait till March 2012 before taking a view on monetary easing. Too early an easing could result in a resurgence of inflation. As the sage monetary economist, the late Professor P. R. Brahmananda said: “Not caring about inflation is like going into battle without caring for the wounded, the dying and the dead”.

HBL

Jnana Jyothi FLCC Trust website launched

Manipal : In terms of RBI directives and also as decided in the Karnataka State Level Bankers Committee meeting at Bangalore, Syndicate Bank and Vijaya Bank Co-sponsored Jnana Jyothi Financial Literacy and Credit Counselling Trust with its Registered Office at Manipal in October 2010 to strengthen Financial Inclusion in the Country. The Trust during the financial year 2011-12 has opened all over India 23 Centres out of which 12 in Karnataka, 5 in Andhra Pradesh, 2 in Kerala and 4 in Uttar Pradesh are functioning effectively. Financial Literacy is an integral part and a maiden step towards financial inclusion. The Trust, with an objective to spread awareness of Financial Literacy among the general public, has initiated another major step of launching its own website with domain name www.jnanajyothiflcc.com covering various financial products and services offered by the Banks. The website was inaugurated on 11.01.2012 by Sri D.T. Pai, Chairman cum Managing Trustee of JJFLCC Trust.

http://www.bellevision.com/Bv/index.php?action=news_diggest&type=1771

VITALINFO - Great work.................

Assam Gramin Vikash Bank turns 6

.... During the first six years of its operation, the bank had witnessed a compounded growth rate of 169 per cent and the number of customers of the bank has crossed 45 lakhs. During his latest visit to the state, governor of the Reserve Bank of India, D Subbarao rated the performance of the bank as outstanding.

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Can manage inflation if food prices keep declining: Pranab

“Food inflation is still negative... There is a declining trend... If this trend continues, then the overall inflation will be manageable,”

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India Central Bank's November Dollar Sales Point to Intervention

..... Last week, RBI Deputy Governor Subir Gokarn reiterated the stance that the central bank won't defend any particular rupee level, but added that it would "respond strongly to any sharp one-way moves" in the local unit.......

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RBI to consider falling food prices in monitory policy review

NEW DELHI: The Reserve Bank today said that it will take into account the declining food prices while taking a view on the monetary policy which comes up for review later in the month. "The impact of food prices on (inflationary) expectations is certainly a factor that needs to be taken into account," RBI Deputy Governor Subir Gokarn said here. Although there is no direct relation between food inflation and monetary policy decisions, he said prices of essential kitchen items do impact inflationary expectations in the economy. "The role of food inflation is essentially on expectations ... there is no direct link between monetary policy action and food prices," Gokarn said. Food inflation remained in the negative territory for two consecutive weeks and was (-) 2.90 per cent for the week ended December 31.  The overall inflation in November was 9.11 per cent and Chief Economic Advisor Kaushik Basu said he expects the WPI number to come down below 7.5 per cent in December helped by declining food inflation. Food inflation accounts for 15 per cent in the overall inflation basket. Overall inflation has been above 9 per cent mark since December 2010. Gokarn said, "Increasing affluence is driving significant demand increases ... and the fact that inflation or prices are rising quite sharply basically suggest that the supply response is relatively weak". The Reserve Bank has raised rates 13 times since March 2010 to control inflation by taming demand. It is scheduled to come out with its third quarter policy review on January 24. The industry wants the Reserve Bank to reduce interest rates with a view to arresting slowdown and boosting industrial growth. The industrial growth which turned negative in October, showed an increase of 5.9 per cent in November. Food inflation, Gokarn said, as a phenomenon "is something to be treated as a persistent source of inflation, with pressure on prices and policy response to it naturally has to be driven in that perspective".

ET

RBI may defer rate cut as industrial growth rises

..........After raising key policy rates 13 times since March 2010, RBI opted against increasing rates in December. Economists said RBI governor D Subbarao may want to watch how the situation pans out over the next couple of months and opt for a rate cut later. The government, however, seemed to suggest that the policy focus needs to change to boost investment in the economy and spur economic activity further......

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Growth will moderate in December, then rise: C Rangarajan

C Rangarajan, veteran economist who chairs the Prime Minister’s Economic Advisory Council, expects industrial growth to pick up from this month, he tells Indivjal Dhasmana. A short and edited interview:

Industrial growth bounced back in November, from contraction in October. What is your outlook for the remaining months of this financial year, particularly considering the high base effect of December?

Some moderation could be seen in December. However, industrial growth will pick up after that, which will have ramifications for overall economic growth. I expect overall economic growth to be over seven per cent this fiscal (the economy grew 7.3 per cent in the first half).

What does the November industrial growth figure tell RBI in terms of policy response?

RBI’s policy actions will depend on the headline inflation number for December. While food inflation is in the negative zone, we are not sure about the rate of price rise in manufactured products. So, this will give an important indicator to the central bank.

Many economists have suggested RBI wait a bit longer before cutting policy rates and choose the cash reserve ratio (CRR) or open market operations (OMOs) to manage liquidity. What would you suggest?

I think OMOs are a preferred tool, because you can calibrate liquidity management this way. CRR is somewhat a blunt tool. Even a quarter of a percentage point cut in CRR unleashes a great amount of liquidity in the system.

Mining continued to witness a contraction in November production , for the fourth month in a row. Do you see it as a drag?

Mining will improve from December. Coal production has picked up in December.

Capital goods also witnessed a continued fall in November. Will it affect future industrial growth?

The decline in capital goods abated somewhat in November. Their production will improve in the months to come.

BS

Account number portability

In October 2011, the RBI deregulated interest rates on savings account deposits, subject to a few conditions, following which a few private sector lenders have hiked rates to as much as 7 per cent. And now, the Finance ministry is working on savings bank account number portability, which will allow a customer to retain his account number while changing his bank, if at all he decides to do so for different reasons. The move is a step in the right direction, as it would help customers change banks without the need of following ‘Know Your Customer' norms again, and also expect higher returns on their savings in a competitive environment.

- Srinivasan Umashankar, Nagpur (HBL)

Credit card PIN

Regarding “Credit cards: RBI keen on ‘zero liability' to customer” (Business Line, January 10), before introducing the policy, the RBI should insist that banks assign PIN for all credit cards.  When all debit cards are protected by PIN-enabled transactions at point-of-sale machines, such as ATM transactions, why not credit cards? Though Verified-by-Visa or MasterCard SecureCode mandates are in place, they help to protect only online transactions. Without PIN, credit cards are vulnerable to theft and fraudulent transactions.  Moreover, ‘zero liability' policy without PIN will increase the moral hazard problem among credit card users, since they won't be accountable anymore.

- Dhinesh Rajamanickam, Bangalore (HBL)

Shop online without credit, debit card

.... A virtual card can be generated by doing a one-time registration with your bank. The virtual card number is set up using your existing physical credit card. You get a unique login and password. Just specify the amount you want to spend with your virtual card. The card generated will have a new 16-digit number, CVV2 number and expiry date. You can use it like any credit or debit card for online shopping......

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RBI cautions foreign banks on speculative FX trades: report

Mumbai: The Reserve Bank of India has cautioned some large foreign banks for encouraging local companies to participate in speculative trades in the foreign exchange market, the Business Standard reported on Thursday. The RBI, in a meeting with senior officials of foreign banks, cautioned them for taking part in these trades as it felt that the transactions were partly responsible for the sharp fall in the rupee against the dollar, the newspaper said, quoting three people familiar with the development. The rupee has depreciated nearly 16 percent in 2011 against the US dollar. “RBI was aware that many foreign banks were encouraging speculation in the market. But it could not take any action as most of these trades were done offshore outside its regulatory purview. There was a meeting last month where RBI issued oral warning to some of these banks,” a source privy to the discussions with the regulator, told the paper. Most of these trades were done taking advantage of the difference between the forward premium rate in India and the offshore non-deliverable forward market rates, the report said. The RBI, on 15 December, reduced the net overnight open position limit (NOOPL) of authorised dealers in the foreign exchange market with immediate effect, potentially reducing capacity of market participants for taking trading positions.

Firstpost

RBI playing hardball with AI debt restructuring plans

RBI seems to be playing hardball with Air India's restructuring plans. CNBC-TV18 learns that banks' refusal to provide for the restructured assets follows the RBI refusing to agree to bank request on exemption on provisions with respect to cumulative redeemable preference shares, reports Swati Khandelwal......

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The wages of policy inertia and profligacy

..............India may end with sub-7% growth in 2011-12. There is danger that slow growth may change from a cyclical to a structural problem.......

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Patchy recovery

..... The key question for next week is what message the Reserve Bank will read into these numbers. If Mint Road reads them as optimistically as Yojana Bhavan does, the central bank will be confirmed in the view that it has projected in recent weeks — that interest rates should not be raised any further, but nor should they be lowered just yet.....

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Place your bets on India

..... Crisis situations will erupt in the power, coal, rail and banking sectors. Markets will continue to de-rate, lose global relevance, and investors will write off the country till 2014. Even the RBI cutting rates will not be enough to trigger a capital expenditure cycle, as policy constraints will continue to hamper investment. Markets will continue correcting from both time and price perspectives. All this is independent of the continuing global uncertainty....

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Black money in polls: EC writes to RBI

Stepping up measures to combat the flow of black money during forthcoming polls in five states, the Election Commission has written to the Reserve Bank of India (RBI) to ensure that banks are not "misused by unscrupulous persons" for bribing voters with cash. The EC has written the letter to the Reserve Bank of India in the backdrop of an incident where the Income Tax department recently seized cash of Rs 12.38 crore belonging to ICICI bank at Delhi's border with Ghaziabad (Uttar Pradesh). The amount, suspected not to be conforming to cash movement rules stipulated by RBI, was seized by the I-T department on the directions of the Election Commission. "...Request you [RBI] to conduct a thorough enquiry of the case [seizure at Ghaziabad] and to ensure that the banking channel is not misused by the unscrupulous persons to carry cash to the constituency during election process, for the purpose of bribing the electors," a letter received by the RBI Deputy Governor in Mumbai from the poll body said. Five states -- Uttar Pradesh, Punjab, Manipur, Goa and Uttarakhand are going to Assembly polls in various phases, begining January 28. The EC, in its letter, also reminded the RBI that it has earlier written to the banking regulator after it received similar complaints during the Assembly polls in Tamil Nadu.

BS

Fake currency worth Rs six crore seized in Delhi

.... "Seized counterfeit Indian currency notes have most of the security features of genuine currency notes and for a man on the street it would be difficult to find the difference on mere looking,"......

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'Nepal-based Indian runs racket'

Investigators following the fake currency trail into North India, especially Delhi and Uttar Pradesh, have zeroed in on a Nepal-based Indian national, known.....

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Can Chaudhuri turn the tide for SBI?

.... “the credentials and quality SBI has, I don’t think it will have a problem in coming out of any issues it faces in the short term”,.....

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False dawn

The main problem today is neither growth nor inflation, but an investment freeze. And that is bad both for future growth and for fighting inflation.............

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View financial inclusion as a business model: RBI to banks

RBI has said that banks need to perceive financial inclusion, or the process of bringing all the people under the financial system, as a profitable business model and not an obligation. "Banks need to perceive financial inclusion as a profitable business model and not as an obligation. This would be possible only if banks strive towards offering more and more credit products to customers captured as part of the financial inclusion plan and lower transaction cost by leveraging technology," Deputy Governor Anand Sinha has said at the launch of the Financial Inclusion programme of Cosmos Bank at Pune earlier this month. The transcript of Sinha's speech was made available at the RBI's website. "The current policy of inclusive growth with financial stability cannot be achieved without ensuring universal financial inclusion," Sinha said. He further said: "Though the efforts for universalization of financial inclusion are already underway, there are a number of challenges in this endeavour going forward with about 4,80,000 villages yet to be provided with banking services." 

NDTV Profit

Right Note

A conservative, rather than cavalier, approach to external debt is prudent

The Reserve Bank of India’s (RBI) insistence that foreign investments that carry an in-built option to sell acquired shares back to the investee company or its promoters should be treated as loans rather than equity might seem unduly conservative. Especially as the government is willing to treat such inflows as foreign direct investment. However, the RBI’s caution is not unwarranted. Even if it means that some companies might have to rework shareholder agreements with their overseas partners with the attendant loss of credibility, it is worth the price. Ideally, we should never let two arms of the government (and, in such matters, the RBI can be regarded as an arm of the government) speak at cross-purposes on policy issues. It causes needless confusion and adds hugely to the cost of doing business. Hence, the implications of any policy must be thought through completely before implementation; once implemented, midcourse corrections must be avoided. In the context of foreign investment, there is an additional factor that could, arguably, justify policy rethink: India’s external vulnerability. Our dependence on portfolio rather than direct investment flows has always been our Achilles’ heel. And never more than now when portfolio flows have slowed dramatically in response to global economic uncertainty and the search for safe havens. Meanwhile, external commercial borrowings by companies, beguiled by lower interest costs overseas and, till fairly recently, a strengthening rupee, have increased sharply. Outstanding foreign currency convertible bonds (FCCBs) are higher and are more likely to be redeemed as debt rather than converted into equity. The pressure on outflows, and hence on our foreign reserves, is increasing. Foreign exchange reserves were down to $297 billion end-December 2011, and even if intervening in the market to defend the exchange rate is not on the cards, the RBI will need reserves to smoothen volatility. In such a scenario, it is better to err on the side of safety (read: adopt a broader rather than narrower definition of debt) if we are not to risk our credibility as an economy in the global market.

ET

Interest rates move down even before monetary easing

Interest rates have already begun to move down even before the Reserve Bank of India has cut policy rates, indicating market participants have priced in monetary easing. The signs of thaw in interest rates have already boosted the stock market and experts say this should have a positive impact on the investment sentiment........

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A boost for cooperatives

This refers to your edit “Board of political control” (January 4). Cooperatives have played a significant role not only in providing agricultural and rural credit, but also in ensuring other linkages like inputs for farming and marketing avenues for products. Since these were mainly operating in rural and semi-urban areas, it took a longer time for this sector to access modern skills and technology. Although the National Bank for Agriculture and Rural Development (Nabard) was established in 1982 with the specific mandate of supporting cooperatives and the rural sector in general, its initial enthusiasm faded away in the absence of legislative and administrative support from the central and state governments. The institution was, thus, satisfied with being an appendage of RBI doing some “safe” business through established and credit-worthy cooperative banks and commercial banks. Following up the constitutional amendment with quick and meaningful measures will help revitalise cooperatives — not just the district and central banking cooperatives but also thousands of agricultural credit societies. At a time when the government and regulatory and supervisory institutions are struggling to make a breakthrough in financial inclusion and improvement in productivity, the already available infrastructure and membership of cooperatives will make this work much simpler.

M G Warrier Thiruvananthapuram (BS)

How RBI is responsible for banks’ biggest NPA – the CRR

..............CRR is banks’ biggest NPA – non-performing asset. Six percent of their net demand and time liabilities (deposits) are locked up in CRR without any interest (or very little of it for older balances). The bottomline is this: does the RBI want banks to lose money on its account?......

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Credit growth in RBI comfort zone

.......... Even though the Reserve Bank of India has indicated that it might not go for a reduction in the cash reserve ratio, or CRR - a portion of deposits banks have to mandatorily park as deposits with the central bank - markets have made a case for CRR as well as a cut in key policy rates by 25 basis points in the RBI's quarterly monetary policy review scheduled on January 24.

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Indian Bank opens new office in Chennai

RBI flags poor asset quality in financial stability report

Bad loans in banks' priority sector lending portfolio have caught the Reserve Bank of India's eye. The possibility that the banks' exposure to the agriculture, micro and small enterprises, and housing segments could be under stress has made the central bank ask them for the relevant data. .........

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RBI asks banks to set aside more capital for investing in financial entities

... The Reserve Bank of India (RBI) has ordered banks to set aside more capital for their investments in financial entities such as insurance in an attempt to strengthens the ring fence around banks, but it is a move that can strain capital resources that are getting scarce.....

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RBI cracks the whip on overseas banks

The regulator said these transactions are partly responsible for sharp depreciation in the rupee against the dollar. The Reserve Bank of India (RBI) has cracked the whip on some of the large foreign banks in the country for encouraging companies to participate in speculative trades in the foreign exchange market. The banking regulator in a meeting with senior representatives of foreign lenders have cautioned them for taking part in these trades, as it felt these transactions were partly responsible for sharp depreciation in the rupee against the dollar, three people familiar with the development said. Foreign banks were acting as arrangers for the companies in these transactions. “RBI was aware that many foreign banks were encouraging speculation in the market. But it could not take any action as most of these trades were done offshore outside its regulatory purview. There was a meeting last month where RBI issued oral warning to some of these banks,” said a source privy to the discussions with the regulator. According to industry players, most of these speculative trades were done taking advantage of the difference in forward premium rates in India and non-deliverable forward (NDF) contract market abroad. According to bankers, the difference in forward premium rate in India and NDF market, which widened sharply in the second half of 2011, offered a perfect opportunity for banks and corporates to benefit from the rupee’s depreciation. Industry sources said between August and December many large corporate houses were approached by banks to take part in foreign exchange trades in India and NDF market through subsidiaries and associates. They will enter into a contract to buy dollar in India, while their subsidiaries will take another forward sale contract in the NDF market with a view that rupee will depreciate further. The difference in forward premium rates in the two markets allowed the corporates to benefit from these simultaneous trades. “Banks were getting a hefty fee for arranging these transactions,” said another person aware of these deals. Adding: Often the lenders were getting as much as one-third of the windfall. These trades were believed to be one of the reasons for volatility in the Indian rupee movement in the latter part of 2011. The Indian currency depreciated by almost 18 per cent in less than six months between August 5 and December 15 with the volatility as measured by annualised standard deviation of daily percentage changes doubling from five per cent to 12 per cent. “Primarily, to discourage these trades RBI came out with the new guidelines. The opportunity to gain from arbitrage is hardly there anymore as the difference in forward premium rates in India and NDF market has narrowed,” said an independent foreign exchange analyst. On December 15, RBI restricted rebooking of cancelled forward contracts and reduced the net overnight open position limit or trading limits for banks in the foreign exchange market.

BS

Microfinance institutions clamour for more bank loans

KOLKATA: Country's leading microfinance players including Bandhan, Basix and Ujjivan have requested banks to enhance the credit flow to them as they have streamlined their operation following Reserve Bank of India guidelines.......

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As new regulations loom, the way ahead for NBFCs

......The RBI’s preoccupation with exclusion of the smaller players from financial services will severely impact their leveraging capabilities. Eventually, we will likely see a large chunk of these unorganised players fleecing the bottom of the pyramid, in terms of interest rates. This is counter-intuitive to the intention of making the industry more user-friendly and inclusive.......

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Common written exam is for qualifying to take part in recruitment process: IBPS Director

The common written examination conducted by the Institute of Banking Personnel Selection (IBPS) is an ‘eligibility' exam, Mr M. Balachandran, Director, IBPS, said. The IBPS prescribes the minimum requirements, taking into account the least of the qualifying criteria stipulated by the participating banks, so that all aspirants can take a shot at the exam, he said. .......

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Pick-up in forex inflows causes cash crunch for banks

With a pickup in foreign inflows into the Indian debt markets cash again tightened in the banking system...........

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RBI miffed at banks not pushing mobile banking

The Reserve Bank of India (RBI) has pulled up banks for not doing enough to promote mobile banking services, which could be a great tool to achieve financial inclusion. Although, RBI had authorised 52 banks to provide mobile banking services through the Interbank Mobile Payment Service (IMPS), only 33 banks were offering the service as of December 2011. For the calendar year 2011, the total number of transactions through the IMPS channel stood at 95,722, with the value of funds being transferred at Rs 29.68 crore. “What this means is that banks have not made a significant penetration even among their existing customers to extend mobile banking services,” said G Padmanabhan, RBI’s Executive Director, at a meeting in Chennai on Monday. Against 858 million mobile connections in India, including 292 million users in rural areas, only 55 per cent of Indians have bank deposit accounts, indicating how mobile phones have reached places where banking services could not, he pointed out.  “If there are 800 million customers in India using a mobile phone, then they all should easily be able to adapt to mobile banking too. My only concern is, ‘is it ahead of its time?’ But any technology takes time to get popular among the masses and I am sure that mobile banking too will pick up soon,” said M Balakrishnan, chief operating officer of National Payments Corporation of India (NPCI), which developed the IMPS. Of the 33 banks registered for IMPS mobile banking service, Axis Bank had issued the highest number of MMIDs (the unique ID used for mobile banking), at 49.44 lakh, followed by ICICI Bank, which issued 30 lakh MMIDs and State Bank of India with 27 lakh MMIDs. RBI took a lot of effort to promote mobile banking, Padmanabhan said, including the removal of Rs 50,000 cap for mobile transactions and the promotion of a bank-lead mobile banking service, rather than a telecom company-lead service, so that more banking services could be offered. NPCI is also working on expanding the scope of IMPS by removing the need for the recipient to have an MMID, using it for merchant payments and allowing transactions to be initiated through ATMs or over the internet. 

FC

SBBJ goes online for home loans

Jaipur: The Reserve Bank of India Deputy Governor H R Khan, launched online home loan in 20 minutes, an inhouse innovation from State Bank of Bikaner & Jaipur at banks head quarters in Jaipur on Saturday. Khan said this innovative service from SBBJ, adding that it would add to customer convenience in the present high-tech fast paced life.It is all the more creditable that such innovations are coming from a public sector bank, added Khan. Shiva Kumar, managing director, SBBJ, said that the new offering is a unique service being provided by the bank from Rajasthan with national presence. This would provide never before speed and comfort to banks customers in taking home loans. Speaking to SBBJ staff, B.P.Kanungo, Regional Director, RBI, Jaipur said that a major cause of complaint against bank is delay in sanction of loan. This product of SBBJ will address this problem completely, he added. Kumar said that a strong and proper backend has been created for the home loan offering in twenty minutes. Banks online business centre at Jaipur shall monitor each online application individually. He said the service has been developed with zero cost, using in-house capabilities and expertise.

TOI

Reserve Bank of India says no to CRR cut for now

The Reserve Bank of India has ruled out the possibility of a cut in the cash reserve ratio, or CRR, in its monetary policy review on January 24, according to bankers who took part in the customary pre-policy meeting held by the central bank on Tuesday. RBI Deputy Governor Subir Gokarn told them that "lowering CRR will be contradictory to the anti-inflationary stance we (the RBI) have taken," the bankers said after the meeting. CRR refers to the amount banks have to keep with the Reserve Bank of India. Currently, the CRR is 6% of total cash deposits a bank has. The amount kept with the bank under CRR does not earn the banks any interest.  Bankers, however, said a CRR cut was necessary since liquidity was still under strain. They pointed out that borrowings from the RBI's daily liquidity adjustment facility, or LAF, has been beyond the central bank's comfort zone of +/- 1% of the banking system's net demand and time liabilities ( NDTL) for quite some time, indicating a strain on liquidity. A CRR cut would address this situation, they said. The LAF window enables banks to borrow from the RBI on a dayto-day basis by placing government securities. Bank borrowings on December 22 went up to RS 1.73 lakh crore. The average borrowing from the RBI's repo window since December 15 has been over Rs 1 lakh crore. Gokarn also reportedly told the bankers that "borrowing from the marginal standing facility window is no longer a stigma, like it used to be some months back", indicating that banks can utilise the MSF window to meet their daily asset-liability mismatches. Banks can borrow from the MSF window at 1% higher than the repo rate (8.50%). In the meeting, bankers also requested the RBI for concessions in the second round of restructuring for loans given to textile and steel companies. Industrial production in October 2011 fell to -5.1%, while RBI has raised key policy rates 13 times since March 2010. All this has affected the quality of assets for banks, especially from interest-rate sensitive sectors. Gokarn also mentioned that the situation in Europe continues to be fragile, while there is stability emerging in the US.

ET

VITALINFO - A useful Dailyzine................

Andhra MFIs seek time to meet capital adequacy norms

Microfinance institutions in Andhra Pradesh have urged the Reserve Bank of India (RBI) to allow them more time to meet the new capital adequacy norms, as they are not able to raise fresh funds because of the crisis in the sector. The Micro Finance Institutions Network (MFIN), the industry body for micro-lenders in India, has approached the central bank for an extension of the deadline beyond March 31, 2012, three people familiar with the development said. In December, RBI said the minimum capital adequacy ratio for any non-banking finance company microfinance institution (NBFC-MFI) must be 15 per cent. The central bank, however, said microfinance companies with more than 25 per cent of loan portfolio in Andhra Pradesh could maintain a minimum capital adequacy ratio (CAR) of 12 per cent in the current financial year. But from April 2012, these micro-lenders will have to maintain the !5 per cent rule. “In principle, RBI’s move to extend support to the sector by bringing it under its direct regulation is encouraging. But practically, none of the microfinance institutions, barring maybe one or two, will be able to meet the higher norms,” said the promoter of one in Andhra Pradesh requesting anonymity because of the sensitivity of the issue. "We have asked RBI to consider extension of the deadline beyond March 31. Otherwise, most microfinance companies in the state (of Andhra Pradesh) are facing the risk of losing their licence to do business," the official added. Micro-lenders said because of the crisis in the microfinance industry since October 2010, existing investors are not willing to increase exposure in the sector, while no new investors are keen in picking up stake in the beleaguered firms. The crisis began when the government of Andhra Pradesh, the largest market for microfinance companies in India at that time, passed a legislation that banned weekly repayment of micro loans. It curbed micro-lending activities and eroded profitability of microfinance companies operating there. Microfinance companies said in many small firms the additional capital requirements to meet the new norms are so high that promoters alone cannot cover the gap and will have to depend on existing and new investors.“To meet the new capital adequacy norms, we need to bring in capital that is higher than our existing equity base. In this environment, where banks are reluctant to offer fresh loans, it is impossible to convince private equity players to invest in our company,” said the CEO of a Hyderabad-based microfinance firm. 

BS

RBI to release Rs 5 coins to commemorate ICMR centenary year

Mumbai, Jan 10 (PTI) The RBI will shortly come out with coins of Rs 5 denomination to commemorate the centenary year of the Indian Council of Medical Research. In a statement, the Reserve bank said the coins will be circular in size with a diameter of 23 millimetres and made of nickel brass. On one side, the coin shall bear the Lion Capital of Asoka Pillar and the denominational value of Rs 5. On the other side of the coin, the name of the Indian Council Medical Research will be mentioned. The existing coins of Rs 5 denomination will continue to be legal tender, the apex bank said.

MSN News

SBI chairman says CRR cut unlikely in RBI review

The Reserve Bank of India is unlikely to cut banks' cash reserve ratio at its January 24 policy review, Pratip Chaudhuri, chairman of State Bank of India, the country's largest lender, said on Tuesday............

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RBI allows 4 more banks including Yes Bank & Bank of Maharashtra to import gold, silver

MUMBAI: RBI has allowed four more banks, including Yes Bank and Bank of Maharashtra, to import precious metals, further spurring competition in the world's biggest importer of bullion. City Union Bank and ING Vysya Bank have also been included in the list, bringing to 35 the number of banks allowed to import bullion, data on the website of Reserve Bank of India showed. Gold is a regulated sector in India and the central government allows state-run and private banks to trade in bullion at the wholesale and retail level. Some listed jewellery makers such as Rajesh Exports, Titan Industries and Gitanjali Gems are also allowed to import precious metals. Jewellers sell coins and bars through retail outlets.

ET

Credit co-operatives are too big to work

It has become commonplace to hail institutions with a hoary past, irrespective of their fundamental weaknesses. However, such superfluous praise can do more harm than good to the cause of the institution and its stakeholders. A case in point was when a top functionary of the RBI recently glorified the rural credit co-operatives for following the tenets and principles of co-operation. However, it is the failure to adopt the principles and tenets of co-operation that is the bane of credit co-operatives in India. .........

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Bankers ask RBI for some relief to ailing industries

Bankers have asked the Reserve Bank of India to shift its attention to growth by giving a special dispensation for bad loans and reversing the interest rate cycle with a cut in policy rates........

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Banks may cut rates if funding costs fall: IBA

...."One has to see the funding cost coming down before any change in interest rates happen. We have not seen a change in funding cost in recent past," .......

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Who let the Rupee fall?

If the overall risk sentiment in the world improves, we could see rupee outperform other Asian currencies after the large battering it received recently, but the chances remain slim. The scales are still heavily tilted towards further weakness as the euro zone will continue to induce fears. The slowing world economy does not bode too well for growth and elevated oil prices do not look likely to fall..........

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The curious case of an unclaimed fixed deposit

....We found out that according to RBI: “If the letters are returned undelivered, they may immediately be put on enquiry to find out the whereabouts of customers or their legal heirs in case they are deceased.”....

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Using RTI effectively in the Financial Sector

This session on RTI will focus on the sector of Banking and Finance – your queries on regulatory bodies like the Stock Exchanges (BSE & NSE), the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the Pension Regulator, capital markets and banks, will all be answered...

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Savings account portability: Is it worth the trouble?

....... On the face of it, encouraging investors to switch savings account with the same number portability and pursuing the most attractive interest rate offers little obvious benefit to the banking sector as a whole, especially when enhanced returns are already widely available via term deposits. Clearly, the cost-benefit ratio and its implementation are not yet fully understood by the banks. So when it comes, the debate can be expected to be lively.

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Collective investment plans may soon come under 'principal regulator'

.... "Certain individuals or companies are able to raise money from gullible individuals by taking advantage of loopholes in the legal provisions and also taking advantage of the lack of clarity about roles of different agencies such as MCA, Sebi, RBI, state governments, registered co-operative societies etc,".....

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The RBI won't save 2012

....... It is a foregone conclusion that the RBI will have to again cut its GDP growth forecast; probably to seven per cent (actual outcome could be sub-seven per cent). Thus, it will need to be seen as doing something later this month, even as it will – irresponsibly – avoid any guidance on growth and inflation for 2012-13. How the RBI expects to anchor expectations without offering one- or two-year forward guidance remains a puzzle.......

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Banks need to take care of small things to survive during economic slowdown

.... "There is a need for sensitization of banks' staff towards the needs of small entrepreneurs," KC Chakrabarty, Deputy Governor at the Reserve Bank of India, said recently. "Training is also required to be imparted to branch managers and loan officers for a change in their mindset, away from the perceived risk in financing micro and small enterprises." Coming from a central banker who has been leading the financial inclusion part of the agenda, this statement is a reflection of the state of affairs in lending to small enterprises.....

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Just 40% of India Inc's forex loans are hedged

The Reserve Bank of India (RBI) has raised a red flag over banks’ foreign currency loans to the Indian corporate sector, as data compiled by the regulator reveal only 40 per cent of their exposure has been hedged..........

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Why the RBI’s export numbers may also be a bit of garbage

..... If DGCIS is giving out “unreliable” numbers, one wonders why the RBI needs to use it. According to The Economic Times, the RBI is taking DGCIS numbers because this is what the International Monetary Fund expects it to do. “As per the balance of payments manual, IMF, which sets out the best international practices and which all member countries are supposed to follow, exports are to be recorded in balance of payments on shipments basis and not on the basis of realisation of exports,” the newspaper said, quoting an RBI spokesperson.....

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RBI to conduct another OMO

In order to tide over the tight liquidity situation, the Reserve Bank (RBI) has announced it will purchase government securities worth Rs 12,000 crore on Friday through open market operations (OMOs). “Consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the RBI has decided to conduct OMOs by purchasing government securities for an aggregate amount of Rs 12,000 crore on January 13, 2011, through multi-security auction,” the RBI said. The RBI has also purchased government securities of over Rs 49,600 crore from the money markets in six installments in the past month and half. OMOs are the “first preference” of RBI while injecting liquidity and there is an opportunity to raise up to Rs 2.74 lakh crore through the window as banks’ government bond holdings are at 29 per cent, 5 per cent over the prescribed SLR cap of 24 per cent.

IE

File complaint with police if you get fictitious offers: RBI

Mumbai: With many people falling prey to fictitious offers, the Reserve Bank Tuesday asked public to immediately register a complaint with the police or cyber crime authorities when they receive such offers of money from abroad. RBI in a statement advised "members of public to immediately register a complaint with the local police/cyber crime authorities when they receive fictitious offers of money from abroad or if they are victims of such offers. It has also placed, on its website, the list of such nodal agencies with whom the public can register complaints, the statement said. The Reserve Bank has, it said, "on several occasions in the past, cautioned the members of public against falling prey to fictitious offers/lottery innings/remittance of cheap funds in foreign currency from abroad by so-called foreign entities/ individuals or to Indian residents acting as representatives of such entities/individuals." Members of public have also been cautioned against making any remittance towards participation in such schemes or offers from unknown entities since such remittances are illegal and any resident in India collecting and remitting such payments directly or indirectly outside India is liable to be proceeded against for contravention of the Foreign Exchange Management Act, 1999. They are also liable for violation of regulations relating to Know Your Customer (KYC) norms and Anti Money Laundering (AML) standards, it said. The Reserve Bank has further stated that it does not undertake any type of money arrangement, by whatever name called, and it does not take any responsibility for recovering money remitted in response to such bogus communication, it said.

Zee News

Much required Indians

Not too long ago, they were called ‘not required Indians'. But if the mood at the recent Pravasi Bharatiya Diwas event in Jaipur was any indication, the Government is going the whole hog to woo them................

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HDFC slaps fees for cash deposits, inoperative A/ Cs

If you are an account holder of HDFC Bank, then be prepared to pay Rs. 50 per quarter for a non- operational account of over a year and Rs. 25 for depositing cash of over Rs. 1 lakh.........

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