RBI plans branches in all seven states - Subbarao inaugurates Tripura unit

Agartala, May 19: The RBI plans to open branches in all the northeastern states in a phased manner for better co-ordination of banking operations. RBI governor D. Subbarao announced this during a news conference at Prajna Bhawan auditorium here today.  Saying the RBI branch in Guwahati was a full-fledged one, he said, “The second branch that we have opened at Agartala will initially concentrate on rural planning, credit development and financial inclusion but gradually its mandate will be expanded and other important tasks will be entrusted with it.”  Subbarao identified “credit-flow” in the Northeast as a major challenge and said the RBI would prioritise this as a major task to stimulate growth of industry, trade and commerce in the region.  “Low CD (credit-deposit) ratio in the region is an area of concern. In case of Tripura, the CD ratio is 33 per cent against the national average of 73.6 per cent on March 31. Our target is to ensure that CD ratio in Tripura rises to 40 per cent at the end of this current financial year,” he said.  He, however, said the task of raising CD ratio to 40 per cent would be a challenging task but the officers and executives in the nationalised banks have been instructed to reach the target. Subbarao said the branch expansion programme of RBI was on in full swing. It aims to bring all villages with a population of 2,000 or more under banking coverage either by setting up branches or by appointing individual correspondents with specific responsibilities for covering villages where there are logistic problems.  “In Tripura, there are between 420 and 450 villages with 2,000 or more population and all of them will be brought under banking network in a phased manner. I have already asked nationalised banks operating here to set up 26 full-fledged branches by the end of the current financial year,” said the RBI governor.  Subbarao said the RBI has issued a guideline that all bank branches having daily transaction of Rs 50 lakh or more should install a note-scanning machine to identify fake notes. “But the most important thing is for people to be vigilant. We are also carrying on an awareness programme to train people on how to distinguish between fake and genuine currency notes,” he said. He said inflation-control as an area of priority for the RBI. “We have kept strict watch on the inflation profile in the country and have initiated a series of measures.”

Veteran TT

Guwahati: The Indian Veteran Table Tennis Association has selected Gagan Choudhury of RBI Guwahati for the 3rd Asian Veteran Table Tennis Championship at Pattaya, Thailand, from May 25 to 29.

ICICI, five PSU banks hike rates

Mumbai, May 6: ICICI Bank and five state-owned banks today raised their lending rates by about 50 basis points each, making auto, home and other loans expensive. The Union Bank of India, Indian Overseas Bank, the United Bank of India, Andhra Bank and the State Bank of Bikaner and Jaipur are the public sector banks that raised interest rates today. The decision of the banks to raise rates comes within days of the Reserve Bank increasing short term lending (repo) and borrowing (reverse repo) rates by 50 basis points (bps), with an aim to calm down inflation, which has hovered above the government’s comfort level. Several other banks, including Punjab National Bank, Canara Bank, the Bank of Baroda, Allahabad Bank and Indian Bank, have already increased their rates. ICICI Bank today raised its base rate by 50 bps to 9.25 per cent and the benchmark prime lending rate (BPLR) to 18 per cent. The new rates will come into effect from tomorrow, it said. A hike in lending rates will increase the cost of credit for new borrowers and the existing ones who had obtained loans at a floating interest rate. According to ICICI Bank, the floating reference rate, on the basis of which interest rates are determined for existing borrowers, will now be 15 per cent. The decision, the bank said, will not impact the customers who had obtained loans at fixed interest rate. After the hike, the base rate of the Union Bank of India, Indian Overseas Bank, the United Bank of India and Andhra Bank stands at 10 per cent. The base rate of State Bank of Bikaner and Jaipur will be 9.25 per cent. Besides, BPLR of all banks, except ICICI Bank, now stands at 14.25 per cent. The base rate system replaced the BPLR system from July 1, 2010. However, BPLR is applicable to older customers who took loans earlier. The higher lending rates would make loans dearer to both new and existing auto, home and corporate borrowers. Banks have been on a rate hike spree since the Reserve Bank’s decision to raise short-term key rates, including the repo and reverse repo by 50 basis points in its annual credit policy on May 3. The repo and reverse repo rates now stand at 7.25 and 6.25 basis points, respectively. Besides, the RBI also raised the savings bank deposit interest rate to 4 per cent from 3.5 per cent.

Heat on vexed trade payment route

Calcutta, April 18: The Reserve Bank of India (RBI) may take a relook at the Asian Clearing Union mechanism — set up in 1974 under the aegis of the United Nations Economic and Social Commission for Asia-Pacific — involving the central banks of India, Bangladesh, Myanmar, Iran, Pakistan and Sri Lanka.   Speaking at an interactive session on the Foreign Exchange Management Act, RBI deputy governor Shyamala Gopinath said, “ACU mechanism may be relooked into. We need to reflect on this.”  The Tehran-based ACU mechanism was virtually dismantled after an RBI notification, which said that all eligible current account transactions, including trade transactions, with Iran should be settled outside the ACU mechanism.   Under the ACU mechanism, payments for all transactions between Indian firms and entities of any of the member countries are settled by debiting to the ACU dollar account in India of a bank of the member country or crediting to the ACU dollar account of the authorised dealer maintained with the correspondent bank in the member country.  “This (the December sanction) has been imposed in view of the difficulties being faced in payments to and receipts from Iran. The country is now facing ban of the US dollars and euro. This situation has become more complex and it is engaging a lot of our attention. The matter is now with the ministry of external affairs and the government,” Gopinath said.  Following the December notification, banks have stopped paying domestic exporters any remittances from Iran and opening letter of credit account for the importers of Iranian produce.   Meanwhile, domestic importers and exporters to Bangladesh have also urged the deputy governor to allow them to settle payments outside the ACU mechanism.   “I get a feeling from this forum that exporters want the flexibility of settling payments outside the ACU mechanism,” Gopinath said.  While India is trying to find ways to settle the payment row through using some other currency, including the rupee, some quarters believe that the RBI sanction may in fact help India-Iran bilateral trade to grow because exporters and importers of both the countries can now engage in bilateral trade and payment settlement outside the ACU mechanism.  This development assumes significance given the fact that in its third summit the Brics (Brazil, Russia, India, China and South Africa) countries have mooted the idea to engage in multi-lateral trading among themselves in their own currencies and thereby reducing the dominance of the dollar and the euro.

Settling the dues

The financial difficulties faced by families on account of delayed settlement of life insurance claims are well known. What’s generally not known is the problems that legal heirs run into when it comes to accessing the bank accounts and lockers of deceased depositors  The banking regulator— the Reserve Bank of India (RBI) — is, however, aware of this and has issued detailed instructions to banks on the subject, aimed at reducing the hassles faced by relatives. Yet, all banks don’t follow the regulator’s instructions in letter and spirit, resulting in considerable hardship for the surviving family members.  Firstly, when a customer opens an account or hires a locker, the bank is supposed to advise him or her on the imperative need for nominations. Similarly, term deposits should have nominations and even if the depositor is unaware of its importance or forgets about it, the banks have a responsibility in ensuring that it is done. Banks, however, never take this task seriously.  In fact, the regulator has also advised banks to educate customers on the importance of the “survivorship clause” in case of joint accounts, as otherwise the surviving joint account holder does not automatically get the right to the account. Similarly, in respect of term deposits, the RBI says that banks should not insist on completion of the term of the deposit and should allow premature termination on the death of the deposit holder. Yet, there are many cases where banks have refused to cut short the term of the deposit and denied the deposit amount to the legal heirs in urgent need of money.  Even where the deceased depositor has not made any nomination, banks should adopt a simple procedure for repayment to the legal heirs, advises the regulator. In fact, on June 9, 2005, the banking regulator issued detailed instructions to banks on how to simplify and expedite claim settlement following the death of a depositor. Even after six years, such simplified procedures elude family members.  In fact, the RBI circular sets a time limit of 15 days for settling the claims in respect of deceased depositors. I wonder how many banks really stick to this time limit?  Well, in order to keep tabs on this, the regulator suggests banks should report to the customer service committee of the bank’s board the details of the number of claims received and the time taken for settlement and if there has been a delay, the reasons for it. It’s time the regulator asked banks to make this information public.

Dual bank licence plan

New Delhi, April 10: New licences for banks are likely to be of two types — one to provide just basic banking and another one to provide the usual range of services that not only includes basic banking but also sophisticated facilities such as wealth management and merchant banking.  The Reserve Bank of India is set to come out with the draft guidelines for new licences later this month. The basic licence will allow new banks to set up base in rural areas to fulfil the obligation of financial inclusion. Microfinance organisations and co-operative banks will, therefore, get an opportunity to convert themselves into banks. Large industrial houses will be allowed entry, though there will be strict rules in place to ensure that lending is not limited to group businesses.  Top finance ministry officials said the RBI was likely to use its discretion to prevent groups with huge investments in high-risk businesses such as realty. Diversified groups having limited exposure to real estate such as the Tatas or Wadias will not be debarred. The past record of an industrial house will be an important factor.  “The whole idea is to allow large corporate groups to enter banking but not to bring about a repeat of the 1950s and 1960s when India had witnessed a large number of private banks being set up by industrial houses collapsing,” officials said.  Officials said the minimum capital requirement was likely to be jacked up. Under the revised guidelines issued in 2001, the minimum capital requirement for a bank is Rs 200 crore. Promoters are required to raise it to Rs 300 crore within three years. This minimum capital requirement is now likely to be raised to Rs 500 crore for basic banking and Rs 1,000 crore for a comprehensive licence.  Officials said there were differences over the voting rights for foreign investors. It is unlikely that foreign investors will be given majority voting rights. “In all probability, their voting rights will be limited to 49 per cent,” the officials said.  “The explanation in the recently announced changes in the FDI guidelines makes it very clear that we will distinguish between foreign-owned or controlled investments and Indian owned and controlled investments,” the officials said. The change is being interpreted to mean that for a bank to be defined as an Indian entity it should be owned and controlled by Indians. Otherwise it will be treated as a foreign bank and will face many restrictions. Sources said top industrial groups such as Mukesh Ambani’s Reliance Industries as well as his younger brother Anil’s ADAG group and the Tatas could make an entry. The Aditya Birla group could be keen on banking. Ghanshyamdas Birla had set up Uco Bank in 1943, but it was nationalised in the 1960s.  Earlier this month, RIL had entered financial services through a joint venture with hedge fund DE Shaw.

Twin cities get special force

Bhubaneswar, April 5: A special police battalion will now provide security cover to vital installations and VIPs in Cuttack and Bhubaneswar.   The first batch consisting of 501 sepoys today participated in a passing out parade at the Urban Police and Traffic Training Institute in Bhubaneswar. Director-general of police (DGP), Manmohan Praharaj, said: “These personnel were provided advanced training for nine months.”  They would be deployed at vital establishments such as residences of the governor and chief minister, state secretariat, legislative Assembly, Reserve Bank of India (RBI) in Bhubaneswar and Orissa High Court in Cuttack.

Apex bank pep pill for states

Mumbai, March 30: The Reserve Bank of India (RBI) today said states should explore ways to raise non-tax revenue and review tariffs in highly subsidised sectors such as power and irrigation.   Releasing its study on State Finances 2010-11, the central bank said the budgetary position of states during the year showed a turnaround from the expansionary fiscal stance in the previous two years.  According to the study, an improvement in state finances is expected with a majority of the states budgeting either a revenue surplus or a lower deficit in 2010-11 (budgeted estimate) compared with 2009-10 (revised estimate).  At a consolidated level, the revenue deficit is placed lower at 0.3 per cent of GDP (gross domestic product) during 2010-11 against 0.7 per cent in 2009-10 (revised estimate).  “With an improvement in the consolidated revenue account of states, the gross fiscal deficit as a ratio to GDP (GFD-GDP) is estimated to decline to 2.5 per cent in 2010-11 (BE) from 3.3 per cent in 2009-10 (RE),’’ the study said.  The central bank said there was an improvement in key fiscal indicators across states and a majority of them expected higher tax buoyancy. However, non-tax revenue is budgeted to decline in 18 states.  The paper said factors such as the implementation of the goods and services tax (GST), the pace of economic recovery, the states’ own efforts towards mobilising non-tax revenues and rationalisation of expenditure will be some of the factors that could impact fiscal consolidation.  However, to make progress towards fiscal consolidation, the study said, states should amend their fiscal responsibility and budget management acts and work out a fiscal reform path.  “States also need to review their tariff policies, especially those relating to the power and irrigation sectors,’’ the study said.  On GST, the apex bank said given the uncertain revenue implications of its introduction, states should undertake a careful management of their finances in the next few years. However, the introduction of GST can enhance the competitiveness of Indian industry and trade. The strengthening of state finance commissions is essential to ensure allocation of adequate resources to local bodies, the report added.

Bank guidelines soon

New Delhi, March 28: Draft norms on new banking licences will be announced in the next few days, the finance ministry said.  “The RBI will come up with the guidelines by the end of this month,” R. Gopalan, secretary in the department of economic affairs, said. The finance ministry will review the guidelines and comments will be invited from the public before the final guidelines were notified, he said.

Longer wait for bank licence

New Delhi, March 21: New banking licences will be given only after the government vests more powers with the Reserve Bank of India to control the new entities — a process that is unlikely to be over in the next fiscal. Amendments to the Banking Regulation Act that will give more powers to the RBI are likely to be tabled in the monsoon session of Parliament. The act will in all probability be referred to a standing committee, effectively puncturing all hopes of industrial houses bagging a licence in fiscal 2011-12.  “Empowering the RBI is essential for obtaining information about the other businesses of the corporate houses seeking banking licences in order to protect depositors’ interests,” said officials.  The government is also likely to set up a panel to vet the draft entry rules framed by the RBI. “Effectively, new licences will be given by the end of 2012,” said the officials. The apex bank had brought out a discussion paper in August on licences to business houses and non-banking finance companies, and regulations to foster competition.  Finance minister Pranab Mukherjee had said in his budget speech that the RBI was planning to issue the guidelines before the close of the current financial year. The Economic Survey 2010-11 had suggested two types of licences, one for providing basic banking to fulfil the obligation of financial inclusion and the other for full banking encompassing all the activities of a commercial bank. Meanwhile, the RBI has said it will look at the business plan for financial inclusion before granting a licence.  “One of the criteria for evaluating an application (for new bank licence) that we will get in the due course of time will indeed be the business plan for financial inclusion,” RBI governor D. Subbarao had said earlier this month.  The RBI has been contemplating whether to make it mandatory for new entrants to have a rural presence or to leave it to the competition in the market to force them to look for newer markets. Of the 600,000 habitations in the country, only about 5 per cent have a bank branch. Only 40 per cent of the population have bank accounts. India has 27 public banks, seven new private banks, 15 old private banks and 31 foreign banks.

WRONG LIMITS

There are signs that the Reserve Bank of India has decided to ignore the criticism of its Malegam report and enforce its recommendations. It is expected to introduce price control on interest that microfinance institutions may charge rural borrowers. Price control gives those subjected to it an incentive to increase costs. To prevent it, the RBI will also introduce a cap on their profit margins. That will also control what they can pay for the funds they borrow. Here, the RBI is principally thinking of banks, of which it is the prime regulator. In essence, it is going to tell the banks that they cannot earn more than a certain limit on small loans to villagers.  The rate being bandied about is 12 per cent. Since the average interest earned by public sector banks on their bills and advances in 2009-10 was only 8.3 per cent, the RBI must feel that it is doing banks a favour if it lets them earn 12 per cent on rural loans. But a high proportion of government banks’ loans goes to politically favoured borrowers such as farmers, small industrialists and government enterprises; if they are excluded, the interest rate earned is considerably higher. So the RBI is likely to make banks’ rural credit no more paying than their urban commercial loans. It will thus deprive banks of all incentive to lend to villagers, who are dispersed and more expensive to service. That will perpetuate the malaise that has pervaded till now: villagers will continue to be under-served by banks. Those banks that still try out the rural market will have their costs further increased by maximum limits on the size of loans. They will also be forbidden to lend to villagers whose income exceeds a minimum; in other words, they will not be allowed to reduce their average risk by lending to more substantial farmers and traders. The net effect of these well-intentioned and ill-thought-out measures would be to leave the rural credit market to moneylenders at whose mercy villagers have been all these centuries. The RBI prides itself on being a conservative institution, but this is surely taking conservatism too far. More importantly, the RBI is a nervous regulator which puts protection of its reputation above development; it therefore prefers oligopolistic markets in which a few banks make comfortable profits. That is the market structure it has created in cities; it is determined to replicate it in villages. Viewed in this fashion, it is not just its approach to rural credit that is inimical to development; it is its stranglehold on the banks that is harmful. The country would benefit, whether in towns or in villages, from vigorous competition among a larger number of banks. If that makes the bank regulator’s job more difficult, that is an argument for redesigning the regulator.

April 1 date hint for MFI interest rate cap

The Reserve Bank of India may impose an interest rate cap on loans by microfinance institutions (MFIs) from April, in line with the recommendations of the Malegam committee last month. According to RBI Deputy Governor K.C.Chakrabarty, the apex bank has commenced talks with the stakeholders on the implementation of the Malegam proposals. “Some part of the report such as interest rate will be applicable from April 1,” he said. He, however, said officials at the RBI were still discussing the proposals and no binding decision had been taken it. The committee, headed by Y.H. Malegam, proposed the capping of interest rate charged by the MFIs at 24 per cent. Its recommendations followed a regulation by the Andhra Pradesh government restraining the MFIs from adopting strong-arm tactics to facilitate loan recovery. It also stipulated that the loan repayment cycle should at least be monthly from the earlier practice of weekly collections.

Experts solve forex riddle for students

With a view to provide basic information about foreign exchange (forex) facilities available for students/ researchers going abroad, the Reserve Bank of India (RBI) in association with Indian Institute of Technology (IIT), Patna organised an interactive session programme titled “Forex for you”. Students from IIT, NIT and other engineering colleges attended the session. A panel of experts comprising G. Mahalingam, Regional Director, RBI Patna, S. Maurya, Deputy General Manager, RBI, Shrimohan Yadav, General Manager, RBI, Naveen Chandra, AGM, SBI, and A. Saha, GM, Thomas Cook answered students queries over financial issue.  Students were inquisitive about a number of things such as how to unravel black money, how to control inflation, how monetary value is determined, what will be the future of the economy, implications of artificial depreciation of Chinese yuan, what quantum of forex could be taken away to a foreign country and how much of it could be remitted back, whether an engineering graduate can undergo training in RBI, can banks be asked to reduce the interest rate on education loans etc. “The experts broadly spoke about the various facilities relating to foreign exchange available to students and to the general public for different purposes such as travel, study, employment, business, medical needs etc,”  In response to a question regarding the future of Indian economy, Mahalingam said: “India is managing its affairs pretty well. Fiscal deficit is well managed, the only concern is the inflation which is because of supply side problem and RBI can interfere to control it only when it is a demand driven.” “Please don’t worry about India’s economy. You (students) go abroad for study and comeback as we want you to be in the country,” Mahalingam told students.