Monetary policy management becoming tougher: RBI Governor

Reserve Bank of India (RBI) Governor Duvvuri Subbarao today said it is a real challenge for the Reserve Bank to support economic growth and batten down the surging inflationary pressures, hinting that it will be a tight-rope walk for him on January 25. The central bank is slated to unveil the third quarterly review of its monetary policy on January 25, when it is expected that RBI will tighten its policy tools by another 25-50 basis points for the seventh time in a row in this fiscal, as both food as well as headline inflation numbers have been on a northward-ho since the last policy announcement on November 2 when the bank had announced that monetary policy neutralisation process was over.  "Though we recovered faster from the crisis, inflation also caught up with us sooner than others. For the Reserve Bank the challenge is to calibrate monetary policy taking into account the demands of inflation management and the demand of supportive recovery," the Governor told the students of the Indira Gandhi Institute of Development Research on their convocation here today. "A lot of other countries are still flirting with deflation... and are still concerned that they might have deflation. On the other hand, we are having a surging inflation," the governor said, and noted that there has been broad-based recovery across the globe in general and across the sectors of the domestic economy, following the slew of fiscal and monetary prop-ups.

RBI Governor D Subbarao participates in the Mumbai Marathon 2011, in Mumbai on Sunday.

Oxford Bookstore, Delhi hosted the launch of a book, "Indian Financial System - Evolution and Outlook" by former Executive Director of Reserve Bank of India (RBI), Mr. K.L.Khetarpaul. The book narrates the basics of finance, banking and insurance sectors - their evolution, present structure and outlook - and serves as an easy reference to understanding the complexities of today's financial environment. The book also covers the role of RBI in effectively guiding the sector. "Indian Financial System- Evolution and Outlook has been written with the intent to demystify the complexities prevalent in the financial system of India," said Mr. Khetarpaul, who has served for more than 37 years at India's most prestigious and elite financial institution, Reserve Bank of India. The launch was followed by an insightful discussion on the current scenario of the financial system and country’s monetary policies.

Conference on Payment Systems

Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India (RBI) has kindly consented to be the Chief Guest at the 7th Edition of Conference on Payment Systems on 19th January 2011 at Mumbai and make the inaugural address. Now in its 7th year, Banknet's Annual Conference on Payment Systems is the largest payments event in India and has gone from strength to strength. It has on average attracted around 300 senior executives from around the globe. Theme of Payment Conference 2011 is “Moving to next generation payment systems & solutions” and would focus on new products & initiatives which will take payments in India to the next level. An Exhibition in the pre-conference area will show case the new products & solutions. Banknet will also release at conference a social awareness Short Film/ TVC for enlightening rural & semi-urban population to open accounts in banks. This will promote the habit of savings & get them access to banking facilities, loans etc. This initiative is in line with the major financial inclusion campaign of Reserve Bank of India & Government of India. Top level executives from National Payments Corporation of India (NPCI), Reserve Bank of India (RBI), Major Public Sector, Private Sector, Cooperative, Foreign Banks and Technology Vendors, Business Schools, Management Consultancies will address the Conference. Top Management Executives from National Payments Corporation of India (NPCI) the umbrella institution for all the retail payment systems in the country will discuss the latest initiatives like Instant Interbank Mobile Payment Service(IMPS), Centralized Mandate Management Repository System (CMMRS), IndiaPay, New Domestic POS etc. Conference will commence with a plenary session and thereafter it will be followed by specialized vertical streams on Cheques and ACH, Mobile Payments, Card Payments and conclude with a technology session.

Well organised by CAB - Conference on Microfinance

My trip to Mumbai-Pune last week to attend a Conference on Microfinance - Translating Research into Practice was a rich and memorable experience for more than one reason. I was in rural banking for nearly three decades but had never visited College of Agricultural Banking-Reserve Bank of India campus in Pune all these years. And I was attending a high level Conference on Microfinance (my current area of research interest) organised by two giant institutions - IFMR-CMF and CAB-RBI attended by Academicians, Bankers, Researchers, Consultants, NGO-Voluntary Organisations, Policy makers like RBI-NABARD-SIDBI, Insurers, Authors, and so on. The facilities in CAB campus were very well organised and delegates were well taken care of. The style in which the deliberations went on was also interesting.  Panel discussions were chaired by experts in the field and researchers began with their presentations. These researchers were bright and young Indian students having studied abroad and now taking up such studies.  Overall, it was a great congregation. - Prof Chowdari Prasad,  Dean (Planning & Development), T.A. Pai Management Institute, Manipal

Pay 2% commission for mobile banking transactions

Customers wanting to operate their accounts through cellphones must shell out a 2% commission to the bank, a government panel set up to frame rules for mobile banking has said. Any cellphone customer can create a ‘mobile linked no frill’ account to deposit, withdraw and transfer money, and execute the transactions through a mobile-based m-PIN system or through micro ATMs run by telecom service providers, said the inter-ministerial group’s report, which was circulated to all stakeholders, including the Reserve Bank, last week. Franchises or own outlets of telecom companies could serve as retail points for the customer. The group’s financial inclusion recommendations, which aim to link the accounts to the unique identification number, or UID, can become policy only after they have been approved by the RBI. “To promote adoption, government payments under various schemes will be directly credited to these mobile linked no-frills accounts once the citizen registers with the government agency providing such benefits,” the report adds. The report said banks, in turn, must pay the telco a minimum of Rs 2.25 per transaction or 1.4% of the total amount which should be gradually reduced to 1% over five years. And if the telco were to set up mini ATMs then banks must pay a minimum of Rs 3 per transaction or 2.25% of the amount. The tech vendor setting up the IT network linking the bank, the telecom company and the UID can be paid a maximum of Rs 1 per transaction by the bank.

Conference on Emerging Role of Banking Sector in Economic Development & Growth of Business

PHD CHAMBER has organised a conference on Emerging Role of Banking Sector in Economic Development & Growth of Business ‘An Interface between Industry and Bankers’ at  on January 17, 2011 at 11:00 a.m. at  PHD House, New Delhi .    

Mr. K R Kamath, Chairman and Managing Director, Punjab National Bank

Mr. R K Dubey, Executive Director, Central Bank of India

Mr. Sandip Ghose, Regional Director, Reserve Bank of India

Mr. Sunil Pant, Chief General Manager, State Bank of India

Finmin blocks PF payout @ 9.5%

The Finance Ministry has rejected the 9.5% interest pay out proposed on provident fund savings for 2010-11 saying the ‘surplus funds’ found by the PF department from its past accounts were ‘unverifiable.’   Labour Minister Mallikarjun Kharge had recommended raising the employees’ provident fund (EPF) rate to 9.5% in September 2010 after the PF department’s accounts revealed a surplus from the past.

UCO Bank opens ‘lockless’ branch in temple town

The United Commercial (UCO) Bank has opened the country’s first ‘lockless’ branch at Shani Shingnapur in Maharashtra, even as the Centre has made hitech security mandatory for all nationalized and private sector banks. Shani Shingnapur is a small town in Ahmednagar district whose presiding deity is Lord Shani. More than 5,000 devotees visit the temple every day, while on weekends the number crosses the 1 lakh mark.  “We took note of the general belief and faith of the people. Ever since the most revered temple came into existence several years ago, the village has not witnessed a single crime. In fact, all houses in the entire village have no doors. We took the risk and started the lockless bank a week ago,” a senior bank official said. Our branch has doors, but they will never be locked. Adequate precautions are being taken for the safety of lockers and important documents,” he said, adding that the UCO branch is planning to start an ATM near the temple.  On local sentiment, Gadakh said that, by and large, it is believed that because of Lord Shani’s power, the village has not witnessed a single theft or robbery in the recent past. “People here fear that if there is a theft or robbery, then the culprit and their family have to bear the wrathof Lord Shani,” he said.  Unhappy local police officials said the branch has been started in blatant violation of norms prescribed by the Centre. “In view of increasing bank robberies, the Centre has made it mandatory for all banks to provide state-of-the art security. If a bank opens a lockless branch, then it amounts to a breach of conditions. We will take it up with the DGP and RBI,” a senior police official said.

Standard Chartered Mumbai Marathon 2011: When Mumbai ran for causes

What's your time?" that was the question on everybody's mind-athletes, corporate chiefs, celebrities and the common man alike who participated in the Standard Chartered Mumbai Marathon 2011 . Although everyone was keeping a close watch on their timing, it really didn't matter in the end. What stood out were the causes for which they all ran and a sense of solidarity. In its eighth year, the event saw 38,400 participants against 22,000 in its year of inception. Reserve Bank of India Deputy Governor Shyamala Gopinath , in her third consecutive year, clocked little over an hour to complete the dream run. She was happy to participate in the event along with her over 200 team members.

RBI panel likely to suggest capping microfinance rates

The Malegam panel set up the RBI to study the MFI business in the country following a spate of suicides in Andhra Pradesh due to harassment by loan recovery agents is likely to propose a cap on interest rates charged by these bodies in a report to be submitted on January 20.  In October, the RBI set up a sub- committee chaired by H Malegam to study issues and concerns in the microfinance sector, including the interest rates charged by them. Sources said the committee has finalised its report and is likely to propose a cap on the interest rates that these microlenders can charge from customers. The report, sources said, will be submitted to the Reserve Bank on January 20. The report is widely awaited, since the Finance Ministry is expected to draft a bill to regulate MFIs on the basis of the subcommittee's recommendations. Till now, the Finance Ministry has been opposing any cap on the interest rates charged by MFIs, saying such a move will make the business model unviable for these MFIs.

Small change – Big problem

Economists say the phasing out of small coins is mostly to do with inflation. The accumulated inflation over several decades has brought down the value of 25 paisa to the point that there are virtually no transactions worth this denomination left.  India’s inflation rate has been rising steadily. Last year, it hovered between nine and 10%. Many believe this is the major reason why low-denomination coins are disappearing from India, while they continue to exist in western countries. Compared to India, inflation in the UK and US is much less — between 2-3%. This means that there is relative stability in prices. Therefore, coinage in the same set of denominations can continue in these countries for a long time,” says Kaushik Bhattacharya, associate professor at IIM, Lucknow.  For the aam admi, this means less change in the pocket — both literally and metaphorically. The absence of lower denominations also means that most people are forced to round off transaction to the nearest rupee. But what impact does it have on the monetary system? Panagariya says “the best way to think about it is to ask what are the smallest common transactions worth in today’s market. Coins of that denomination are useful to have.” Historically, small change has played an important role in ensuring smooth day-today transactions and its absence has often led to big problems. In their book “The Big Problem Of Small Change”, economists Thomas J Sargent and Francois R Velde point out that small denominations have a special role — they can be used to purchase expensive items, while large denominations cannot be used to purchase cheap goods. Small coins are therefore essential to ensure transactions happen without a hitch. Bhattacharya says that the best way to understand this is to imagine a great shortage of coins. “This would result in absence of change for each transaction, thereby increasing transaction costs. It could also force consumers to buy from the same producers. For instance, during a coin shortage in Kolkata, bus conductors were handing out tokens instead of change. Commuters were therefore forced to travel on the same buses to utilize the tokens.” With rising inflation, it may not be surprising if the atthanni — or the 50 paisa — goes the way of the chavanni. “Inflation may further erode the internal value of the rupee and the rupee may become the smallest denomination coin in the future,” says Panagariya, gazing into his crystal ball on demand. But this may happen sooner than later, because of increased production costs. Most 50 p and Re 1 coins are made of stainless steel, which makes their metal value higher than their face value. There is speculation that in the future, the size of existing coins may be re-shaped in a bid to cut costs, so that a 1 Re coin becomes the size of 50 p; a Rs 2 the size of Re 1 and so on. Rising costs would have an impact not just on coins, but also on currency notes. The Reserve Bank of India (RBI), the nodal agency responsible for ensuring the country’s currency flow, says that alternatives are being considered in order to trim minting/printing costs. “Plastic money is one of the methods by which the life of currency notes can be lengthened. We have decided to conduct a field trial of plastic money this year,” says Alpana Killawala, RBI spokesperson.    

The direct taxes code, if implemented in its present format, could change the way of calculating double indexation

As the Income Tax Act (ITA) enters its last lap, making way from April 1, next year for the new Direct Taxes Code (DTC), investors should be careful of overlapping investments. Such investments are those, where the ITA is applicable when making the investment, whereas it is the DTC that will apply at the time of maturity. For example, take fixed maturity plans (FMPs) of mutual funds. A major selling point of such schemes is the benefit of double indexation – the scheme is so structured that the term overlaps two financial years. Under the DTC, this strategy of double indexation isn’t available. First, let’s understand the concept of indexation. For calculating the gains/loss, we reduce the cost of acquisition from the sale value. The tax payable is either a flat 10 per cent on gains or at 20 per cent taking inflation into account. For the latter, the Central Board of Direct Taxes releases the index figures for each financial year. Such an index is known as the Cost Inflation Index (CII). The CII for FY 10-11 is 711. In case of FMPs, double indexation is a neat trick, where you hold an investment for a little more than a year but get the benefit of the index multiple of two years. The FMP is for 370 days, exactly five days more than one year. However, check out the date of investment and date of exit. The entry date is March 29, 2011, that is, financial year 2010-11. The date of sale is April 3, 2012, that is, financial year 2012-13. By holding the investment a little into the next financial year, an investor can use the facility of the CII for two years. The gains turn into long term capital loss after indexation is considered. Consequently, the entire maturity value is rendered tax-free. However, in the above example, note the maturity date is April 3, 2012, that is, financial year 2012-13, when the DTC will be operational. So, though at the time of investing, it was the ITA that was applicable, at the time of maturity, the DTC will apply. This will change the tax impact. DTC also offers the indexation facility, but the taxpayer cannot consider inflation in the year the asset was purchased. Rather, it allows investor to consider indexation from the subsequent financial year onwards. In other words, in the denominator, instead of the CII pertaining to the year of purchase, the CII pertaining to the year after the year of purchase has to be taken. This small but significant modification basically makes the entire double indexation concept redundant. This dual applicability at the time of entry and exit will be applicable not only to mutual fund schemes but also to investments such as insurance plans, bonds and even to payments that earn tax deductions, such as home loan and tuition fees. Therefore, before committing their funds for the long term, investors should take care that the investments are tax-efficient and in conformity with DTC, rather than the current ITA.

RBI awareness drive on fake currency

Waking up to the threat of fake currency flooding in Malda, the Reserve Bank of India held a daylong awareness workshop in Malda town on Friday against the menace. The programme was held in association with United Bank of India, Malda region. Police say Malda is the transit point for fake currency smuggled in from Bangladesh. Last year, nearly Rs 1 crore in fake currency was recovered from the district. Most of the smugglers were arrested from Kaliachak. Babu Ram Karjee, the General Manager of RBI (Kolkata), said, "As far as fake currency is concerned, Malda is under the spotlight. RBI is always trying its best to prevent counterfeiting of currency, which is why we keep upgrading features on our notes. But those manufacturing fake notes also keep updating their technology. But some of the security marks in an original Indian note are impossible to replicate note. Some security features can be seen with naked eyes, while the others can be checked with special instruments."  RBI plans similar programmes along the Indo-Bangla border involving villagers and gram panchayats.

Banks seek credit guarantee on edu loans

Banks have urged Reserve Bank of India to allow a cushion in education loans domain in the form of a credit guarantee scheme. Rising NPAs in the education loan segment have provoked banks to ask for such a scheme. The idea was proposed in a meeting of RBI Deputy Governor Subir Gokarn and his team with heads of 11 banks in government, private and foreign domain. The meeting was attended by the chairmen of SBI, Punjab National Bank, Canara Bank, Bank of Baroda, ICICI Bank, HDFC Bank, Allahabad Bank, Karnataka Bank, foreign banks such as HSBC and Standard Chartered Bank. The dipping asset quality of education loans owing to delayed repayments coupled with collateral free lending upto Rs 4,00,000 have posed a major concern for banks. "While the intention is for a greater common good, the borrowers defy repayments as the banks have no means to impound them," bankers said.

Govt clears appointment of Anand Sinha as RBI Deputy Governor

The government has approved the appointment of Anand Sinha, a career senior central bank official, as a Deputy Governor of the Reserve Bank of India (RBI).  Mr Sinha will be the fourth Deputy Governor at RBI, joining Shyamala Gopinath, K.C. Chakrabarti and Subir Gokarn. He will succeed Usha Thorat who retired a little over a month ago. Two deputy governors are appointed from within the central bank, besides a banker and an economist.  Mr Sinha, one of the most respected Executive Directors at the central bank, has provided significant intellectual inputs for several regulatory and supervisory policies, including the paper on entry norms for new private and foreign banks. He is expected to ease the burden of Shyamala Gopinath, who is now handling several portfolios. The new Deputy Governor’s expertise is in the areas of supervision and banking operations department. Mr Sinha, who turns 60 next month, may get a two-year term since deputy governors normally get to serve till the age of 62. Earlier, a search committee, comprising RBI Governor D Subbarao, Financial Services Secretary R Gopalan and National Institute of Public Finance and Policy Director Govind Rao, had interviewed six Executive Directors from RBI and selected Mr Sinha.

Expected due diligence level not followed : RBI

The Reserve Bank of India (RBI) said on Friday a review of some banks revealed that in certain cases the lenders failed to monitor the use of funds by borrowers effectively, enabling them to divert the money into other areas. "The review revealed that the expected level of due diligence had not been exercised in some cases facilitating diversion of funds by the borrowers," the central bank said. "The shortcomings, amongst others, included, crediting of term loan disbursements to the current/cash credit accounts of borrowers and utilisation thereof for day-to-day operations..." In a notification released on the central bank's website, the bank reiterated that the process of post loan sanction supervision and follow-up of advances should be made robust. The RBI emphasised that banks must monitor that companies availing of loans are using the money for the purpose specified, deterring them from misusing the credit facilities sanctioned by the bank. RBI, in its circular, also reiterated the guidelines on monitoring end use of funds after its ongoing supervision process revealed some lapse in the due diligence process in some banks.

Banks gear up to meet RBI target

RANCHI: All leading nationalised banks in the state have joined hands to achieve targets set by Reserve Bank of India governor D Subbarao, who during his recent visit expressed dissatisfaction over the lending trends of the banks.  In consultation with the banks, the regional office of the RBI has chalked out an action plan to give impetus to the banks' financial inclusion programme and improve the credit-deposit (CD) ratio. Addressing a joint press conference on Friday, senior officials of the nationalised banks along with RBI General Manager H N Panda and Chief General Manager of the NABARD M.V.Ashok gave details of the programme taken up by the banks in this month. General Manger of Allahabad Bank, the convener bank for state-level bankers committee (SLBC), D Chakravorty said all the banks in the state would take up special financial inclusion drive on January 17 and 18 during which no-frill accounts for customers would be opened.  During his two-day visit in December, the RBI Governor took serious exception to the fact that all blocks in state did not have banking facility. Panda said branches of various banks had been opened in every block within a month and the Bank of India would soon open a branch in the only new block, Gudri.  "There are 1,541 villages in Jharkhand with a population of over 2,000 where banks have to extend facilities by March 2012 as per the RBI directive," he said.

RBI will take right action to stablise prices: Pranab

Amid expectations that RBI will hike policy rates later this month to tame high inflation, Finance Minister Pranab Mukherjee on Friday said the central bank will take appropriate monetary action to stabilise prices. “Whenever the appropriate adjustment of the crucial rates is called for in the larger interest of the economy, including the price stabilistion, the RBI takes appropriate policy in consultation with the government,” Mukherjee told reporters. He was addressing a joint a press conference with World Bank Group President Robert Zoellick in New Delhi. Mukherjee said the Reserve Bank of India (RBI) always keeps the economic situation under review. The RBI is widely expected to raise short-term lending and borrowing rates - repo and reverse repo in its policy review on 25th January to tame inflation, particularly food inflation.

New MD for SBI Funds Management

SBI Funds Management Pvt. Ltd on Friday said it has appointed Deepak Chatterjee as its new Managing Director (MD) with effect from Thursday. SBI Funds Management is the investment manager for SBI Mutual Fund. Chatterjee has more than 32 years of experience in the banking sector and in his previous assignments in the last 10 years has held senior positions in State Bank of India (SBI) and SBI Capital Markets Ltd.

State Bank Of India launches 'Bank on Bike' in Andhra Pradesh

As part of its financial inclusion plan, State Bank Of India (SBI) today launched an innovative concept, 'Bank on Bike', to reach out to the unbanked population. Cheriyal in Medak district of Andhra Pradesh, 60 kms from Hyderabad, became the first village in India to welcome 'Bank on Bike' (based on mobile banking idea). The scheme was launched by Shiva Kumar, deputy managing director, SI-AP Circle. The Centre's financial inclusion plan aims to cover all villages with a population of 2,000 for providing basic banking services. Andhra Pradesh has been allotted 1,381 villages, where SBI has to provide services by March 2012. 'Bank on Bike' concept has been introduced to cover more villages at less cost, Kumar said. Cost was coming in the way of faster implementation of the plan and with that in mind this innovation has been introduced by SBI, he added.

Delays in RBI, SBI appointments slow down policy decision-making

Inordinate delays by the government in making appointments for crucial posts in Reserve Bank of India and State Bank of India have resulted in slower policy decision-making. For more than two months now, the deputy governor’s position has been vacant in Reserve Bank of India. Usha Thorat, one of the four deputy governors of the central bank, retired on November 10. To identify Thorat’s replacement, a search committee was formed and interviews were conducted as early as the first week of September. Though a search panel, headed by RBI Governor D Subbarao, recommended a few names soon after the interviews were over, the government is yet to make up its mind. Similarly, the managing director’s post in State Bank of India (SBI) — the country’s largest lender — is also vacant after the retirement of S K Bhattacharyya on October 31. SBI’s case is, however, slightly complicated.  A few rounds of interviews have already been conducted, in which four of the seven deputy managing directors have appeared. Sources said those interviews were conducted not only to choose Bhattacharyya’s replacement but also to appoint two more MDs. Following the amendment to the SBI Act, the government can appoint four managing directors on the board of the bank. However, no appointment has come so far. The government has also conducted interviews for the SBI chairman’s post as the present chairman O P Bhatt will superannuate on March 31. Whatever may be the reasons for the delays in the appointments, important policy formulations, especially at the central bank, are getting delayed as a result. Mint Road sources said the work of issuing guidelines for new banking licences has been going on at snail’s pace since Thorat’s exit was finalised. Thorat was heading the department of banking development and operations – the department which is forming the guidelines. “The absence of a full-time deputy government has affected the progress on this crucial issue,” an RBI source said. RBI had decided that another Deputy Governor Shyamala Gopinath would look after Thorat’s department till a new DG was appointed. As a result, Gopinath has been handling 19 departments since early November. That RBI will issue guidelines for the entry of new banks was announced in the budget of 2010-11, in February, and in the last one year only a discussion paper was floated. Towards the end of December, RBI published the gist of feedback that it had received from individuals, banks, business houses and others on the discussion paper. Similarly, the road map for foreign banks in India, for which a discussion paper was scheduled to be put up by September, was announced by the governor during the Annual Policy Statement in April. But that deadline was missed long back. On the issue of new bank licences, sources said RBI was keen to issue the draft guidelines very soon as it was announced in the budget last year, and the government may want to know the progress made since then. Over the past few years, the government has started presenting an action taken report of the last budget announcement along with the budget of that year.

Union Bank awarded SKOCH Financial inclusion Award

Is inflation rising on changing consumption pattern?

Ahead of monthly inflation numbers that are due on Friday, the Reserve Bank of India (RBI) has said that food inflation seems to be pointing towards changing consumption patterns as India gets more affluent and people move towards more high value commodities. Echoing RBI’s stance, Planning Commission chairman Montek Singh Ahluwalia said, “The high inflation number points towards people eating healthier food, better lifestyles.” According to him, changing consumption patterns & richer protein diets among Indians could be the reason behind the inflationary spiral.

ICICI Bank to make credit Card IVR transactions more secure from FEB 1

From February 1, 2011, IVR tansactions on ICICI Bank Credit Card will be completely secure, as per ICICI bank. Based on a Reserve Bank of India mandate, The bank has introduced an additional layer of security for IVR transactions on ICICI Bank Credit Cards. Every time you pay for a purchase or service through any merchant’s telephone system (IVR), you will be asked to input a One Time Password (IOTP). One can generate the IOTP via SMS or ICICI Bank website or even in realtime during a purchase. This one-time password is valid for 24 hours or one transaction, whichever is earlier. After February 1, 2011, no transactions over IVR will be carried out without IOTP verification, as per the bank.

Banks, BCCI in trouble with RBI over South Africa IPL

The Indian Premier League (IPL) in South Africa was littered with violations of foreign exchange laws, according to the Reserve Bank of India (RBI). In the over three years that it has existed, the IPL’s history has been a narrative seeped in scandals, mainly financial. The Reserve Bank of India or RBI has found serious violations by the IPL’s parent body, the Board of Control for Cricket in India (BCCI) in connection with the second edition of the Twenty20 league that was held in South Africa in 2009. The RBI has submitted a detailed report to the Parliamentary Standing Committee on Finance that’s examining alleged financial impropriety in the IPL. The report says that the BCCI did not get the required permission from the RBI to open foreign exchange accounts in South Africa.

RBI mulls new category to regulate more MFIs

The Reserve Bank of India (RBI) is likely to create a separate category in the non-banking finance company (NBFC) space to include more microfinance institutions (MFIs) for regulation. The central bank’s proposal to create the NBFC-MFI category comes on the back of recommendations made by a committee headed by Y H Malegam that MFIs operating with a profit motive should be brought under the purview of RBI. Malegam is on the board of RBI. The committee was set up by the banking regulator in October to look into various issues related to MFIs, including the interest rates charged from borrowers and practices used by them for recovering loans.  At present, RBI regulates those MFIs which are registered as NBFCs. Although the registered companies cover over 80 per cent of the microfinance business, in terms of number of companies they constitute a small percentage of the total number of MFIs in the country. Parameters such as maximum exposure, net worth and minimum capital requirements will be prescribed for those entities. The committee will define which institutions can be termed as MFIs and what constitutes micro credit. Sources said, as recommended by the Malegam panel, the regulator would bring about regulations for the new category which would prohibit all in it from resorting to coercive recovery practices. In addition, the committee has recommended the regulator cap the interest rate charged by MFIs. At present, the rates charged by MFIs go as high as 32 per cent. However, bank loans to MFIs, classified as priority sector lending, would continue, a banking industry source said. “Taking away the priority sector status will make loans costly for MFIs, which can make the business model unviable,” he said. MFIs raise about 75 per cent of their borrowings from banks, 15 per cent from equity and another 10 per cent from other sources like cash securities. Though NBFCs come under the non-banking supervision department (NBSD) of the central bank, it is not clear whether the NBFC-MFI category will be with NBSD or the rural planning and credit department. The Malegam committee which was constituted in October had Shashi Rajagopalan, U R Rao, Kumar Mangalam Birla and K C Chakrabarty, deputy governor of RBI as members. V K Sharma, an executive director of RBI is the member secretary of the committee.

PM to meet RBI Governor to discuss monetary measures to curb inflation

The Prime Minister, Dr. Manmohan Singh will meet Reserve Bank of India (RBI) Governor D Subbarao over the possibility of further monetary steps to check price rise here today. Dr Singh’s meeting with Subbarao comes ahead of RBI’s quarterly review of monetary policy on January 25. RBI has already raised the short-term key borrowing and lending rates six times in 2010 in a bid to raise cost of funds and check inflationary expectations.

RBI must be main regulator for fin holding cos: Panel

The Reserve Bank of India (RBI) should be the main regulator, for prudential and supervisory functions, for financial holding companies (FHCs). This is part of the draft recommendations of an internal working group of the Reserve Bank, set up to draw a road map for the introduction of a bank holding company structure.  The committee has, however, noted that if the government retains its majority shareholding in State Bank of India and other public sector banks, they cannot move to a holding company model.  The group, headed by Deputy Governor of RBI Shyamala Gopinath has suggested that the FHC structure should be made mandatory for new entrants to the banking space. An FHC will typically have a bank, an insurance company, an asset management company and others of the sort operating under it. But, the report says setting up such a structure will require extensive amendments to the Banking Regulation Act, 1949, including giving clear powers to RBI to regulate the holding company. Amendments to the Act are now pending in Parliament, but the Gopinath group says those are not enough. The Gopinath group has also recommended a fully capitalised model for the holding company instead of an intermediate holding structure as that would make the relations between the operating companies and the holding company, complex. The need for a holding company structure has risen in India as banks have diversified into several lines of business and need more capital from markets to expand further. A holding company model would, among other things, givethem the advantage to raise capital riding on the brand value of the group, which is not possible now. On the issue of supervision, the group has apparently recommended consolidated supervision to ensure safety of depositors, investors and creditors. “However, amendments will have to made to the Banking Regulation Act and even the RBI Act to bring FHCs under a proper regulatory jurisdiction with particular reference to registration, inspection, giving directions and calling information,” said a source in the know of the developments.“The committee is also expected to suggest two options to financial conglomerates for migration to the FHC model. They could either consider demerging the banking business into a new wholly-owned subsidiary or create a new company altogether and its shares to shareholders of the existing banking company,” said the source. The committee is also expected to take a view that the financial conglomerates should be given the option to choose if they want to migrate to the holding company structure. FHCs, the committee is of the view, should not face any limits while expanding into non banking financial areas. Several legal changes have been suggested by the committee to make the FHCs happen. This includes the need to amend the ceiling on voting rights for shareholders of banks, which is part of the Banking Regulation Amendment Bill 2010. Currently, irrespective of the shareholding the voting right is capped at 10%. Others include changes in the Companies Act and in the RBI Act.

Conference on Micro Finance held at CAB on January 12 &13, 2011

Sending Money Home, Making Finance Work for Mobile Populations - Chair: Dr. Deepali Pant Joshi, Chief General Manager, Rural Planning and Credit Department, Reserve Bank of India

In the second session, panelists discussed some issues that have prevented institutions from extending high quality financial services to India’s 100 million internal migrants and other highly-mobile populations. Mr. R.R.Kulkarni, Faculty of the College of Agricultural Banking, introduced a Centre for Micro Finance/CAB study carried out on remittances in India. The intention of the study was to inform policy through a study of the options available to migrants to transfer wages from destination (where they are earning) to source (where they have migrated from), how migrants choose one of the options and the total cost, both formal and informal, of these options. There are four channels used by migrants: banks, postal money orders, couriers (hawala and cash), carrying oneself and sending with a friend. Four routes were examined in the study: Bihar to Hoskote, Tamil Nadu to Mumbai, East Orissa to Surat and West Bengal to Delhi. Migrants were first interviewed in the location in which they were working, and then the families of these migrants were contacted and interviewed afterwards. Dr. Ajay Tannirkulam, Programme Head at Centre for Micro Finance, then presented the results of the study. The main take-away from the data is that migrants prefer to use banks to make transfers because they are safe, secure, and cheap, but are overwhelmingly unable to. One of the reasons for this is because migrants lack the required documentation to open a bank account. In hometown villages, it is costly for the families of the migrants to travel to the bank to withdraw the remittance. Moreover, there are low literacy levels among migrants creating difficulty in filling out bank vouchers. This study, along with a study carried out by the German International Cooperation (GIZ) and presented briefly by Ms. Therese Zak, point to the need for increased access to banks and other easily accessible services that provide safe, cheap, and secure methods to transfer remittances. Mr. G.C.Bandyopadhyay, Deputy General Manager of State Bank of India, presented on a new product that is helping to fill this gap in the market, “Tatkal Money,” or “Instant Money.” This product uses exciting Smart Card technology and mobile phones to make instant money transfers at the low cost of Rs. 2.5 for every Rs. 1000 (minimum cost of Rs. 25). Moreover, this service is carried out through business correspondents, which are much more easily accessible for migrants than banks. The innovation of Tatkal has greatly increased business correspondent transaction volume and value. Mr. Abhishek Sinha, Co-Founder & Chief Executive Officer of Eko India Financial Services, took the opportunity in the panel to lobby for greater integration of business correspondents in the formal banking sector. However, Dr. Deepali Pant Joshi, Chief General Manager in the Rural Planning and Credit Department at the Reserve Bank of India, maintained that the goal of the RBI’s inclusion plan is very clearly through mainstream formal options, which excludes business correspondents. Although we cannot look forward to integration of business correspondents into the regulatory framework, they are still a very important part of increasing financial access among migrants. Finally, Mr. Rajiv Khandelwal, Founder and Director of Ajeevika Bureau, broadened the discussion to look at the larger set of financial needs among migrants. There are occupational hazards that can end up being very costly for migrants, and many migrants are forced to leave the labor market early because of these hazards. There have to be instruments that help migrants plan savings for foreseeable events and provide insurance for unforeseeable events (involuntary loss of wages).

SEBI may set up SME exchanges: Bhave

The Securities and Exchange Board of India (SEBI) on Wednesday said that it is looking into the idea of setting up of Small and Medium Enterprise (SME) exchanges even though no bourses have formally approached it. “We are very keen on that (SME Exchanges)...We have initiated the process.  Finally it is in the hands of the exchanges to decide whether they want to create a separate platform for SMEs,“ Sebi chairman, C.B. Bhave, told reporters. The Securities and Exchange Board of India (Sebi) on Wednesday said that it is looking into the idea of setting up of Small and Medium Enterprise (SME) exchanges even though no bourses have formally approached it. “We are very keen on that (SME Exchanges)...We have initiated the pro cess.. finally it is in the hands of the exchanges to decide whether they want to create a separate platform for SMEs,“ Sebi chairman, C.B. Bhave, told reporters on a sidelines of a function.

Vodafone, Bharti Will Offer Mobile-Phone Banking in India to Woo Customers

Vodafone Group Plc’s Indian unit and Bharti Airtel Ltd. formed partnerships with the nation’s largest banks to offer phone-banking services in a bid to boost revenue after competition pushed call rates to half a cent a minute. Vodafone Essar Ltd. will tie up with ICICI Bank Ltd., India’s second-largest lender, to offer electronic payments, the companies said in a statement today. Bharti and State Bank of India, the nation’s biggest lender, said separately they will form a venture to provide money transfer and other banking services on mobile phones. Mobile operators in India, in the world’s second-biggest wireless-phone market, are offering new services after call charges plunged with the entry of players including NTT DoCoMo Inc. and Telenor ASA. Through the mobile-phone partnership, the banks will be able to reach more customers including those in remote areas. “Telecom today by far is the most powerful tool available for financial inclusion anywhere in the world,” Bharti Chairman Sunil Bharti Mittal said at a briefing in New Delhi. “In our country we have seen the advent of mobile-phone telephony from a rich man’s tool to now a facility that is available for all classes of society.” Almost half of India’s population has no access to banking services, Dr. K.C. Chakrabarty, Deputy Governor of the Reserve Bank of India had said on Nov. 27.

Malegam panel for loan rate cap, RBI regulation

The Malegam committee, set up by the Reserve Bank of India (RBI) to chalk out a framework within which microfinance institutions (MFIs) in India should operate, is set to recommend an upper ceiling for interest rates chargeable to poor borrowers, two persons familiar with the development said. The panel also seems to be in favour of bringing in all for-profit microlenders under RBI regulations. The committee is in the process of finalizing the report and may submit it to the central bank next week. What the ceiling on the lending rate for MFIs could be is not immediately known, but persons familiar with the matter said it will be “reasonable”. The panel, they said, is basing its recommendations on a Basel committee report that tweaks principles of banking supervision to suit regulation of MFIs. It also offers a view of the policies which banking supervisors of some countries have adopted with respect to microfinance.

RBI seeks wealth management details post Citibank scam

The Reserve Bank of India (RBI) has asked select banks to share details of their wealth management businesses following the 400-crore fraud perpetrated by a Citibank employee. The regulator has asked each bank to spell out its policy, procedures and size of the business which involve banks managing the money of wealthy individuals who do not have the time to do it.

Focus on RBI as growth slumps

Growth of factory output plunged to an 18-month low of 2.7% in November, triggering concerns about a phase of slower industrial activity and resurgent inflation. Even as analysts were surprised at the extent of the slowdown, the growth numbers have served a poser to the Reserve Bank of India (RBI) ahead of its key monetary policy meeting on 25 January: Will RBI keep its eye on the poor industrial growth numbers or on containing growing inflationary pressures in the economy? While growth was expected to slow down in the post-Diwali month especially because of a high base last year, the data surprised analysts and policymakers on the lower side. Finance minister Pranab Mukherjee said the deceleration in the Index of Industrial Production (IIP) and high inflation could adversely impact the economy, and promised to take corrective steps to push up factory output.

Right size of a bank remains a debate for industry: Gokarn

The Reserve Bank of India (RBI) has decided to give new banking licences to create more capacity and competition in the Indian banking space but the right size is yet to be determined. “The right size of a bank remains a debate for the industry,” said Deputy Governor Subir Gokarn. Gokarn said new banks in the system would help achieve financial inclusion. “As we are moving further down the inclusion agenda, which is to try and get banking services at a very basic level, perhaps new banks are one way of achieving that,” he added. While bigger banks would be able to deliver services more efficiently, they aren’t necessarily safe banks and the larger they get, the more of a risk they pose to the system as a whole, he pointed out. The RBI had placed in the public domain a discussion paper in August 2010 on issuing a limited number of new bank licences.  In December, the apex bank said the issues the paper addressed on the entry of new private banks failed to get any consensus from the various stakeholders. Gokarn was speaking at a conference organised by Federation of Indian Chambers of Commerce and Industry on corporate finance in Mumbai today. In his inaugural speech on infrastructure funding, he mentioned the banks’ increasing exposure to infrastructure had raised concerns. This is because infrastructure lending is over long periods while banks mainly depend on short-term deposits for funds. This leads to asset-liability mismatches. He said persistent lending to infrastructure goes against the basic banking model. He said there were concerns on why alternative channels of funding were not emerging. It is projected that infrastructure will need financing of up to Rs 10,000 billion by the financial year 2016-17. Bank financing to infrastructure in the year 2007 was 5 per cent of GDP, while it rose to 8 per cent in 2010. Hence, it is important for other funding options to open up for infrastructure. “If you need foreign money in infra, then flows have to be oriented towards this,” Gokarn said. He said in his presentation that Foreign Direct Investment in infrastructure in the financial year 2009-10 was 0.3 per cent of GDP. He also mentioned that the domestic corporate bond market should be developed to meet the funding needs of infrastructure. “This can be done by encouraging insurance companies and provident funds to invest in low-rated bonds by facilitating credit enhancements,” said Gokarn.

DG of RBI – Delay in appointment

The delay in the appointment of Anand Sinha as a Deputy Governor of RBI has puzzled many, with some conspiracy theories floating around. But the lag is apparently due to the fact that the government was caught in a bind relating to his term. The deputy governor normally gets a term of three years. But in Sinha’s case, it would have meant crossing the age of 62. Chances are that the government may settle for a tenure of only up to 62, cutting short a full three-year term.

BANKING ON HIS LAURELS

The former CMD of Union Bank of India, K Cherian Varghese, continues to be active even after stepping down as the chairman of BIFR. Mr Verghese was recently conferred a honorary doctorate from the University of Mumbai on the subject ‘Management of credit risk in commercial banks in India’. Some bankers, who know him well, say this may encourage a few retired bankers to pursue similar projects, particularly because many capable senior bankers who have retired have not been given any new assignment by the government.

After Chawla who?

Finance Secretary Ashok Chawla is due to retire by the end of this month, and the buzz is that an extension, even for a few weeks, for him till the Budget is over could be difficult. Mr Chawla’s successor in the department of economic affairs could be either commerce secretary Rahul Khullar or financial services secretary R Gopalan, depending on whose word prevails finally — the finance minister or the PMO. The other option is to appoint Sushma Nath, the expenditure secretary, as finance secretary for a few months until her retirement.

Chinese Whispers - A question of answers

For those who thought D Subbarao has mastered the art of answering questions from the media, the Reserve Bank of India Governor revealed that his communication skills are the result of hard work. “I will also let you in on a secret. My staff tutor me painstakingly before scheduled media interactions, but the depth of my understanding is often put to test when the media asks me questions that are ‘outside the syllabus’,” Subbarao said at the Second Business Standard Lecture last week.

Nabard hikes credit flow to Maharashtra by 25%

The National Bank for Rural and Agricultural Development (Nabard) on Tuesday unveiled a potential linked credit plan' for Maharashtra. Under the plan, an approximate credit of Rs 57,147 crore will flow into the state's priority sector in 2011-12. The amount is about 25 per cent higher than Rs 27,389 crore estimated for the current year, 2010-11. The estimates form part of a state focus paper for Maharashtra for the year which Nabard executive director Prakash Bakshi released in a state credit seminar at the College of Agriculture of the Reserve Bank of India on Tuesday.  Bakshi said the secondary and tertiary sectors in the state as elsewhere are growing faster in rural areas and so banks should do well to understand the peculiarities of this sector to make the allocation for it realistic. He stressed upon the need to increase the term lending part of farm loans as it is meant for purchase of equipments and technology that will increase farm productivity. This, he said can be achieved by expanding the network of joint liability groups of farmers which will be the principal borrowers of agricultural equipment and rent them out to members.
State commissioner for agriculture Prabhakar Deshmukh said the credit plan should take into consideration the different initiatives undertaken in rural areas such as watershed development to assess the changing needs of the farming community in these areas. Deshmukh also said it was necessary to encourage farm mechanisation through financing schemes to improve output. Rajgopal Devara, state commissioner for co-operation, said changes in crop patterns in different districts should reflect in the credit estimation for them. This will be important to enhance contribution of the farm sector to the growth of national gross domestic product, he said. Efficient and appropriate credit delivery will help achieve the 4.5 per cent growth of the agriculture sector, as envisaged by the planners, he said. Devara also expressed concerns over shortfall in the target for financial inclusion of the state's unbanked villages and pointed out to regional disparities in the state. He urged the banks to step up their credit allocation and delivery to the agriculture sector and not stick to the target levels determined by the Reserve Bank.  

Ease reserve requirement to boost liquidity: Banks to RBI

Lenders have asked the Reserve Bank of India to ease reserve requirements to ensure that lending is not disrupted. The suggestion was made to the central bank in a pre-monetary policy meeting between bank chairmen and Deputy Governor Subir Gokarn on Tuesday. The demand for funds comes as credit growth has been outpacing growth in deposits. "We expect credit to grow by 22-24% this financial year as against 17% growth in bank deposits," said K Ramakrishnan, chief executive, Indian Banks Association. He said that despite a spate of rate increases, bank deposits growth continue to remain sluggish. Banks has also asked the regulator to allow them grant microfinance companies more time to repay loans without having to make provisions on these loans. Typically, any loan where repayment is not made in time needs to be classified a substandard asset with adequate provisions made out of a bank's earnings. Although there has not been any major default arising out of borrowing by an MFI, banks say that defaults are likely if the issue is not resolved soon.

Bank chiefs seek cut in SLR, CRR to ease liquidity crunch

Second Financial Stability Report — Weak spots in the system

The Second Financial Stability Report released by the Reserve Bank of India (RBI) is reassuring on many grounds. As the Governor says in his foreword: “India's financial sector has by and large remained resilient save for some strains in the money market on account of tight liquidity. Banks continue to be well capitalised and the asset quality at the aggregate level does not cause serious concerns. The Reserve Bank will continue to monitor and address sectoral exposures as in the past.” But the nature of the task ahead is not underestimated. The RBI Governor says: “Pursuit of financial stability is a continuing endeavour — much like the Greek mythological character Sisyphus, who has been likened to central bankers in a recent bestseller ‘Lords of Finance'. Many financial institutions with strong prudential standards failed in the past due to imprudent banking practices. There is nothing to save the system from collapse if it loses public confidence. Eternal vigilance is the price that the central bank has to pay for maintaining economic stability.

Realty firms head for a logjam

The Reserve Bank of India (RBI) has raised an alarm on the formation of an asset bubble and has asked commercial banks to exercise utmost caution while lending to realtors and to home buyers. This could cause a liquidity problem. "Regulatory measures by the RBI will have a considerable impact on the real estate sector during 2011. Any increase in risk weights on bank lending to real estate companies would adversely affect the amount of funding available to the industry and cause liquidity problems, as the majority of companies are highly leveraged and their dependence on debt refinancing is high," cautions Fitch Ratings, in a report on the real estate sector. Though the RBI has taken several steps, it could again tighten the norms in case of further rise in prices.

Tax breaks for infra

The government is likely to announce a fresh set of tax exemptions to trigger investments in the large infrastructure projects aimed at channelising household savings in the cash-starved sector. The high-level committee on financing infrastructure headed by former Reserve Bank of India (RBI) Deputy Governor Rakesh Mohan is currently drafting interim recommendations on specific instruments bundled with tax incentives. The planning commission has asked the committee, which held its first meeting on December 15, to submit its report by  month-end. These will then be submitted to the Prime Minister and finance minister for incorporation in the budget proposals for 2011-12. "On taxation front there was a need to look at international best practices for creating credible tax policies in India for triggering more investments," said a senior official, who is part of the committee. The government is also looking innovative options of debt financing to enable companies to fund new infrastructure projects. An estimated $1 trillion (about Rs45 lakh crore) would be required to fund India’s infrastructure projects during the 12th plan period (2012-2017). About half of these investments would have to come from the debt market through bonds. The committee will also look into the extent to which the estimated debt component of about Rs24 lakh crore could be effectively financed through the domestic banking and financial system as a whole. The committee will submit both the taxation and debt related recommendations to planning commission deputy chairperson Montek Singh Ahluwalia by the end of this month.

Bank of Maharashtra banks on retail credit growth in UP

Public sector Bank of Maharashtra (BoM) is banking on retail credit for growth in Uttar Pradesh and Uttarakhand. “We are targeting the retail credit segment, including home, education and vehicle loans, to increase our business portfolio in the region,” bank’s Assistant General Manager (Lucknow region) P K Alavadi told. Besides, the Bank has firm plans to expand its footprint in the two states. Apart from retail credit, BoM is looking at the Micro, Small and Medium Enterprises (MSME) sector for lending opportunities. Its MSME credit stands at about Rs 45 crore in the region. The Bank has a small network of about 45 branches in the state, including National Capital Region (NCR) areas, and Uttarakhand spanning about 24 districts. “We have Reserve Bank of India’s (RBI) licenses to open about a dozen more branches in the state,” he informed. BoM is eyeing a business of around Rs 1,400 crore in Lucknow during the current financial year. The Bank has reported good deposit growth in semi-urban areas of the state.

Banks in cut-throat competition, two more raise deposit rates

Banks, starved of liquidity, are competing with each other in offering attractive interest rates on fixed deposits. On Tuesday, IndusInd Bank and Lakshmi Vilas Bank increased interest rates on fixed deposits by 25-50 basis points. A fixed deposit maturing between one year and two years will now fetch 9 per cent to 9.5 per cent. For 400 days or 600 days schemes, the banks are offering 9.5 per cent and 9.75 per cent, respectively. For senior citizens, the rates are as high as 10 per cent. While the demand for loans is rising rapidly, banks have not been able to mobilise enough funds at affordable rates to support growth. “The gap between credit growth and deposit growth is increasing,” said J P Dua, Chairman and Managing Director, Allahabad Bank. According to the Reserve Bank of India (RBI), credit growth was 23.7 per cent while deposit growth lagged at 14.7 per cent as on December 17, 2010. It has projected 18 per cent and 20 per cent growth in deposits and credit, respectively, for 2010-11. Banks on Tuesday borrowed around Rs 77,000 crore from RBI’s repo window.

Non-interest income can be risky: Gopinath

Reserve Bank of India Deputy Governor Shyamala Gopinath cautioned that while non-interest income did offer diversification benefits, it might not necessarily be less risky than conventional loans. Apart from the financial risks, there were significant reputational risks, particularly when banks engage in distribution of third party products.

“There cannot be rule based prescriptions in this regard. But it would be imperative for the bank boards to closely understand the underlying risks, assess whether returns are commensurate with the risks and monitor such businesses of banks. For the market discipline to work,increased, granular disclosures of fee based income may have to be looked into,'' said Gopinath while inaugurating 12th FIMMDA-PDAI Annual Conference last week. Gopinath further explained that regulatory prescriptions had not recognised the concept of ‘risk as a fungible commodity” and the fundamental distinction between banks taking credit exposure through giving loans and investing in bonds had not been lost. “There are stipulations capping banks’ investments in corporate bonds, particularly unrated bonds which are nothing but proxy-loans. Recently, a limited relaxation from these norms has been permitted in the case of bonds issued by companies engaged in infrastructure development,'' said Gopinath. On developing a corporate bond market Gopinath said that in India in spite of persistent policy focus, this was one area where the outcomes had been less than satisfactory. “The intractable issues pertain to the structural elements relating to the lack of appetite for credit risk among nonbank institutional investors. The issuances have therefore been largely restricted to financial institutions and public sector entities,'' said Gopinath.  However, Gopinath clarified that in India, the bank balance sheets are relatively less aligned with capital market – both on the asset side as well as liability side. Capital in the form of subordinate debt and other non-equity instruments constitutes only around 38% of total capital. Issuance of such instruments is restricted by the limit on non-equity elements of regulatory capital.

Banks may charge for mobile transactions from April – A.P.Hota

The Reserve Bank of India had set up the National Payments Corporation of India (NPCI) as an umbrella institution to devise an affordable payment mechanism and help in the financial inclusion process. A.P.Hota, Chief Executive Officer of NPCI explains how the organisation is working towards consolidating the multiple payment systems into a nation-wide uniform and standard business process for all retail payment systems. The mandate of RBI is that NPCI should be the umbrella organization for all retail payment systems in the country. Loosely speaking, NPCI can play an operator's role in al lretail payment systems and can act as the central processing organizations for various retail payment system, if need be, for inter-operability. Retail payments system are cheque clearing, Electronic Clearing Service (ECS), Electronic FundsTransfer (EFT), ATM Switching, POS Switching, card payment schemes and mobile payments. Currently, NPCI has been authorised only for three activities -ATM switching, inter-bank mobile payments and Cheque Truncation. In-principle approval has also been received for building a card network, 24x7 remittance system and Automated Clearing House. The central bank will accord specific approval as and when NPCI gets ready technically, procedurally and organisationally to handle new activities. Experts are of the view that NPCI's mobile payment initiative is a game-changer. For mobile payment, we are in the news for the last couple of months. You know that, the number of mobile subscribers in the country is now more than 600million, which is substantially larger than the number of bank accounts. Quite likely, almost all bank account holders are mobile subscribers. If banks can deliver banking services on mobile, the cost of banking services would be considerably reduced. Banks would be able to process various transactions including the money transfer transactions in a straight manner without the use of cash or cheques. It would be a game-changer because of its 24x7 nature of operation. Money transfer can happen on a real time and as per the latest data, about 40 lakh customers have been registered for mobile payments. Currently , banks as well as NPCI are providing the service free of charges. These are only promotional offers. From April 1, 2011, NPCI would be charging 25 paise per transaction. The remitting banks may also start charging from April 1. But the charges are likely to be very nominal. Banks know very well that unless, the charges are much lower than the National Electronic FundsTransfer (NEFT) charges, it would not take off.  We have already launched the 24x7 remittance system on the mobile channel. We propose to use the same core infrastructure for handling remittances received by banks through other channels like internet, ATM and bank branches. We are discussing with banks as to how the same can be done. Once the blue print is ready, we would approach RBI with a request to enlarge the scope of the remittance system they have approved. It is just a few months away. Payment systems has been evolving on a continuous basis. Mandate therefore is, not a fixed one.  NPCI's role would be to keep approaching the Reserve Bank of India with new ideas and new products on a continuous basis. But I can say that for next three years we have a number of projects at hand. Mobile payment was not a specific mandate of RBI. We approached the central bank with a blue print and it approved the same.
Currently, our primary data centre is in Hyderabad with the disaster recovery centre in Mumbai. We have already taken third party data centre space at Chennai for our CTS project . Also, we are setting up a new communications network. Currently, we are using the INFINET of IDRBT for banks to connect to us. If banks can deliver banking services on mobile, the cost of banking services would be considerably reduced. Banks would be able to process various transactions including the money transfer transactions in a straight manner without the use of cash or cheques.

Banks’ business correspondents may get higher pay

Business correspondents, who work mainly in rural areas and urban slums on behalf of nationalised and commercial banks to extend benefits of banking to the economically weaker sections, are likely to get higher remuneration.  Reserve Bank of India (RBI) officials said on Monday that in comparison to the efforts put in by these correspondents, their income is very low. This,in turn, does not help widen the reach of banking facilities to economically weaker sections. “A circular hiking their remuneration will be issued by the RBI shortly,” sources said. The correspondents are appointed to get new customers for banks from poor families, introduce them to various banking services, and assist them in understanding the banking process. A correspondent visits the villages on regular intervals, collects whatever amount the persons want to deposit in their accounts and process the deposits with a handy electronic machine. The machine immediately informs the main server of the bank about the transactions. The customers can withdraw money and check the account balance through the machine. The correspondents also answer all queries of the customers.“The RBI has recognised the efforts involved in the job and is thinking of revising the remuneration,” sources said. Business correspondents are part of financial inclusion,a policy mooted by the Reserve Bank of India in 2005. The policy has compelled nationalised as well as commercial banks to implement it by enrolling account holders from economically weaker sections of society. The current payment of these correspondents is around Rs 1,000 to Rs 1,500 per month. After the RBI circular, it could go up to Rs 5,000 per month. RBI officials discussed the payment issues of correspondents during a meeting held in Pune in the last week of November 2010 where business correspondents from various parts of the state had gathered along with the villagers who are now customers of nationalised banks.

‘Don’t put onus of fin inclusion on banks alone’

The government’s financial inclusion agenda is desirable but that should not be discriminatory and lead to unmanageable burden on banks with specified lending targets for the poor, said Aditya Puri, Managing Director and Chief Executive at HDFC Bank. “We cannot have two worlds,” said Mr Puri, winner of The Economic Times Business Leader of the Year Award. “We cannot have the haves and have-nots. I think financial inclusion is a political, economical and social necessity. That opening a banking account or giving a loan without creating a repayment capability is not the solution, so please do not have this priority sector targets only for banks.”

RESERVE BANK ‘OVERSIGHT’ FUNCTIONING

The Bank for International Settlements defines oversight as “central bank function, whereby the objectives of safety and efficiency are promoted by monitoring existing and planned systems, assessing them against these objectives and, where necessary, inducing change”. The three key ways in which oversight activity is carried out are through (i) monitoring existing and planned systems; (ii) assessment and (iii) inducing change. In India, the Payment and Settlement Systems Act, 2007, and the Payment and Settlement Systems Regulations, 2008, provide the necessary statutory backing to the Reserve Bank of India for undertaking the oversight function. The central bank manages the various settlements system, including cash, through currency chest and clears cheques, besides various electronic clearing services.

Proposals invited for taking Residential Flats on "Lease/Leave and License basis

The Reserve Bank of India (RBI), Belapur, Navi Mumbai urgently requires 25 nos.; residential flats having carpet area (exclusive of balcony/ sleeping-out terrace, staircase, lift, lift/staircase lobby, common passages, service shafts, etc.) between 71 to 79 sq. m., 20 nos.; having carpet area between 91 to 95 sq. m. and 10 nos.; having carpet area between 117 to 118 sq. m on lease for its officers in different Grades. The flats should be located in and around 2/3 km from Belapur/ Kharghar Railway Station.  All flats should have minimum 2BHK accommodation. The complex in which the flats are situated should have at least one car-parking per flat.

Interest on bank fixed deposits likely to go up

Banking experts believe sharp rise in food inflation and in the overall inflation rate in December may prompt Reserve Bank of India (RBI) to go for an interest rate hike by at least 50 basis points (bps) at its review meet on January 25.  This in turn may lead to another round of rate hike in fixed deposits, experts believe.
Contrast this with the crash in the stock markets. The BSE Sensex, the leading benchmark index for stock prices, has lost almost 1,400 points in just five trading sessions. No wonder that risk-averse investors are flocking to safe havens and parking money with banks. Already the rates have gone up significantly. The country’s premier lender, State Bank of India (SBI), recently came up with the second round of rate hikes in less than a month. This has made the rate of interest very attractive for retail depositors.  It has hiked interest on its 555-day special deposit scheme by 175 basis points in the last four months to 9 per cent, even better for senior citizens who earn 0.5 percentage points more in bank deposits. Such high rates in term deposits by banks were last seen 22 months ago in March 2009. Last year, around this time deposit rate by leading banks was around 7 per cent. Following SBI’s example, Bank of India raised interest rates on select term deposits of maturities of one to three years. On deposits for a tenure of one year to less than two years, the new rate was 8.25 per cent against 7.5 per cent earlier. Others like ICICI Bank, HDFC Bank, IDBI Bank and State Bank of Patiala hiked their rates to protect their deposit base. Some private sector banks, which had pre-empted the deposit rate hikes, may have to come up with another round of hikes to attract retail depositors as their rates are only marginally higher than that of SBI.The interest rates started rising because RBI in 2010 continued with its monetary tightening in order to rein in inflation and in the process the effective policy rate has gone up by around 300 basis points.