RBI tightens norms for bad loans

Strong hands of RBI : RBI Governor D.Subbarao and Deputy Governor Shyamala Gopinath at a function in Agartala on Wednesday.  Late evening, the RBI notified tighter provisioning norms for bad loans

The Reserve Bank of India (RBI) tightened the prudential norms for banks and raised provisioning requirement for bad loans by up to 10 per cent, a development that will protect the lenders against delinquency but would impact the bottom line of banks.This comes a day after the country's largest lender State Bank of India (SBI) reported a sharp fall in net profit at Rs 21 crore for the fourth quarter. The lender had set aside more funds against bad debts and made a one- time provision of Rs 500 crore for its teaser home loan scheme. Banks' bad loans are classified into three categories -- sub- standard, doubtful and loss. As per the new norms, advances classified as substandard will attract a provision of 15 per cent against the existing 10 per cent, RBI said in a notification. An asset would be classified as sub- standard asset, if it remains nonperforming for a period of 12 months. Thus, for an example, a sub- standard loan in secured category of Rs 100 would now attract provision of Rs 15 against the earlier provision of Rs 10, said an analyst. " At the same time, the unsecured exposures classified as sub- standard assets will attract an additional provision of 10 per cent that is a total of 25 per cent as against the existing 20 per cent," it said. Unsecured loans are those where no collateral is involved. These loans would include education loans. In case of doubtful loans which remains non- performing for 24 months, the provision requirement varies from 25 per cent to 100 per cent. An asset would be classified as doubtful if it has remained in the sub- standard category for a period of 12 months. If asset has remained doubtful for one year, it would attract a provision of 25 per cent against 20 per cent. Provision for doubtful loans up to three years has been enhance from 30 to 40 per cent. It is 100 per cent in case of such assets remained in doubtful category beyond three years, it said. In cases of restructured accounts classified as standard advances, in the first two years from the date of restructuring would attract loan provisioning of 2 per cent as compared to up to 1 per cent. " While the " counter- cyclical buffer" so created would be available to banks for making specific provisions during economic downturns, there is a need for banks to make higher specific provisions also as part of the prudential provisioning framework," the RBI said. In December, 2009, banks were told to maintain a provisioning coverage ratio ( PCR) of 70 per cent for their non- performing advances by September- end, 2010. This coverage ratio was intended to achieve a ' counter- cyclical' objective by ensuring that banks build up a good cushion of provisions to protect them from any macroeconomic shock in the future. However, last month, banks were asked to segregate the surplus of provisions under the PCR vis- avis as required as per the prudential norms as on September 30, 2010, into an account called countercyclical buffer. This is in addition to the earlier norms wherein banks were told to maintain a Provisioning Coverage Ratio ( PCR) of 70% for their non- performing advances by end- September 2010. This coverage ratio was intended to achieve a " counter- cyclical" objective by ensuring that banks build up a good cushion of provisions to protect them from any macroeconomic shock in the future. The increase in provisioning requirement would have direct bearing on the net profit of the banks and the profitability is expected to be hit by 15- 20 basis points, a senior official of a public sector bank said. High provisioning would reduce the operating profit of banks and eventually the net profit would be impacted. SBI is one of the few banks to have less than 70% provision coverage ratio.

More banks in the NE soon : Subbarao

Agartala, May 18 (PTI) Villages in the North East states, with population of more than 2000 would be covered under banking service soon, RBI Governor D Subbarao said here today. Most of the rural areas in the country, especially the North East are out of the cover of banking service, he said, adding that the number of banks in the region was very less. "Twenty five per cent of the banks in the country should be rural areas but only 5 per cent of rural habitations in the country come under the banking service, which is not good for the banks, for governments or people," he said at the inaugural programme of a RBI sub-office here. "The banks in the country are facing a big challenge of financial inclusion without which banks cannot be stable.Financial inclusion is necessary for poverty alleviation and financial stability. So it is important for banks, important for governments," he said. Tripura is now the second State in the North-East region to have an RBI office. The office was inaugurated by Tripura Chief Minister Manik Sarkar, who said a long cherished dream of the people of the state was fulfilled with the opening of the office and would help economic development of the state. The new RBI office will function under the charge of a General Manager to initially focus on development of banking in the state and gradually take up other central banking functions. Referring to the credit deposit ratio in the NE, Subbarao said it was much less than the national average and it needed to be raised to allow economic and business development. Earlier, the Reserve Bank of India Governor inaugurated the exhibition titled 'Mint Road Milestones' in Agartala. The exhibition is based on a book with the same title published by the Reserve Bank during its Platinum Jubilee last year. The book is an attempt to document the journey of the Reserve Bank down 75 years through many anecdotes,photographs, documents and interesting visuals. The narrative of the book intertwines the history of the central bank with financial history of the country and world developments of the time.

Financial inclusion to get more focus: RBI governor

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New norms for top jobs in govt banks

NEW DELHI: Amid controversies over financial sector appointments , the government has issued revised norms for top jobs in public sector banks. While the norms for two-year residual service have been retained for appointment of bank chiefs, the government has decided to make an exemption only in case of a shortage of candidates . In such a scenario, the selection committee can look at candidates who have been executive directors for at least a year and have one year and nine months for retirement . The condition of one-year of service completed can also be halved but in both cases, an approval from the finance minister would be required, the guidelines issued last month said.  The move came as the government was facing criticism over selecting candidates who had less than two years to go for retirement. The norms also stipulate that only after a bank chief completes two years in a bank and has at least two years to go for retirement would he or she be considered for transfer to a larger bank or financial institution . In case of shortage, a three-month relaxation would be provided.  The guidelines said the selection committee should look at a pool of 15 candidates if it had to select 10 chairmen and if fewer candidates were left, then the norms could be relaxed. The other change that has been brought about is to widen the pool of applicants to include deputy managing directors of IDBI Bank and other financial institutions as also managing directors of State Bank of India associates, provided that were hired in the subsidiaries.  Further, from now on, the selection would only be valid for a financial year. If a candidate who has been selected to be appointed executive director or CMD of a public sector bank is not placed with a bank by March 31, he would have to go through the process once again, provided he or she is eligible. The cut-off date for determining eligibility has been fixed as April 1. In case of executive directors, the selection committee has been asked to keep the pool of candidates confined to general managers of nationalized banks and chief general managers of associate banks. The guidelines approved by the Appointments Committee of the Cabinet (ACC) has said that the subcommittee of the appointment board will consist of RBI deputy governor, secretary financial services and three external experts who will interact with the shortlisted candidates. The panel prepared by them will then be sent to ACC for approval. The guidelines have also provided the system for grading candidates.

Top executives of banks shower praise on Nitish

Patna, May 18 (PTI) Top executives of nationalised banks today praised Bihar Chief Minister Nitish Kumar for the 'massive' change in Bihar under him and asked their respective branches to give full attention to development in the state. "There is an atmosphere of development in Bihar ... We should think of and give attention as to how the investments take place," SBI Chairman Pratip Chaudhury said at the State Level Bankers' Committee (SLBC) meeting here. The experience gathered in other states would be utilised in Bihar, Chaudhury said adding "My concentration will be towards the atmosphere of investments." Special attention would be given to providing one branch for a population of 15000 in Bihar to put it on par with the national average, the bank executives. Central Bank of India CMD S Sridhar said there was a lot of potential in the rural sector, particularly in Bihar. "We have expanded our activities through North Bihar Kshetriya Gramin Bank even in the remote rural areas." It was also necessary to take serious steps for roping in the people with the banks, he said. Allahabad Bank CMD J P Dua said there was good atmosphere prevailing in Bihar for banking and investment."During the last five-six years there has been marked improvement in law and order, road structure and other basic infrastructure ... It is the best-ever time for more and more investments in Bihar." UCO Bank CMD Arun Kaul said there were new potentials seen in Bihar for promoting medium and small enterprises and therefore it was necessary that the banks introspect and consider afresh schemes to be launched in the state. RBI Regional Director M K Singh said the annual credit plan (ACP) target for the current fiscal fixed at Rs 45000 crore in Bihar was a major challenge and banks must review its functioning for financial inclusion of more and more people. He also laid stress on banks achieving the ACP target and providing loan to MSE. NABARD Executive Director Amlesh Kumar said banks should give more attention towards achieving Credit Deposit Ratio target during 2011-12 which could be fulfilled by way of provision of huge loans in agriculture sector. Secretary, Financial Services, Government of India, S K Sharma asked banks to achieve CDR in Bihar on par with the national average of 70 per cent from existing 34 per cent. "For this, the banks have to do a lot as the state has huge potentials in education, agriculture and uplift of the minorities, weaker sections of the society," he said. Chief Minister Nitish Kumar and Deputy Chief Minister S K Modi, also spoke at the meeting.

India's Inflation Blinders

Low core inflation led the central bank to tighten too slowly

Better late than never, thinks the Reserve Bank of India. The country's central bank finally got aggressive in its fight against inflation this month, raising interest rates by half a percentage point. For the last 15 months, year-on-year wholesale price inflation has stayed above 8%, sometimes entering double digits. Figures released this week show April inflation continuing the trend at 8.7%. RBI Governor Duvvuri Subbarao has been reacting slowly to the buildup of these inflationary pressures. So, in and of itself, this month's move is praiseworthy. But if seen along with the RBI's laggard behavior over the past year, Mr. Subbarao continues to betray his weakness. At fault is his attachment to the concept of core inflation. He believes changes in the prices of non-food, non-fuel items are what really matter, since inflation caused by food and fuel is beyond his control.  In the RBI's defense, some of India's inflation is indeed beyond the control of its central bankers. Above all, the U.S. Federal Reserve's weak-dollar policy plays havoc with global commodities and capital flows, from which an open Indian economy isn't insulated. But it won't do to blame the RBI's problems on Ben Bernanke: After loosening liquidity in the wake of the 2008 panic, Mr. Subbarao has taken his sweet time to close the monetary spigots. Though the price level started accelerating in late 2009, the RBI only raised rates beginning March 2010, and then only in baby steps of a quarter percentage point on eight occasions until this month. Factoring in the latest hike, the central bank's benchmark rate, at which it lends to commercial banks, now stands at 7.25%. That means that with headline inflation averaging around 9%, this rate has been below zero in real terms for 15 months—and perhaps longer. Yet the RBI insisted that most of the headline inflation in the past year has been driven by exogenous "supply shocks." Left to the mercy of global oil at $100 a barrel, along with a 2009 drought that battered food supplies, Mr. Subbarao argued that altering interest rates won't accomplish much. Hence, he preferred to look at core inflation, which remained subdued for most of 2009 and 2010. Yes, a central bank has little power over a weather shock that changes the price of, say, rice relative to general prices. But a regular supply shock doesn't last 15 months. Nor does it change the general price level. What changes general prices is money. If money were tight, households would reduce expenditure of other items when they were forced to pay for more expensive rice, thereby keeping the general price level constant.  That was a clear lesson of the 1970s, when core inflation became an intellectual refuge for hesitant central bankers. Peddling this concept, then-Fed Chairman Arthur Burns targeted core consumer prices. So, after the oil shock of 1973, Fed accommodation pushed inflation up the next year. In a recent paper, Vivek Moorthy and Shrikant Kolhar at the Indian Institute of Management in Bangalore show what the Bundesbank instead did. The West German central bank tightened in 1973, forcing headline inflation down.   Mr. Subbarao has followed the Burns approach here, and stoked more inflation by tightening slowly. He seems to think that stripping away erratic supply factors is the best measure of real price pressures and expectations in the economy. But that misjudges how ordinary people react to expensive food and fuel. These apparent "non-core" items affect core expectations—perhaps more in a developing country where these items make up the lion's share of household expenditure. Workers will expect generalized inflation because the food on their dinner plates becomes more expensive. They will demand higher wages and, in turn, producers will demand higher prices.  So it was only a matter of time before expensive food and fuel spilled over into other prices. The RBI's measure of core inflation has been blinking red since December, edging up 7.3% year-on-year in March and 6.3% in April. That was Mr. Subbarao's motivation for his larger-than-usual hike this month.  Yet, because he has been slow to act, he now has to contend with people's expectations getting out of control. The RBI's survey on inflation expectations published last month show that people expect up to 13.1% inflation by the end of this year. These altered expectations filter down to economic decision making. Despite the promise of 8.6% growth for India's economy, investors are wary, since capital earns low real returns. Inflation paralyzed the country's financial system in December: Indians began pulling money out of low-interest-bearing bank deposits, causing a temporary, yet powerful, liquidity squeeze. To repair this short-term damage, the RBI this month raised the rate on savings accounts—a rate the government still regulates.  The best way now, though, for Mr. Subbarao to repair long-term inflation expectations, as well as the credibility of his central bank, is by staying clear of the very concept of core inflation. The RBI has to keep tightening, no matter the next oil or food shock. The prices of rice and gasoline, and perhaps other commodities and assets too, matter no less for economic agents than the prices of TVs and iPhones. Self-imposed blinders like core inflation will only hide this core truth from view.

History revisited: The initial years at Infosys

Outgoing Infosys co-founder and chairman N R Narayana Murthy on Wednesday said the sacrifices made by his colleagues in the initial days of the company was unparalleled. The founder members started Infosys with a borrowed capital of only Rs 10,000 but was quick to realise that the money would not last them for even a month. It was then that the dedicated team of professionals decided to lead an austere life to lay a healthy foundation.  “Realising that the Rs 10,000 would not be sufficient, we worked out a transaction deal with one of our prospective customers. We got into an agreement where the customer would give us working capital for a few months,” said Murthy, who has served the company for over three decades. While six of his colleagues went to the US to start work on developing software, Murthy walked from pillar to post trying to get a licence from the Reserve Bank of India (RBI). “Computers were not easily available in the market. It used to take at least three years to import a computer to India at that point in time. So we decided that some of us would be based in the US to start work. But, even before travelling abroad it took us 10 days to get a permission from the RBI.”  “Besides, we did not have a telephone, and it would take one or two years to get a telephone connection. Meanwhile, I was trying to get a licence for a computer here, and every month I had to go to the Reserve Bank. The RBI had two strange rules at that time — if one wanted foreign exchange one had to earn foreign exchange and then bring it to India and share 50 per cent with them. I think, this was the most perverse rule ever invented,” he said. In spite of the hurdles, Murthy and his dedicated team of colleagues accepted the terms and conditions by India’s central bank. “Can you imagine a situation where you have to earn foreign exchange and bring it to India and you will get 50 per cent of it in the next month? But we accepted it because that was the rule then.” Murthy convinced his clients and made sure they paid on time. “I had to make sure that they sent money by the 28th or 29th of every month and then I would wait eight hours outside the RBI to get 50 per cent of that so that I could send maintenance allowance to my colleagues in the US.”  Times have changed, and Infosys has grown from strength to strength to become a Rs 26,000-crore Nasdaq-listed company with over Rs 11,623 crore paid out as dividend. The dedication and sacrifice of the founding members now has become part of the Infosys folklore. “Now, my children don’t believe this. They say that I am exaggerating the facts; but that is the reality. One of our customers in New York offered us to give an IBM compatible computer on loan. They said, we can develop software in Bangalore, but we must report the customer on the progress of the project everyday on telephone.”  But, in India things do not move as fast. “This made us to go to the telephone department to get a connection. However, the department denied as their first priority was for retired government officials. Then, I asked them how can I explain this to my customer? To get a licence to import a computer, it took 50 trips to Delhi covering three years. I think the conditions in those days were extremely tough and we went through many of them.”

Deflated credibility - Ila Patnaik

RBI Governor D. Subbarao’s speech in Basel was made six days after the hawkish credit policy announcement for this year. He defined the role of the Reserve Bank of India as it is seen in the RBI Act of 1934, opposed any change in the role and functioning of the RBI despite developments in financial markets, in the Indian economy and in the field of monetary economics since 1934. This speech repeats the flaws of RBI communication of recent years, undermines the impact of the recent monetary policy announcement and increases the cost that India will have to suffer in bringing inflation under control.  Instead of discussing how the RBI can reinvent itself to address one of the most important questions facing India today, namely inflation, and to help bring about changes in the financial and regulatory architecture of the country that will serve the economy and people best, the governor’s speech is about how the RBI has served India well in the past, and should therefore not become a central bank which primarily runs monetary policy to deliver low inflation. Along with saying that the RBI will be responsible for many other objectives, he emphasised that the RBI should not be held responsible for delivering low inflation.  If the central bank does not take responsibility for inflation in the country, who will? It is not a coincidence that all over the world this function has been carved out from other conflicting functions and given primacy in central banks. The public demands lower inflation. Sooner or later, the excuses provided by central banks about why they cannot be delivered, because of other conflicting objectives, become the very reason why these other objectives are taken away from central banks, and they are charged with the responsibility for low inflation and made accountable for it. In this sense, while Subbarao’s speech is intended to defend the present RBI, it urges the process of RBI reform.  The timing of Subbarao’s speech was particularly unfortunate. In the policy announcement on May 3, he pledged that he would fight inflation. Just one week later, on May 9, he reneged on this promise. He went out of his way to say that the RBI is not focused on inflation. The defence of the RBI turf has come immediately after a sharp hike in interest rates. Ideally, if the rate hike had to have impact, it should have been followed by a well laid-out communication strategy to convince the public that the RBI is now going to focus on inflation. Turf wars about public debt management, banking regulation and financial stability should have been the last things to discuss at this time. Inconsistencies between what the governor said in the credit policy and his speech a week later will damage the RBI’s credibility and public perception on its commitment to fighting inflation.  For instance, first the governor had said: “The conduct of monetary policy will continue to condition and contain perceptions of inflation in the range of 4-4.5 per cent.”  He now says: “Monetary policy, as is well known, is an ineffective instrument for reining in inflation emanating from supply pressures. It is unrealistic, under these circumstances, to expect the Reserve Bank to deliver on an inflation target in the short-term.” He also says: “We have a problem about which inflation index to target.”  These and other arguments which the governor made in many speeches last year, for the RBI not focusing on inflation, are a large part of the reason why despite eight interest rate hikes, the RBI was not able to bring inflationary expectations under control. Every time the governor raised rates, he then made a speech about how fighting inflation was not his priority. Commitment to fighting inflation is as important, if not more, as raising interest rates. Unlike the traditional monetary economics such as the quantity theory of money, which most of us were taught in university, it is now well understood that prices do not change in response to changes in demand and supply of money. Inflationary expectations play a crucial role in determining output and inflation. The central bank’s monetary policy plays a crucial role in shaping these expectations. If the RBI’s 50 basis point hike is to mean more than just pain to borrowers, and is going to keep wages and prices from rising, it needs to be translated into a change in the perception of the people who start believing that the RBI will no longer accept high inflation and will do all it can to reduce it. If immediately after the rate hike, the RBI starts making excuses about why it will not deliver low inflation, why its policy will not work and why it should not even be expected to work, this will undermine the policy action itself. With this speech, Subbarao has reduced his chances of controlling inflation.  If the communication strategy is done right, inflation control will be achieved through a smaller set of rate hikes. With such mistakes in communication, the country will have to suffer a much sharper set of rate hikes in order to get inflation back under control.  The role and functions of the RBI defined in the 1934 Act may have served India well for many years. But since then India has changed. The needs of the sector have changed. Financial markets have developed. Rapid globalisation has brought new challenges. The central bank has to keep up with the needs of India today and tomorrow. The RBI can either reinvent itself, or over the next few years, when the country forces change, it can oppose the change. To reinvent itself the RBI needs a leadership that can provide it with the intellectual framework for change. Subbarao has failed to provide this leadership.

The writer is a professor at the National Institute of Public Finance and Policy, Delhi

RBI Asks Banks to Set Aside More Funds Against Bad Loans

MUMBAI – India's central bank Wednesday asked banks to set aside more funds against certain types of bad and restructured loans as prudential provisions, a step that will help ring-fence lenders' loan books against delinquency shocks, but may hurt their profits.  These provisions will be in addition to the "counter-cyclical buffer" the Reserve Bank of India had asked the lenders to create from their surplus funds after providing a 70% cover on bad loans.  "While the counter-cyclical buffer so created would be available to banks for making specific provisions during economic downturns, there is a need for banks to make higher specific provisions also as part of the prudential provisioning framework," the RBI had said in its monetary policy statement earlier this month.  It issued detailed guidelines on prudential provisions Wednesday.  Banks classify bad loans into three categories--substandard, doubtful and loss. Loans that remain overdue for 91 days or more can be classified as substandard, while those overdue for a year to three years are classified as doubtful. An account could be classified a loss according to the banker's perception of the account's health.  The provision against substandard loans has been raised to 15% from 10%. Also, if a substandard loan is unsecured, it will attract an additional 10% provisioning, taking the total cover to 25%, the RBI said.  For unsecured exposures of infrastructure loan accounts with safeguards like an escrow account, the provision will be 20% if classified as substandard as against the existing 15%, it said.  Doubtful loans will attract 100% provision if they aren't covered by the realizable value of the security.  Secured loans under the doubtful category of up to one year will attract a provision of 25% as against 20%. The secured portion of the loan, which has remained doubtful for more than one year but up to three years, will attract a provision of 40%, compared with 30% previously.  Restructured loans that are classified as standard loans will have a 2% provision in the first two years as against 0.25%-1.00% earlier. Also, restructured accounts classified as bad loans and later upgraded to the standard category will need a 2% provision cover in the first year as against 0.25%-1% earlier, the RBI said.

The fiscal mess left behind by the Communists in West Bengal

Here’s what one of the recent RBI reports said: “West Bengal, having a revenue deficit as well as a primary revenue deficit, indicated that the state could not contain its non-interest revenue expenditure.....

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Agriculture advances rise 25% in Gujarat: SLBC

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Soon, a microfinance bank for lending to poor

Hyderabad, May 18:  The poor will soon be able to borrow money from an exclusive ‘microfinance bank' at a reasonable rate of interest.  The Government of India, the Andhra Pradesh Government and a consortium of five banks have come together to set up the country's first exclusive microfinance bank to provide an alternative source of funds to the poor vis-a-vis microfinance institutions (MFIs). “The feasibility study for the proposed bank is almost complete and the process, including approval from the Reserve Bank of India, is likely to be formalised next month,'' a senior official of the Government of Andhra Pradesh told Business Line. The initial equity would be about Rs 500 crore and operations will be completely technology driven. “Unlike normal banks, the microfinance bank would not have multiple branches in various places. The operations will be conducted from a single location with the aid of technology,'' he said. The bank would lend to Mandala Mahila Samakhyas (MMS) which are confederations of Self-Help Groups (SHGs) at the mandal level.  A credit rating system would be followed to lend to MMS' which, in turn, could lend to the Gram Samakhyas. The Gram Samakhyas which operate at the village level would distribute micro loans to the SHGs. “The merit in the system is that only community bodies are involved in the process so as to avoid any harassment or malpractice,'' the official said.  A technology solution similar to the core banking solution being followed by banks will be put in place for the seamless monitoring of loan disbursal and collection of dues.   The rate of interest to be charged is likely to be in the range of 12-14 per cent as against a maximum of 26 per cent allowed by the RBI for NBFC-MFIs in its policy announced recently.  Though initially the bank focus on AP — the largest microfinance market in the country — it is likely to be expanded to other States later, according to the top functionary of a public sector bank, which is among the consortium of banks.  Though dubbed as a bank, it would not accept deposits, and would confine itself to lending as a non-banking finance company.

25 paise coins to be demonetised

MUMBAI: Reserve Bank today asked public to exchange 25 paise coins and those with lower denominations with banks before June 30, the day from which they would be demonetised or cease to be a legal tender for payment.  "Coins of denomination of 25 paise and below will cease to be legal tender from June 30, 2011. These will not be accepted for exchange at bank branches from July 1, 2011 onwards," the RBI said.  "The RBI has, therefore, appealed to the members of public to exchange these coins at the branches of banks maintaining small coin depots or at the offices of the Reserve Bank," the central bank said.  The exchange facility at specified bank branches or the Reserve Bank offices will be available till the close of business on June 29, 2011.  RBI has instructed the banks maintaining small coins to arrange for exchange of coins of denomination of 25 paise and below for their face value at their branches.  The Government had decided to withdraw the coins of denomination of 25 paise and below from circulation from June 30.

Savings bank rate hike to have diverse impact

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Next IMF head should come from emerging markets: Mark Mobius

 The next head of the International Monetary Fund should come from China, India or another developing economy, veteran emerging market investor Mark Mobius said on Wednesday. "Definitely that should happen," Mobius, who overseas Franklin Templeton's Emerging Markets Group, said when asked about the possibility by Reuters Insider television. "They should put in a Chinese person or an Indian or somebody from the emerging market space, that would breathe fresh air into some of these multilateral institutions." Mobius' comments come as Dominique Strauss-Kahn faces growing pressure to quit as head of the IMF after his arrest on attempted rape charges. The battle over the IMF succession heated up when China, Brazil and South Africa challenged Europe's long-standing grip on a job that is pivotal to the world economy. China said on Tuesday the selection of the next IMF boss should be based on "fairness, transparency and merit". It marked the first time that China, the fund's third largest member, weighed in early and so publicly on an IMF selection debate. Brazil and South Africa echoed China's message and insisted the selection of the next head of the IMF be based on a candidate's qualifications and not their nationality. As emerging nations began staking out their positions in the expected leadership battle, two European finance ministers cast doubt on Strauss-Kahn's ability to run the global lender. Mobius, who oversees more than $50 billion in assets, also said emerging markets should make up around 32 per cent of a global equity portfolio, to represent the market capitalisation of emerging markets. "Economic growth in emerging markets is doing very well, there is no reason why stock markets should not reflect this positive movement," he said. Reuters' latest poll of large institutional investors showed at least 13 percent of equity allocations were in emerging market stocks. Emerging market stocks have underperformed global markets this year, dipping 0.75 per cent compared with global gains of 3.5 per cent.

Brazil Wants To End Status Quo

A senior Brazilian government official said Brazil wants the IMF's next chief to come from a large emerging market nation, but acknowledged Europe was likely to keep the job. "We believe India and Brazil would be good options," the official said, speaking on condition of anonymity. "But we also believe that Europe is likely to keep its deep stranglehold on the position, and so we're not planning to push very hard on this issue for now." South African Finance Minister Pravin Gordhan said institutions like the IMF had to reform and fully reflect all of its members and not just industrialized nations. German Chancellor Angela Merkel said on Monday that it was not yet time to discuss succession but there was a good case for a European to occupy the job. The United States, the IMF's largest and most influential shareholder, has yet to comment on the selection process since Strauss-Kahn's arrest. But it has made a strong case in recent years for emerging markets to have a greater say in the IMF. Washington's predicament is that if it forces a change at the helm of the IMF, it may have to give up the World Bank's captaincy. That would be politically thorny among lawmakers who could force the US to cut funding for the bank. In April 2009 at a meeting of the Group of 20 in London, the United States signed onto a communique by the world's major economies that agreed "the heads and senior leadership of the international financial institutions should be appointed through an open, transparent and merit-based" process.  Strauss-Kahn has been deeply involved in talks over European Union and IMF bailouts for debt-strapped countries. Another of his signature achievements has been reforming the IMF's voting structure to give emerging economies more power.  The IMF has named the fund's deputy, John Lipsky, as acting managing director although he has announced he is stepping down when his term expires in August.

Montek best candidate for IMF top job: Kaushik Basu

New Delhi: Planning Commission Deputy Chairman Montek Singh Ahluwalia is the best candidate for the top job at the International Monetary Fund (IMF), Chief Economic Adviser Kaushik Basu said today. “In my view, Montek is the best name… not only from India’s point of view, but from the world’s point of view also,” Basu told reporters here at a function to mark the golden jubilee celebrations of the Institute of Applied Manpower Research (IAMR). Ahluwalia, however, in recent interviews has said he is not eyeing the job. Reuters Ahluwalia, among others, is being talked about as a possible successor to IMF’s chief Dominique Strauss-Kahn who is locked up in a New York prison as he faces charges of sexual assault on a hotel maid. John Lipsky, second-in-command of the IMF, has taken over as acting managing director after arrest of Strauss-Kahn by the US police. Talking about the possibility of Ahluwalia taking over as the first non-US and non-European chief of the IMF, Basu said, ”I don’t know what the position Government of India is taking… 8 or 9 names that are going around. Combination of traits which he (Ahluwa ia) would take to that job… I really don’t think anyone else among the names would match up.” Besides Ahluwalia, the other candidates who are being talked about as the next IMF chief include Kemal Dervis of Turkey, Christine Lagarde of France, Trevor Manuel of South Africa and Britain’s Gordon Brown. Ahluwalia has been working as the Deputy Chairman of the Planning Commission since 2004. Ahluwalia, however, in recent interviews to media had said that he was not eyeing the job.

Banks’ deposit growth continues to decline

Deposits of scheduled commercial banks continue to decline since the beginning of the current financial year, as banks repay the huge deposits they picked up towards the end of March to meet annual targets.  According to data provided by the Reserve Bank of India (RBI), bank deposits stood at Rs.53,16,009 crore as on May 6, compared with  Rs.53,19,431 on April 22. Bank deposits earlier rose to Rs. 53,24,952 crore on April 8. As on May 6, the growth in deposits compared to same period last year stood at 17 per cent.  “Deposits may have declined because of the repayment of institutional deposits, since banks are now comfortable on the liquidity front,” said a senior official of a public sector bank. Banks had issued more than Rs 1 lakh crore of certificates of deposits in the last quarter of 2010-11. Most of these may not have been rolled over, he said. However, bank advances saw a rise. Bank credit grew to Rs.38,383 crore in the fortnight ended May 6, a rise 22.5 per cent compared to same period last year. While banks had achieved a more-than-expected credit growth last year, they were unable to garner as many deposits as expected by RBI. Credit growth last year stood at around 21 per cent, against the projection of 20 per cent and deposit growth was around 16 per cent, compared with the estimate of 18 per cent at the end of March 2011. RBI has now lowered both both its credit growth as well as its deposit growth rate estimates. RBI has projected a 17 per cent growth in deposits and a 19 per cent growth in bank advances for the current financial year.  According to RBI data, bank deposits stood at  Rs. 53,16,009 crore on May 6, compared with  Rs. 53,19,431 on April 22

Mobile banking, cash at point-of-sales services remain dismal, says RBI

BANKS have shown little progress in the areas of mobile banking and cash at point-of-sales (PoS) terminals, even after nearly two years of the Reserve Bank of India (RBI) allowing banks to run such facilities.  Until March, 34 of the 39 banks that were granted approvals for mobile banking, had launched such services. According to RBI estimates, 6.8 lakh such transactions, worth Rs. 61 crore, are settled through this channel in a month. “Mobile banking is growing, but not very significantly. Though the number of users who registered for mobile banking is substantial in absolute numbers, it is very low vis-à-vis the number of mobile phone subscribers,” said G Padmanabhan, chief general manager, RBI. He said even though the central bank had always deliberated over issues related to payments and settlement systems, implementation had been a concern. “Implementation of some of the policy directives, which were emanated largely on the demands of stakeholders, has been far from satisfactory,” he said. “We were told other than payment numbers, if we could increase the limit, payments on mobile transactions would zoom. We have now increased the limits. Lets see whether or nor that happens, since it took almost one and ahalf years for the people to conduct the first transaction,” he said. Earlier this month, RBI had raised the limits on mobile-based transactions without end-to-end encryption from Rs. 1,000 to Rs.5,000. The limits on mobilebased semi-closed prepaid instruments issued by nonbanks were also raised from  Rs. 5,000 to Rs.50,000. Padmanabhan also pointed to the dismal performance of the ‘cash at PoS’ facility, which enables customers to withdraw cash at merchant establishments. “It has been nearly two years since RBI permitted cash at PoS. However, barring a few banks and ahandful of transactions, nothing much is happening,” he said. According to RBI estimates, 680,000 such transactions, worth Rs. 61 crore, are settled in a month through mobile banking  .“BANKS would roll out the facility (merchant payments through mobile phones) in three months, on a pilot basis,” said A P Hota, managing director and chief executive officer, National Payments Corporation of India. The Reserve Bank of India had, on May 3, allowed banks to allow their customers to make merchant payments through mobile phones. Banks would use the Interbank Mobile Payment Service to launch the service.

Moneylife Foundation sends representation to PM FM and RBI urging ban on MLM schemes

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Deregulating SB interest rates without strengthening the banking industry is putting the cart before the horse

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