FINSTREET MEN TO WATCH OUT FOR IN 2012

Rise and Be Counted...

Banking as a business is getting boring after all the excitement of the past many years. When it comes to expectations, most bankers just shrug their shoulders saying ‘nothing much’. But it is not necessarily so. There will be events elsewhere that will force some reaction here; there are people who are set to make it bigger and better; there could be a revolution brewing in the industry though it may not catch the fancy of financial wizards who sank the world. ET’s Banking Bureau chooses a few who deserve a close watch as the year unfolds because they could make a difference to your life, fellow citizens


Waiting for an Encore



The second most important job in any country from an economics viewpoint is that of the central banker. In India’s case, it could be said that the Reserve Bank of India governor Duvvuri Subbarao’s job has assumed a more critical role than that of finance minister Pranab Mukherjee’s, given that hardly anything moves in New Delhi these days. Unlike other chiefs, Subbarao not only has to manage the monetary policy to ensure growth and contain inflation, but also the Indian currency that’s getting pummelled because of the nation’s profligacy, ensure that government’s borrowing costs don’t rise, and banks behave. His stubborn belief that the inflation monster needs to be put down before anything else drew a lot of criticism, but many now agree what he did was right when he ignored calls for a pause or a reversal in monetary tightening. This year, he has promised to cut interest rates, provided inflationary pressure eases. But more than that, all eyes would be on how he manages the rupee for which his measures are yet to show the desired impact. But as in any policy issue, the reaction may lag. Even if he effectively manages the market forces, or puts them down with regulatory power, one imponderable has become the government. His calls for fiscal prudence have so far fallen on deaf ears. Will he get the attention this year? With the tools available with him such as Open Market Operations, he has managed to hold the yields. But for how long? In 2011, he appeared to manage the fight despite little help from the government. Can he repeat the performance?



Customer is King



Reserve Bank of India’s Deputy Governor K.C.Chakrabarty is many things to many segments of the banking world and its customers. It is common knowledge that the former chairman of Punjab National Bank is more on the side of customers, than on the side of bankers. Appointed in June 2009 to look after supervision, customer service, payments and settlement systems, his term will come up for review in June this year. An extension or not, can indicate the government’s priority. For the suave international banker, he may come across as crude central banker, but with his wit and retort he can silence any global banker who sells fancy concepts, be it at seminars or private meetings. It is not that the opposite side falls silent because of his position and power, but due to his logical arguments. When even the political class could not explain why farm loan waiver, Chakarabarty convinced international investors in a conference in Singapore that it was essential, and not all that bad for an economy. His continuation, or not, can reflect how much the customer matters.

ET

RBI nixes banks' subsidiary plans

Bank of India, South Indian Bank, Lakshmi Vilas Bank’s proposals rejected, to add to the earlier ones of ICICI Bank and Axis Bank. The Reserve Bank of India (RBI) has rejected several banks’ proposals to launch wholly-owned subsidiaries, as the regulator did not find any merit in floating such arms. Public sector lender Bank of India, which wanted to float a subsidiary to train human resources and recruit professionals, did not find favour with the regulator. State-run banks have to follow a uniform remuneration package, which is unattractive compared to their private sector counterparts. However, a bank could offer market related pay package for the employees that are hired by its subsidiary. RBI, however, was not convinced by the idea.

FALLING FLAT
Banks	Subsidiary planned
Bank of India	Human resources
South Indian Bank	Gold loan
Lakshmi Vilas Bank	Housing loan
ICICI Bank	Infrastructure finance
Axis Bank	Infrastructure finance

Similarly, South Indian Bank wanted to open a subsidiary to exclusively offer gold loans. RBI has also nixed that plan, as a bank is allowed to offer gold loan directly through its branches and a subsidiary route is not required for this activity, the regulator felt. "We had initially taken shareholders' approval to launch a gold loan subsidiary. The idea was to gold loans through this subsidiary in areas where we don't have a branch," said VA Joseph, managing director and chief executive officer of South Indian Bank. The Thrissur based lender is a major player in the gold loan market and gold loans account for 20 per cent of its credit portfolio. Another south India-based lender, Lakshmi Vilas Bank wanted to float an arm to sell home loans, again an activity which a bank is allowed to undertake through its branches. This proposal was also rejected by the regulator on similar grounds. As a result, Lakshmi Vilas Bank scrapped its plans to set up a housing finance subsidiary. The bank’s housing loan portfolio is currently around 2.5 per cent of its total advances. Its credit portfolio was Rs 8,813 crore as of September 30, 2011. “RBI is of the view that those businesses, which are possible through bank branches, should be done directly by the bank. There is no need to create a separate non-banking finance subsidiary for those businesses. Hence, for businesses like gold loan, housing finance, etc RBI is not keen to allow banks form a separate subsidiary,” said a top executive of a private sector bank. Earlier, proposals from ICICI Bank and Axis Bank to float an infrastructure subsidiary also did not find favour with the regulator. In the last couple of years, RBI has given its permission to open subsidiaries to undertake those activities which a bank cannot do directly through its branches. These businesses include securities broking and insurance underwriting. In addition, the regulator has also approved Bank of Baroda’s application to convert its credit card subsidiary into a joint venture by selling 51 per cent stake to the second largest bank of Spain, Banco Bilbao Vizcaya Argentaria.

BS

Portability Punch

After mobile telephones and medical insurance, will we have the option to move our savings bank accounts? There are green shoots of this, subject to banks falling in line.

It's an overdue move and can be implemented easily considering that most banks have managed to collaborate around automatic teller machines anyway. Technology is the easier part. Mindsets of banks are such that the Reserve Bank of India (RBI) will need to give them more than a gentle prod. No bank manager will let go of an account holder unless there are overriding disincentives to torpedo a portability application. There is social incentive in delivering portability to banking consumers. Standards of service in many banks (I do not think private and foreign banks are general exceptions to uneven quality) are really very poor. The consumer deserves to be able to penalise such banks. The disincentive normally is that the ‘other’ bank will demand the entire paperwork one more time. So, we often grumble and groan, but we usually stop short of severing our account with a lousy bank. The banker knows that! As we’ve often experienced, before the breaking point is arrived, the astute branch manager steps in at a crucial moment and her assuaging glass of water in the cabin (a cup of tea, if she's really kind!) usually forces us to change our mind. Portability, which is based on an integration of KYC (know your customer) data, can empower us to enjoy the tea, but press for a change anyway. Once integrated with ‘aadhar’ data, even less advantaged cutomers will have the option to revolt. The real advantage will kick in if performance metric of senior managers get linked to data on how many accounts moved on. I emphasise on senior folks, because the front-facing bank executive could be losing customers due to reasons beyond her control. For example, the excellent staff at Standard Chartered Bank I am familiar with have been saddled with a lousy software, which penalises account holders visiting in person! Mysteriously, the electronic hailer allows peons and drivers carrying memsaheb’s cheques get faster service! After protests from account holders, the poor tellers are back to identifying ‘known’ customers in person to break out of the queue. Clearly, someone higher up in the chain needs to be penalised here. Portability can help. Benchmarking the top guy is rationale behind performance management secretary Prajapati Trivedi trying to sign performance MoUs with secretaries to Government of India. There have been some counter comments. None appear to be unsurmountable. The principal opposition is that if portability is allowed, shady customers will get a chance to flee from bank to bank. This is trying to throw the baby with the bathwater. If KYC is indeed a unique ID, how can the crooks flee, leaving millions of honest customers paying the penalty? Rather than reinventing the wheel, extant experience with telecom and insurance portability can be useful. There are hard numbers to show that despite an aweful number of call drops, 98 per cent of us continue to suffer the same mobile provider. There’s a message hidden here for RBI. The telecom regulator has had to slap notices on some of the biggest operators for stalling portability requests.Some have erected unsurmountable walls, even informal non-compete arrangements, nixing our attempts to escape!

Rohit Bansal, CEO and Co-Founder, India Strategy Group, Hammurabi & Solomon Consulting LLP  – The Pioneer

VITALINFO - A single handed signal service

 

ICICI Bank to join Facebook bandwagon

New Delhi: The country's largest private sector lender ICICI Bank will soon join social media platform Facebook, where it plans to allow its customers to access their bank accounts, among other services. "... ICICI Bank will soon be present on Facebook. The ICICI Bank page (on the social media website) will include a one-of-its kind 'Your Bank Account' app through which you can access your bank account information while on Facebook," the bank's Executive Director Rajiv Sabharwal said. In a new-year message to the bank's customers, Sabharwal said that the customers would also be able to get updates on exclusive offers through Facebook. The bank is planning to join Facebook as part of its efforts to continue to provide "superior banking services" in 2012, in line with its 'Khayaal Aapka' (Your Care) philosophy, he wrote to the customers. A number of companies in India and abroad are establishing a presence on social media platforms like Facebook to reach out to their customers and get new businesses.  A survey by workplace solutions provider Regus had said that Indian companies increased their usage of social networks like Facebook, blogs, microblogging site Twitter and other online platforms in 2011 to win new business. As per the survey, 83 per cent companies in India agreed that their marketing strategies might not succeed without social media activity, while 74 per cent companies globally endorsed this view.  Another study by global consultancy major KPMG last month said that businesses in India and other emerging markets are using social media platforms more than their developed-market peers for expanding their customer relationships.

IBN Live

Banks to require up to Rs 2.7 trn under Basel-III: Crisil

................. "The RBI norms are stricter than those proposed by the BCBS (Basel Committee on Banking Supervision), with respect to stipulated capital and leverage ratios being higher by 1 % and 2% respectively, and the implementation period being shorter by two years,".............

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Banking services plan lags behind

Anantpur : Financial inclusion, a government programme to ensure access to financial services for villagers, and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups in rural areas is lacking the support of bankers. The programme was mooted to extend banking services in rural areas where such services are not available. Under the plan, all bank branches working in the district, will have to appoint business correspondents in villages allocated to them to provide banking services. Business correspondents, working like a bridge between banker and customer, help in making and receiving payments, collecting small scale deposits, habituating the customer to savings. They will get honorarium apart from commission from the banker. Though the programme was initiated by the Reserve Bank of India (RBI), it remained a lacklustre plan with bankers showing no interest. In 806 villages in the district, bankers have appointed only 268 business correspondents so far. The Nabard, in its recently released loan plan schedule, said that the district needs five more banks.

Deccan Chronicle

Banks: slowing credit growth, increasing slippages pose concerns

.... RBI governor D. Subbarao is worrying that even audited books of banks might be understating bad loans. With the slowdown likely to drag on, incremental NPAs are expected to grow. While that in itself puts pressure on capital adequacy ratios for banks, the new set of Basel-III norms introduced by RBI will require a further round of fund-raising......

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Due south

A leading corporate group headquartered in north India has accused a south Indian lobby of running the country’s top regulators. The group has written to the prime minister saying this lobby, which worked across the Reserve Bank of India, the Securities and Exchange Board of India and ministry of corporate affairs, has managed to add provisions in the Companies Bill that are harmful to north Indian business interests. The grapevine has it that this letter was instrumental in preventing the Bill being passed in Parliament. The group has also demanded MPs of its choice be part of the standing committee that will review the Bill. Now, if these MPs actually end up being members of that standing committee then we can be sure that writing letters to the prime minister is a good way to get things done.

BS

Reserve Bank allows revision of govt- securities price band

The Reserve Bank of India (RBI) allowed relaxation of price band limits of government securities that were traded on Monday. Following this the Fixed-Income Markets and Derivatives Association (FIMMDA) revised the price band thereby preventing reversal of Rs 5,000 crore worth of deals struck on the first trading day of the year. A rally in bond prices on hopes that RBI may opt for rate cuts sooner than expected had led to breach of the price band. According to the code of conduct on RBI’s Negotiated Dealing System-Order Matching (NDS-OM) platform, the permitted price range of bids and offers for a liquid security is within 1 per cent of its previous close. For an illiquid security the limit is at 1.25 per cent of its previous close. This was introduced in October 2011 in order to prevent any “big figure” mistakes. “This was the first instance of large volume trades breaching the limits since the price band was introduced,” said N S Venkatesh, head of treasury, IDBI Bank. RBI had ordered reversal of such trades that ended above the permissible limits on Monday. However, market participants met up with the regulator today to seek relaxation on the same. Yields on the 10-year benchmark government bond fell 18 basis points on Monday despite last week’s announcement of higher government borrowing. “Markets had factored in the possibility of increase in government borrowing plan last week but hopes of early rate cuts and more bond purchases by RBI resulted into a rally,” said a bond dealer with a public sector bank. Yields on 8.79 per cent government security maturing in 2021 closed at 8.38 per cent or Rs 102.65 on Monday compared with the close of 8.56 per cent or Rs 101.49 on Friday. FIMMDA on Tuesday said revised the price band to 1.3 per cent for the 8.79 per cent government bond maturing in 2021, 1.45 per cent for 9.15 per cent government bond maturing in 2024 and 1.4 per cent for 8.28 per cent maturing in 2027. The revision is applicable for deals struck on Monday only.

BS

Cabinet likely to take up issue of NHB stake transfer tomorrow

NEW DELHI: The Union Cabinet is likely to take up tomorrow the proposal for transfer of RBI's stake in National Housing Bank (NHB) to the government. "The Cabinet will tomorrow discuss amendment to National Housing Bank Act, 1987, for transferring Reserve Bank of India's (RBI) stake in the NHB to government," sources said. At present, the NHB is wholly-owned by RBI with a paid-up capital of Rs 450 crore. The government had made Budget provision of Rs 450 crore in the last Budget for meeting the expenditure for acquiring RBI's holding in NHB. It is to be noted that the government has already acquired stake of State Bank of India and National Bank of Agriculture and Rural Development (NABARD) from RBI. In 2007, the government acquired the 59.73 per cent stake held by RBI in the country's largest bank, SBI, for Rs 35,531.33 crore. However, NABARD stake transfer happened in 2010. It was the Narasimhan Committee that recommended the transfer of RBI's stake in State Bank of India, NABARD and NHB to the government to differentiate the central bank's role as the owner of banks and the sector regulator. After getting ownership of NHB, the government would also have a greater say in the boards of these institutions and the flexibility to issue directions to meet its credit objectives for the priority sector.

ET 

The mystery of the falling rupee

The rupee is now undervalued, so appreciation might be around the corner

Is something strange afoot in the rupee-dollar market, or am I just imagining things? The rupee continues to remain under pressure and apparently there is fairly heavy intervention by the Reserve Bank of India (RBI) to stop it slipping past 54 to the dollar again. Yet, if you ask any trader in a bank treasury, he is likely to tell you that there is hardly any shortage of dollars in the markets. Thus, the momentum of the rupee doesn’t seem to be driven by a large mismatch between the supply and demand for dollars. The only way to explain its frailty is to attribute it to weak sentiment, which keeps it offered. One clear indication of this is the way forward premiums have behaved. As anyone who has taken a basic course in international economics would know, forward premiums reflect the difference in interest rates across economies whose currencies are involved. Thus, the forward premium for the rupee is the difference between rupee interest rates and dollar interest rates — relevant, of course, to the tenure for which the premium is calculated. One way to interpret a forward premium is as a gauge of the relative availability of rupees vis-a-vis dollars. If rupees are abundant and dollars are in short supply, then rupee interest rates are likely to be low and dollar rates high, pulling forwards down. In the extreme case, when there is a famine of dollars, forwards go into discount as traders seeking dollars offer the sky in terms of dollar interest rates relative to rupee interest rates. In fact, our analysis of episodes of sharp depreciation since 2004 shows that they were preceded by periods of discount. Yet, strangely enough, the current episode of depreciation that took the rupee to an unprecedented low was not preceded by a period of forward discounts. Right through the period, forwards have kept rising. This would imply (if you are comfortable with my interpretation of forward rates) that the depreciation has taken place when rupee liquidity has actually been short relative to dollar liquidity — and not the other way round, as, theoretically, should have happened. The other way to look at this conundrum is to try and map the relationship between dollar flows and the exchange rate and check whether the exchange rate is in line, or completely out of whack, with the balance of flows. To do this, you could use the balance of payments (BoP) deficit or surplus (published quarterly) and link it, as we did at HDFC Bank, to the rupee-dollar exchange rate through a formal statistical model. The BoP is incidentally a summary of the inflows and outflows of dollars into the system for a period and the final balance reflects the excess demand or supply of dollars. Here’s what we found. To start with, even if we were to assume extremely aggressive outflows, we get a deficit of roughly $22 billion over 2011-12. (The April-September period for which hard data is available, incidentally, yielded a small surplus). The second step we took was to assume that this deficit is concentrated in the period between the end of September and December, that is, the period over which the depreciation pressure was most acute. Our model, which is based on a long-term relationship between the BoP and the rupee-dollar exchange rate, predicts an exchange rate of 49.40. In short, a range of 49-50 appears to be the “equilibrium” exchange rate of the rupee. Sceptics would argue that our entire prognosis rests on a somewhat flimsy assumption regarding the BoP position. To counter this, here’s what we wrote in a recent report titled “INR: no more depreciation left?”: “One possibility is that our BOP estimates are too conservative. The actual deficit, one could argue, is possibly much higher. There has been, as we know, a paucity of foreign currency credit and redemptions are high this year. That could be driving a gap that is higher than we predict. Similarly the current account deficit could be higher than $67 billion, or 3.3 per cent of GDP, that we are working with. Our argument is that while that is theoretically possible, it does not quite square up with the situation on the ground, where outflows seem to be matched by adequate inflows.” What’s the bottom line then? For one thing, if you are using the demand-supply balance to “value” the exchange rate, then the rupee seems undervalued or oversold. The move beyond 50 to the dollar seems to be driven by adverse news-flow and sentiment, rather than a genuine excess demand for dollars. Were that indeed the case, RBI’s measures to curb speculation are likely to be effective. Second, it is possible that like all other financial assets, the rupee is pricing in a future shortage of dollars — perhaps based on the fact that portfolio flows will be scanty next year. We buy this argument, but argue that at a level of over Rs 3 above the fair value, a lot of the potential bad news is already priced in. Thus, even if fundamentals were to worsen, there might not be further depreciation. If the rupee is indeed stuck in a fragile equilibrium, then any surge in inflows could lead to a quick turnaround in the rupee. Non-resident deposit rates have been deregulated, and banks have jacked up the rates on these deposits. If non-resident Indians respond to enormous arbitrage possibilities that this entails, a phase of quick appreciation might not be too far away. 

Abheek Barua, Chief Economist, HDFC Bank (BS)

The coming dollar crunch

.....In its latest Financial Stability Report released at the end of December, the Reserve Bank of India flagged its concerns on this front: “The current environment of risk aversion and depreciation of the Indian rupee could complicate the refinancing challenges faced by Indian corporates with regard to their foreign currency convertible bonds (FCCBs) and external commercial borrowings (ECBs). FCCBs raised in pre-crisis years at zero or very low coupons will need to be refinanced through domestic sources at the higher interest rates prevailing currently.”.................

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Indian firms lose payment power

Crisil Ratings on Tuesday said the repeated interest rate hikes by the Reserve Bank of India (RBI) and lower operating profits due to high input costs have pulled down Indian firms’ interest-paying ability to a five-year low.......................

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RBI governor D Subbarao hints at soft monetary policy

NEW DELHI: Concerned over the declining growth, Reserve Bank Governor D Subbarao has indicated that the central bank could reverse the tight monetary stance adopted by it since March 2010 to tame inflation. "From here on we could expect reversal of monetary tightening," Subbarao told the BBC in an interview. The RBI Governor, however, added it was "difficult to say when that will take place and in what shape it will roll out". The central bank is scheduled to announce the monetary policy review on January 24. RBI has hiked key interest rate 13 times since March 2010 in its bid to check rising inflation, but it took a pause in its December monetary policy. Moderation in inflation witnessed in November-December has raised the hopes that RBI may start reducing key interest rate in its forthcoming credit policies. Headline inflation dropped to 9.1 per cent in November from 9.73 per cent in the previous month, while as per the data food inflation has declined to 0.42 per cent. Subbarao said that although inflation still remained a risk, RBI was aware that it needed to boost growth amid an uncertain global economic environment. "We have always been mindful of growth concerns, contrary to popular perceptions," Subbarao said adding "in fact, in our December statement we said that growth is a serious concern. So I think the balance between growth and inflation will shift in 2012". While the high interest rate has helped in moderating inflation, the high cost of credit has taken its toll on the economic growth. The GDP slowed to 6.9 per cent in the second quarter of 2011-12 from 7.7 per cent in the previous quarter.

ET

Minting money, melting coins

AHMEDABAD: If those into the business of exchanging old currency for new are to be believed then city-based trader Ravi Gupta is just a small fish in the world of racketeers, who are minting money from currency coins. In Ahmedabad there are over 100 traders who hoard currency coins and either sell them off at a premium to those in need or a few who, like Gupta, smuggle it out of Gujarat. The RBI has blacklisted more than 100 city-based traders. This punitive action was initiated when RBI officials suspected that the traders were indulging in illegal activities. Gupta, and his accomplice Jeetendra Rajai, were arrested last week following seizure of around 7 lakh coins from a truck near Dahod check posts. Reserve Bank Of India (RBI) had filed a complaint with Naranpura police station officials in the case. Gupta, who runs a money exchange shop in Bapunagar, told police that he had been availing coins from RBI. As per the norm, public can avail coins through banks selected as currency chests or through RBI. However, those in the illicit trade misuse the allotment of coins and employ men, who posing as working for an eatery or a business firm, procure coins from RBI or other banks. "Selling coins has become a huge business as any roadside eatery or a grocery store is always in need of change (coins). Considering the profits involved, several traders in the business have employed men who regularly procure coins from RBI and sell them off in the market for a premium. For a change of Rs 500 the dealer would charge anything between Rs 600 to Rs 700 depending on the client," said a trader, who has himself employed 20 men to collect coins from RBI.

TOI 

Why coins for VVIPs only?

This refers to ads by the Government Mint ( Kolkata) inviting orders for sets of two coins including one silver- alloy coin of face- value of Rs 150 issued to celebrate 150 years of IT. Booked coin- sets will be delivered after 10 months. Significantly RBI has for long discontinued practice of issuing silver- alloy coins. First- ever post- independence silver- alloy coin of Rs 10 issued on Gandhi Jayanti (centenary) was available in plenty on the day of the release itself. Members of public can get these coins of Rs 150 and Rs 5 by paying exorbitant price of Rs 4,240 and Rs 3,925 that too after 20 months of release, while about 200 such sets were distributed free to a select few. Are commemorative coins issued to VVIPS only, that too free of cost of public exchequers?

Bhagwan Thadani (FPJ)

Help migrants in opening account: Finmin to PSBs

NEW DELHI: The finance ministry has issued a warning to state-run banks after receiving complaints that they are not opening accounts for migrant workers and other financially excluded sections under the relaxed know-your-customer guidelines. The government has already issued detailed norms to ensure that such people can open a bank account after self-certification or if introduced by another account holder. "We had expected banks to aggressively use these provisions but their reluctance has left us confounded," said a finance ministry official. The new directives have been circulated to all bank chairmen after a detailed discussion with tax officials and the Reserve Bank of India, he said. Under the new procedure, if an individual has a proof of permanent address he can also open an account with any bank that has a branch in his native place. The bank will then verify the account holder's details or of the proof of the documents online through the branch where the permanent residence of the customer is located. "Banks will do this within 30 days and in this period customer will be allowed operations to meet the basic day-to-day requirements," the official said. Under these rules, a migrant worker can open a 'small' bank account where up to 1 lakh is deposited annually but monthly withdrawals cannot exceed 10,000 and the balance does not cross 50,000 at any point. A senior banker said the move may not be as beneficial as it is being perceived. "As of now the RBI has indicated issues with inter-bank account portability. So only those people will benefit who have a working branch in the area of their permanent residence," he said. As of now, only 45% of the Indian population has access to bank accounts. The move is part of the government drive to achieve its financial inclusion agenda. The government has also mandated a three-year rural stint for all new joinees in state-run banks. In the current financial year, banks are expected to take branches to another 20,000 villages, having covered 30,000 by the end of March 2011 since the inclusion drive began. The government and the RBI had set a target of covering 73,000 villages, each with a population of at least 2,000, by March.

ET

VITALINFO - Painstaking efforts............

Wooing NRI deposits makes sense : A.Seshan

.........Recently, the Reserve Bank (RBI) announced that banks were free to determine their interest rates under Non-Resident (External) Rupee Deposit Account and Non-Resident Ordinary Account. Since the exchange rate risk in respect of the repatriable rupee deposits is borne by the depositor, I am not sure that, in the current situation of currency depreciation, a wealthy NRI will be influenced considerably by higher interest rates on term deposits, unless they are sufficient to provide reasonable returns after factoring in the expected loss in the value of the rupee or the hedging cost..................

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