RBI halts NBFC licenses till review of finance co rule: Report

MUMBAI, APRIL 13: Toyota Kirloskar and Daimler, the maker of Mercedes cars, will have to wait a few more months to begin their business of lending for car and equipment purchases as the Reserve Bank of India put on hold new licences awaiting new guidelines, Economic Times said Wednesday citing unnamed sources. The central bank, which is in the midst of tightening rules for lenders who don't fall under the 'banks' category, has told some of the applicants that it may not issue one till the new rules come into force, the paper said. It might take RBI two to three months to come out with its new guidelines. Jain Irrigation and German electrical equipment-maker Siemens the other companies planning to set up a finance company that would fund purchases of their own product, helping their businesses grow. Europe's biggest automobile company Volkswagen recently got the license for such a company. Manufacturing companies such as General Electric and others across the globe do fund equipment purchase that has helped them grow. Even state-run Bharat Heavy Electricals plans to set up a non-banking finance company. However, reckless funding could result in the collapse of even the parent company. GE, the top manufacturing company in the world, had to seek the help of US authorities during the 2008 crisis as there were few takers for its commercial paper. Because of these companies' role in the financial markets, the RBI set up a committee under former Deputy Governor Usha Thorat to finalise a new set of guidelines after raising their capital requirements recently. RBI believes that there is a need to strengthen the supervision of the 12,500 NBFCs in the country due to the high exposure of banks to NBFCs at over Rs. 15 trillion.

RBI never understood teaser loans: Bhatt

Outgoing State Bank of India (SBI) chairman Om Prakash Bhatt continued his defiance of the central bank on the teaser loan front saying "the Reserve Bank of India (RBI) never understood our special home loan product. "Obviously, they (RBI) have not understood our product (the special home loan product)," Bhatt, who is superannuating on Thursday from SBI after a five-year stint as chairman and a four-decade-old association, told reporters at the bank headquarters. Reiterating that RBI's stance that SBI's special home loans are similar to the sub-prime loans lent in the US in the run-up to the 2008 global financial meltdown, Bhatt said this view is beyond logic as his offering is sold to those who are "absolutely credit-worthy." However, he was quick to add that this is not a defiant stance with regard to the regulator but this is the view point of a bank that is the industry leader with a quarter of the entire banking business under its fold. "Being the industry thought-leader and market leader, it is the duty of SBI to articulate our views to the regulator. This has to be done in the interest of intellectual honesty and public discourse," he said. However, Bhatt was quick to add that "but if they still insist that this cannot be continued and is against its norms, then we will comply...that does not mean that we don't have a view point on this. Also, I would like to place it on record that so far, all through the five years of my tenure as the chairman, SBI has been 100 per cent compliant with all the RBI regulations."

All banks to have CIOs soon: RBI

A senior official of the Reserve Bank on Wednesday said all banks would have to create a position of chief information officers (CIOs) as well as steering committees on information security at the board level at the earliest, as envisaged under its IT Vision 2011-17 released the other day.  Reserve Bank Executive Director G Gopalakrishna, speaking to reporters on the sidelines of a banking technology conference here, further said the banks will have to implement the facility of "second factor verification" at merchant establishments and ATMs shortly.  "Many small banks do not have a designated CTO and also do not have a clear framework on information sharing...Over a period of time we want to access all the information from the main server of the bank once the RBI's IT Vision is implemented. Those banks having no CTOs and a steering committee will have to have these positions implemented at the earliest," he said.  "Against the current practice of seeking the password, banks will have to ensure that ATMs and points of sale (Poses) will have the second factor verification soon to avoid any room for fraud," The second factor verification is a facility that helps prevent fraudulent transactions during online purchases, by asking the buyer or payee to give a second password which is not the three-digit CVC number in the case of a credit card and the ATM password in the case of a debit card. Currently this is not mandatory at the Poses and ATMs. It can be noted that the RBI on February 28 had released its IT Vision 2011-17 document, which seeks to make the use of information technology beyond core banking and into newer areas like management of information systems (MIS) and better regulatory reporting.  A senior official of the Reserve Bank on Wednesday said all banks would have to create a position of chief information officers (CIOs) as well as steering committees on information security at the board level at the earliest, as envisaged under its IT Vision 2011-17 released the other day.  Reserve Bank Executive Director G Gopalakrishna, speaking to reporters on the sidelines of a banking technology conference here, further said the banks will have to implement the facility of "second factor verification" at merchant establishments and ATMs shortly.  "Many small banks do not have a designated CIO and also do not have a clear framework on information sharing...Over a period of time we want to access all the information from the main server of the bank once the RBI's IT Vision is implemented. Those banks having no CIOs and a steering committee will have to have these positions implemented at the earliest," he said.  "Against the current practice of seeking the password, banks will have to ensure that ATMs and points of sale (Poses) will have the second factor verification soon to avoid any room for fraud," Gopalakrishna added.  The second factor verification is a facility that helps prevent fraudulent transactions during online purchases, by asking the buyer or payee to give a second password which is not the three-digit CVC number in the case of a credit card and the ATM password in the case of a debit card. Currently this is not mandatory at the Poses and ATMs. 
It can be noted that the RBI on February 28 had released its IT Vision 2011-17 document, which seeks to make the use of information technology beyond core banking and into newer areas like management of information systems (MIS) and better regulatory reporting.  The document calls up on commercial banks to use IT in areas like MIS, regulatory reporting, overall risk management, financial inclusion and customer relationship management.  The document, prepared by a high-level committee chaired by deputy governor KC Chakrabarty, also dwells on the possible operational risks arising out of adopting technology in the banking sector, which could affect financial stability.  Gopalakrishna informed that due to the strict implementation of the second factor verification, credit card frauds have almost become non-existent now.  On the implementation of the core banking facility, he said, all the commercial banks will have to implement the core banking facility by the end of this month.  Gopalakrishna further said the IT vision document, once fully implemented will ensure that the RBI gets access to the servers of all banks, including foreign banks so that it has access to all the banking transactions.  The IT vision document emphasises on the need for internal controls, risk mitigation systems, fraud detection/prevention and business continuity plans, the document added.  The vision document notes the use of technology for analytical processing by banks is still at a nascent stage.  "Banks have to work towards reaping benefits of technology in terms of cost reduction of small value transactions, improved customer services and effective flow of information within the banks and to the regulator," the RBI statement had said.  The vision document stresses on transforming RBI into an information intensive knowledge organisation and adopting appropriate business process re-engineering.

Budget to decide on growth-inflation tradeoff

At over 8 per cent, inflation has been consistently high over the past few months. And that probably is the biggest challenge for finance minister Pranab Mukherjee, who faces the difficult choice of choosing between a strategy aimed at containing high prices or sustaining the growth momentum.  Experts say, presenting a non-expansionary Budget, which means a fiscally tight Budget with higher taxes on commodities and services, is the only way out. But a look at the government's accounts and policy compulsions might render it difficult. The Reserve Bank of India (RBI) would like the government to adopt a credible fiscal consolidation plan. That is important because monetary policy framed by the central bank is effective when there is fiscal consolidation. “The government must adopt a credible fiscal consolidation plan, which is important because monetary policy is most effective when there is fiscal consolidation,” said RBI Governor D Subbarao. 

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Budget: Long tenure deposits to get a tax break?

Rising inflation has forced the Reserve Bank to tighten its monetary policy. As a result, cost of funds has gone up. The banking industry hopes the finance minister will announce policy measures to reduce the impact on banks’ margins. The biggest demand of the banking sector is tax breaks on longer tenor deposits to help deposit growth. Bankers also expect the government to announce subsidies for each no-frills or zero balance account opened so that banks can service first time customers and meet the target of opening 50 million such accounts in 73,000 villages with a population of at least 2,000 by next year. But, that’s not all. Banks expect the government to come out with a roadmap for takeout financing that will address the issue of infrastructure lending. One such measure could be allowing banks to issue infrastructure bonds with tax benefits. The banking industry also wants government subsidy or concessions on interest rates provided on lending to State Electricity Boards given their weak financial health. That will do away with asset quality concerns in power financing segment.