View financial inclusion as a business model: RBI to banks

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

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Right Note

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

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

ET

Interest rates move down even before monetary easing

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

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A boost for cooperatives

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

M G Warrier Thiruvananthapuram (BS)

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

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

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Credit growth in RBI comfort zone

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

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Indian Bank opens new office in Chennai

RBI flags poor asset quality in financial stability report

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

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

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

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RBI cracks the whip on overseas banks

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

BS

Microfinance institutions clamour for more bank loans

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

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As new regulations loom, the way ahead for NBFCs

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

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

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

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Pick-up in forex inflows causes cash crunch for banks

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

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RBI miffed at banks not pushing mobile banking

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

FC

SBBJ goes online for home loans

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

TOI

Reserve Bank of India says no to CRR cut for now

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

ET

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

Andhra MFIs seek time to meet capital adequacy norms

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

BS

RBI to release Rs 5 coins to commemorate ICMR centenary year

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

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