For the first time in history, true-cost microloan product pricing data for the Indian microfinance market is now publicly available. MicroFinance Transparency has completed an analysis of microloan pricing in India and shares the results on its website www.mftransparency.org. MFTransparency will present analysis of the data as well as other findings of the Transparent Pricing Initiative in India at an industry conference in Mumbai on February 25, to be followed by an internal conference held by MFTransparency, the RBI and the College of Agricultural Banking in Pune on Feburary 28.
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Wednesday, February 23, 2011
Red beacon for RBI Governor withdrawn
In a seemingly major embarrassment for the Reserve Bank of India (RBI) Governor D Subbarao, the Road Transport and Highways Ministry has directed the Maharashtra Government to withdraw the permission granted to him to use the red beacon atop his car. “The State Government of Maharashtra should immediately withdraw the permission for allowing the use of red beacon light on the vehicle of Governor, Reserve Bank of India,” said a letter from the Ministry earlier this month. In November last year, the Maharashtra Government granted permission to the RBI Governor to use the coveted red dome light on his vehicle. The permission came from that State Government as RBI’s central office is situated in Mumbai. The RBI Governor’s office had requested the State government to grant the status. The State Government informed the Transport Ministry here about the decision. On its part, the Transport Ministry referred the matter to the Home Ministry, which has the authority to decide the issue. Replying to the Transport Ministry’s letter, the Home Ministry, in its letter dated January 14, said, “The Governor of Reserve Bank of India has not been included in the Table of Precedence issued by the Rashtrapati Bhavan.” The Home Ministry even attached a copy of the Table of Precedence dated July 26, 1979 but updated “till now” and including all amendments made so far along with its letter to the Transport Ministry. The RBI Governor is included nowhere in the Table of Precedence, which lists 26 categories of dignitaries right from the President to joint secretaries, officers of the rank of major-general and equivalent rank. In view of the Home Ministry’s decision in the matter, the Transport Ministry said, “The MHA has informed that the Governor of RBI has not been included in the Table of Precedence issued by the Rashtrapati Bhavan. Therefore, the RBI Governor does not hold the rank, status and privilege equivalent to the dignitaries specified in the notification.” As a consequence, the Transport Ministry, in its letter dated February 3, asked the Maharashtra Government to withdraw the permission granted to the RBI Governor to use the red beacon on his Government vehicle with immediate effect.
RBI imposes penalty on four cooperative banks
The Reserve Bank today imposed penalties of Rs 1 lakh each on four cooperative banks on various charges including violation of anti-money laundering guidelines. The four banks are the Jamnagar Mahila Sahakari Bank, Amreli Nagarik Sahkari Bank, Shri Mahila Sewa Sahakari Bank, Ahmedabad, and the Virambam Mercantile Cooperative Bank, the RBI said in different statements. While Jamnagar Mahila Sahakari Bank and Amreli Nagarik Sahkari Bank were found guilty of violating instructions related to anti-money laundering guidelines, the Ahmedabad- based Shri Mahila Sewa Sahakari Bank was held responsible for violating instructions on grant of unsecured advances in excess of the prescribed ceiling. The Virambam Mercantile Cooperative Bank, meanwhile, was charged with non-filing of cash transaction report with concerned authorities. RBI did not provide further details of the cases. RBI's action comes a day after it imposed penalties of up to Rs 5 lakh on two cooperative sector lenders -- Surat Mercantile Co-operative Bank and Urban Co-operative Bank, Cuttack -- for violation of banking norms.
RBI employees want autonomy on staff issues
The Reserve Bank of India (RBI) employees on Wednesday protested against the government move to control the central bank’s staff-related matters. Employees across the country wore badges opposing statutarisation of staff regulations and resolution of pension related issues. “The government move to control staff regulations of RBI threatens the autonomy of the RBI. This would mean the central bank board and the governor would have no say in matter relating to RBI,’’ said a protesting employee union member on the condition of anonymity. “We have raised the issue with the RBI governor however, no action has been taken on the same hence we are protesting,’’ he added. At present, RBI controls matters relating to incentives, promotions and remuneration of its staff. Statutarisation would bring these matters under the purview of government. “Our pension updation has also been stuck as the RBI board is opposing statutarisation. The government has been putting pressure on RBI to make staff regulations statutory under Section 58 of the RBI Act, 1934, and bring them under the subordinate legislation of Parliament.
SBI plans to merge 5 subsidiaries in 12-18 months
The State Bank of India proposes to merge its five remaining subsidiaries with itself over the next 12-18 months. In its deposition before the Parliamentary Standing Committee on Finance, the country's largest lender said the consolidation exercise has been systemically planned as part of a logical step to bring in economies of scale, reduce administrative overheads, redeploy and channelise trained manpower to business development and, in the process, also reduce avoidable competition from different arms of the same group.
Par Panel for clear policy on PSU banks merger
Accusing government of adhocism, a Parliamentary Committee today demanded a clear policy on mergers and consolidation in the public sector banks, including amalgamation of associates with the State Bank of India (SBI). "There is a strong element of adhocism in the policy stance and approach of the government in brining in legislative changes in the Acts regulating the SBI and its subsidiaries in particular," Standing Committee on Finance headed by former Finance Minister Yaswant Sinha said in its report tabled in Parliament today. It is also imperative to assess in clear terms, the reasons for rising NPAs in the SBI Group of banks as well as the desirability of pursuing the policy of merging the subsidiary banks with SBI, particularly in the light of issues relating top manageability of large sized banks, it noted. It is appropriate on part of the government to make an in-depth analysis of issues relating to mergers and consolidation of the public sector banks in general, it said. "The Committee expects the government to spell out the policy-related aspects in this regard, it said. Meanwhile, it cleared the State Bank of India (subsidiary banks laws) Amendment Bill, 2009 for passage by Parliament. The amendment proposals of the State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009 have been necessitated owning to transfer of ownership of SBI from Reserve Bank to central government, it said. It also suggested amendment in the SBI Pension Fund Rules, which is detrimental to the retirees of the merged subsidiary banks. The panel expects the government to expeditiously act on these matters. The Bill, which, seeks to empower the government to fix the authorised or the issued capital of a subsidiary of the SBI or to appoint its top officials, was referred to the panel on December 18, 2009 for examination. Once passed, the bill would empower the Centre to increase or reduce the authorised capital of a subsidiary bank, fixation and raising of issued capital, issuing bonus shares to shareholders and appointment of managing director, among other things. The legislation would amend the State Bank of Hyderabad Act and the SBI (Subsidiary Banks) Act to incorporate these provisions.
Securitisation volumes fall by a third in Apr-Dec
New RBI norms, hardening rates, liquidity concerns curb appetite. Hit by a slump in single corporate loan sell downs, securitisation volumes shrank in April-December 2010 to Rs 18,800 crore from Rs 28,200 crore in the year-ago period, according to ratings agency Icra. Securitisation is the process of converting existing assets or future cash flows into marketable securities. Typically, loans in segments such as vehicle, home and corporate are pooled and packaged into securities. The repayments from borrowers are assigned to investors in securities. The Reserve Bank of India (RBI) has proposed stringent norms for securitisation, hardening interest rates.
India back on pre-recession growth trend: World Bank
Washington: The Indian economy seems to be back to the growth trend before the global financial crisis with particularly strong GDP growth over the first half of the 2010-11 fiscal, but the inflation is worrying, the World Bank has said. The Reserve Bank of India (RBI) is likely to continue its policy of cautious rate hikes in an uncertain environment, the World Bank said in the second of its semi-annual series of India Updates released Tuesday.
A reforms stimulus
The crying need to bring inflation to heel should hopefully force finance minister Pranab Mukherjee to present a tight budget on 28 February. The Reserve Bank of India (RBI) has already been busy tightening its monetary policy by increasing interest rates seven times since March. This overdue withdrawal of monetary and fiscal stimulus could hurt growth in the short run. It needs to be balanced with a fresh reforms stimulus. Here’s why. Almost exactly a year ago, the finance ministry ended the first chapter of its excellent Economic Survey on an optimistic note: “It is entirely possible for India to move into the rarefied domain of double-digit growth and even attempt to don the mantle of the fastest-growing economy in the world within the next four years.” The optimism came at a time when India was being lauded for its quick rebound from the brutal global downturn. A lot has changed since then. Now the threat of double-digit inflation is a far more potent issue than the prospects of double-digit growth. Policy attention has dramatically swung from the latter to the former. Demand management is thus the big topic of the day. The best way to control inflation in the short run is to compress private demand through higher interest rates and compress government demand through a lower fiscal deficit.
RBI panel mulled linking repo to CD ratios
The Reserve Bank of India’s (RBI) technical advisory committee had considered linking the repo facility to credit-deposit ratio of banks in the third quarter monetary policy review in January, the apex bank said in a statement. “If implemented, the move could have limited lending to banks with high credit-deposit ratio and those who were borrowing frequently from RBI’s repo window at the same time,” said a senior public sector banker. In the first ever disclosure of the minutes of the Technical Advisory Committee meeting a week before the announcement of the third quarter monetary policy review, it is stated that a member of the committee had suggested the statutory liquidity ratio (SLR) could be increased to reduce the borrowing capacity of banks and the repo facility could be linked with the credit-deposit ratio of banks to bring in discipline. Though the central bank did not take this step, it did raise concerns on the widening gap between credit and deposit growth in the review. “The Reserve Bank will constantly monitor the credit growth and, if necessary, will engage with banks which show an abnormal incremental credit-deposit ratio,” RBI said. The incremental non-food credit-deposit ratio was at 102 per cent by end-December 2010, up from 58 per cent in the corresponding period of the previous year. Credit growth clocked 23 per cent as on January 28, much higher than RBI’s projection of 20 per cent for financial year 2010-11. Banks have been borrowing around Rs 1 lakh crore daily from RBI’s repo facility since November 2010. Two members of the panel were also of the view that small and managed depreciation in currency could be considered to manage CAD, but RBI maintained it would intervene only if volatility was high. While one of the members had suggested a 50 basis points increase in the repo rate and 25 basis points increase in the reverse repo rate, another member suggested a rise in the cash reserve ratio (CRR) to contain inflation. But RBI went ahead with a raise in both policy rates by 25 basis points, an action the majority of its members upheld.
Income-tax department says record TDS unpaid
The TDS (tax deducted at source) wing of the income-tax (I-T) department in Mumbai has detected a record Rs4,000 crore in non-payment of TDS in the first 11 months of the fiscal year, tax officials familiar with the development said. “Our surveys will significantly improve collection of TDS in future. Last fiscal we had detected only Rs60 crore in non-payment of TDS,” an I-T official told Mint. He did not want to be named because he is not authorized to speak with the media. The I-T department’s surveys haven’t spared even the Reserve Bank of India (RBI), (over commissions paid by it to banks), besides companies such as Reliance Industries Ltd (RIL) and Jet Airways (India) Ltd. In mid-January, the department surveyed India’s central bank and claimed that RBI did not deduct tax on agency commission of more than Rs800 crore paid by it to banks for doing government business since 2007. An RBI spokesperson said in an email response to Mint: “The I-T department had asked RBI about the amount of agency commission paid by RBI to banks for doing government business. We have informed the I-T department that as per a CBDT (Central Board of Direct Taxes) circular of 2003, RBI is exempt from deducting TDS on agency commission paid by it to banks for doing government business.” However, the department’s contention is that the CBDT circular was in force only till 2006, and RBI should have deducted tax at the rate of 10% on the agency commission.
RBI raises alarm as Bengal goes into severe overdraft crisis
The Reserve Bank of India has warned the Union finance ministry that West Bengal is facing a "severe overdraft crisis" — in other words, it is going bankrupt. The state's financial condition is so bad that it may have to dip into central funds for welfare projects if it has to pay its employees the salary for February. Sources in the RBI say that as on February 21, Bengal has taken more than `1800 crore as loan. It has also been regularly dipping into the ways and means advances (WMAs) to meet its daily expenses. It has come to such a pass that the Buddhadeb Bhattacharjee government has been surviving on overdrafts running into hundreds of crores for the past 10 days.
Tuesday, February 22, 2011
Corporates need to spruce up risk management: Gopinath
Reserve Bank of India Deputy Governor Shyamala Gopinath has cautioned that in an open economy like India , there is need for greater recognition of currency and interest rate risks and the risk management in banks and corporate firms need to gear up their risk management practices further in this area. “It is our experience that a large number of corporates still do not have well-designed risk management policies and practices to take care of volatile exchange rate movements and give scant regard to tail risks. There is also need for greater disclosure and adherence to accounting standards for financial instruments,'' said Gopinath who was addressing .Annual Conference of the Foreign Exchange Dealers’ Association of India (FEDAI) on Friday ``Approach to Capital Account Management - Shifting Contours''. There is also need to more comprehensively qualitatively assessment of of India's external liabilities to encompass liabilities of subsidiaries and branches of Indian financial institutions overseas, not in nominal terms but through a risk-based approach on the probability of recourse to parent bank liquidity support, said Gopinath. However, with focus on capital flows on a net basis, it is often not realized that portfolio flows were $174 billion a year over last three years on a gross basis, far outstripping FDI flows at $37 billion a year. In gross terms, over the last five years (2005-06 to 2009-10) FII flows have accounted for 47% of the gross capital inflows to India as against 9% for FDI inflows. This of course has more to do with the nature of these flows with a much larger churn for portfolio capital. High gross flows make economy more susceptible to such reversals and as such we need to continue to maintain adequate buffers, said Gopinath. In the current context, a high current account deficit (CAD) has been absorbing much of the capital flows in aggregate terms. The concerns, however, arise on account of the composition of flows coupled with lower order of reserves accretion and faster increase in external liabilities, added Gopinath. The enhanced exposure to external liabilities is reflected in the sharp increase in the ratio of external debt to foreign exchange reserves from 89.1% of GDP in 2008-09 to 99.1% as at end June 2010. Moreover, the ratio of short-term debt to reserves has increased from 17.2% to 21.0% during the same period. Another issue that may come up going forward relates to repayment of FCCBs. The redemption pressures on account of FCCBs would start building up from 2010-11 and peak in the next couple of years till 2012-13. She further said that there have been some concerns on the declining FDI flows in the recent past though as stated earlier it has little to do with the regulatory framework per se except in certain sectors. The moderation in FDI inflows to India during April-November 2010 has been driven by sectors such as construction, mining and business services.
Technology not reaching customers: Chakrabarty
RBI Deputy Governor Dr.K.C.Chakrabarty has said the benefits of technology adopted by the banks have not percolated in terms of cost, speed and convenience of the customer. The banks should move towards empowering the present day customers of information or digital age by greater choice, greater access, and better, faster, more efficient modes of delivery and service. "Customers are not going back to the old ways of banking. They are moving forward. If the banks do not complement their speed, the customers will pass by,'' said Chakrabarty.
Diesel price may be freed if inflation falls
Dr. Rangarajan, a former governor of the Reserve Bank of India, said headline inflation was likely to come down to 7 percent by the end of March on moderating food prices. Annual inflation based on wholesale prices eased marginally to 8.23 percent in January as against 8.43 percent in the previous month. ‘We have witnessed two years of high inflation. It has been around 7-8 percent. It needs to be brought down to a comfortable level of 4-5 percent,’ said Rangarajan adding the policy markers would continue to tighten monetary and fiscal policy until inflation was brought down to a comfortable level. ‘Inflation distorts the economy. It hits the poor hardest. We have to bring it down,’ he added.
Loans under JNNSM at 5% not violation of base rate norms: RBI
The Reserve Bank today said banks financing power generation equipment under the Jawaharlal Nehru National Solar Mission (JNNSM) at a concessional 5 per cent interest rate is not violation of norms. This financing below the base rate would not be considered violation of guidelines, RBI said in a statement. "We advise that such lending at interest rates not exceeding five per cent per annum where refinance of Government of India is available, would not be considered to be a violation of our Base Rate guidelines," it said. In the new lending rate mechanism, no loans except few exceptions can be offered below the base rate of a bank. Base rates of most of the banks are 9 per cent. Other category of loans exempt from the guideline include loans to banks'' own employees and loans to banks'' depositors against their own deposits. The Ministry of New and Renewable Energy (MNRE) has formulated a scheme on financing of off-grid and decentralised solar (Photovoltaic and Thermal) applications as part of the JNNSM, it said. Under the scheme, banks may extend subsidised loans to entrepreneurs at interest rates not exceeding five per cent where refinance of two per cent from Government of India is available, it added.
Andhra Pradesh set to usher in new products under new MFI Act
Sensing foul play in the introduction of new products like loans for men and interest-free loans by microfinance institutions (MFIs), the Andhra Pradesh government is set to issue a notification to bring these products under the purview of the new MFI Act. MFIs in the state, whose revenues dropped after the introduction of the MFI Act, were finding new methods to carry on their business by introducing fresh products like loans to men and interest-free loans, a senior state government official said. According to R Subrahmanyam, Principal Secretary (Panchayat Raj and Rural Development), some MFIs are offering loans to the husbands of women members of selfhelp groups(SHGs), saying that extending loans to them will not attract the provisions of the Microfinance Act, which came into existence in December. Some MFIs were considering extending interestfree loans, arguing they would not come under the purview of the Act, he said. “That shows the desperation. When you want to make hyper profits, try to duck and find ways. We will not let that happen. A notification will be issued in a day or two, making it clear that these kinds of loans will also come under the Act,” Subrahmanyam said. The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010 is aimed at regulating the sector by keeping tabs on lending and recoveries by MFIs. It prohibits them from lending to SHGs already covered by the formal banking system, without seeking prior approval from banks. Share Microfin, one of the largest MFIs in the country, recently launched ‘Suraksha Loan’ exclusively for men. In acircular to its branches, the company said the loan had to be extended to the husband of a woman member of an SHG. The circular stated the outstanding loan would be nullified only in case of death, but not suicide. Sources in SKS Microfinance said extending interest-free loans was a vague idea and one of the 40-odd concepts the company was mulling over. “Even if they term these loans as interest-free or loans to men, they will attract all sections of the Microfinance Act. It will be viewed as a violation,” Subrahmanyam said.
RBI clarification on forex trading
The Reserve Bank of India (RBI) has clarified that existing Foreign Exchange Management Act (Fema) norms do not allow residents to trade in foreign exchange through electronic or Internet based trading portals. The clarification comes after some advertisements recently by electronic /Internet portals offering trading or investing in foreign exchange with guaranteed high returns. “Many companies even engage agents who personally contact gullible people to undertake forex trading/ investment schemes and entice them with promises of disproportionate / exorbitant returns. RBI cautions the public not to remit or deposit money for such unauthorized transactions. The advice has become necessary in the wake of many residents falling prey to such tempting offers and losing money heavily in the recent past,“ the central bank said.
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