RBI allocates portfolios of DGs

Four months after the Reserve Bank of India (RBI) took away important departments handled by K C Chakrabarty, one of its Deputy Governors, the central bank on Wednesday restored most of those and also gave two new portfolios, Department of Banking Supervision and Department of Currency Management.  RBI on Wednesday re-allocated the portfolios of its Deputy Governors, along with assigning responsibilities to Anand Sinha, who took charge as Deputy Governor on promotion today. Chakrabarty got back most of his lost departments — Human Resources, Administration and Personnel Management, Rural Planning and Credit (which looks after financial inclusion). He got Banking Supervision and Currency Management, earlier with Usha Thorat, a Deputy Governor who retired in November. After Thorat’s retirement, all her departments had been temporarily given to another Deputy Governor, Shyamala Gopinath. In August last year, RBI took away four departments from Chakrabarty, though the reason was not made public. Sinha has got the Department of Banking Operations and Development, Urban Banks Department, Information Technology, Expenditure and Budgetary Control, Inspection, Legal and Premises Departments. Information Technology was with Chakrabarty. This is the first time in many years that the Department of Banking Operations and Development and the Department of Banking Supervision are being handled by different Deputy Governors. Earlier, Thorat and then V Leeladhar looked after both departments. Mint Road sources said it had been difficult to ignore Chakrabarty’s experience and efficiency when RBI was dealing with several important policy decisions. The Rural Planning and Credit Department, for example, which carries the responsibility of financial inclusion, may have more responsibility once micro finance institutions (MFIs) comes under the purview of the central bank. At present, only MFIs registered ad non-banking financial companies are under RBI’s lens, but there is a view that almost all important MFIs should come under the regulator’s purview. There is a proposal to bring MFI regulation under the rural planning and credit department, though NBFCs are regulated by the non-banking supervision department. Portfolios of some of the Executive Directors have also been reallocated. RBI is in the process of appointing new EDs by promotion. Till the time, some of the Chief General Managers will report directly to the respective Deputy Governors.

RBI panel proposes guidelines for microlenders

The Reserve Bank of India (RBI) temporarily relaxed rules for bank loans to the microfinance sector, which will allow banks to continue lending to the embattled industry, and unveiled proposed guidelines for the lenders to the poor. The RBI panel's recommendations include margin caps and other measures for a sector that has been hit hard since a key state imposed strict regulations in response to complaints over high interest rates, aggressive recovery practices and overextended borrowers. Microlenders in India typically make loans of about $140, mostly to women. The panel recommended a margin cap of 10 percent over the cost of funds for larger microfinance lenders and 12 percent for smaller lenders in a sector where interest rates can top 30 percent. The report also recommended limiting to two the number of microfinance firms that can lend to the same borrower, and called for a customer protection code for microfinance companies. Other recommendations include creating a separate category of non-banking financial companies (NBFCs) in the sector, which will be designated as NBFC-MFIs. The panel was appointed in October to look into problems confronting the sector, which had been growing quickly and has outstanding loans of more than $6 billion. The recommendations, which were generally in line with industry expectations, are not binding but are expected to act as guidelines for the loosely regulated sector. Shares of India's largest microfinance company SKS Microfinance, which have fallen by more than half since the company went public last August, ended nearly 3 percent higher after the RBI's move to temporarily ease lending rules. EASING CREDIT The RBI will temporarily allow banks to classify as standard loans to microfinance firms that are potentially delinquent, which is expected to ease the flow of credit to the industry. "The fact that the RBI is making an exception on behalf of MFIs (microfinance institutions) and taking special steps to support the industry is a good sign from a direction point of view," said Anurag Agarwal, senior vice president at Intellecap, a Hyderabad-based consulting firm in the microfinance segment. Some critics have argued that microfinance companies should not be profit-driven, while supporters say profits allow lenders to lend to more poor borrowers. The southern state of Andhra Pradesh, which was the largest microfinance market in India, imposed a series of regulations on the sector in October that has severely curtailed operations in the state. India's central bank and finance ministry have both spoken up in support of the sector. "The Sub-Committee has cautioned that while recognising the need to protect borrowers it is also necessary to recognise that if the recovery culture is adversely affected and the free flow of funds in the system interrupted, the ultimate sufferers will be the borrowers themselves," an RBI statement said.

Now withdraw cash at a shop, but bear a cost

ICICI Bank Ltd, the largest private bank in the country, on Tuesday announced the launch of a facility that allows withdrawal of cash at the point of sales (PoS) terminal, an electronic retail payment device or a shop with such a device. The Reserve Bank of India (RBI) first allowed this facility through a notification issued in 2009. Union Bank of India (UBI) was the first to launch this facility in rural areas with the motive of financial inclusion; ICICI Bank claims to be the first to come out with this facility. You can withdraw up to Rs1,000 per day at the PoS terminal at a shop. The best part is that you need not make any purchases from the shop where you avail this facility. If the merchant refuses to give cash, the debit cardholder can lodge a complain with the bank. It is similar to the process where a merchant refuses to accept card for purchase of goods. The RBI circular says, “In case the facility is being availed with the purchase of merchandise, the receipt generated shall separately indicate the amount of cash withdrawal.” The facility, however, comes at a cost. You will need to pay Rs10 per transaction as a fee. You do not have to pay the merchant on the spot; the fee will be charged by the bank and directly debited from your account.

Ensuring security of payment systems a big challenge: RBI

Reserve Bank of India's Deputy Governor K.C.Chakrabarty today said ensuring security of payment systems and protecting customers' funds is the biggest challenge before central banks and payments systems operators. Banks should spread awareness to increase usage of newer payment systems, Chakrabarty said, adding, "this (safety and security) is a big challenge to be faced to avoid erosion of customer confidence in the new age payment systems." Delivering the inaugural address at Banknet's 7th annual conference on payment systems in Mumbai, Chakrabarty said the RBI had mandated the additional factor of authentication for all card-not-present transactions - perhaps the first attempt by any regulator - apprehending security being compromised. "The RBI is currently in discussion with "banks and the card companies to introduce an authentication system for transactions at POS (points of sale)," Chakrabarty said. Apart from that, in case of ATM cards, it is also mulling a move over to the more secure "Chip and Pin" cards from the current pin-only system to check instances of cloning, Chakrabarty said.

FDs: Banks charge penalty for early withrawal

As interest rates inch upwards, returns on fixed deposits (FD) are also getting better, but it may not be a good idea to hop from one FD to another, hoping for a better rate of interest. If you decide to withdraw the earlier fixed deposit to make your money work harder, it will come at a cost to you.
HDFC Bank, one of the few banks that were not charging a penalty on premature withdrawal, will now charge a penalty of 1 per cent from next week. However there are banks such as the Punjab National Bank which has halved its penalty to 1 per cent in line with the penalties that other public sector banks charge like State Bank of India. While ICICI Bank charges a penalty of 0.5 per cent to 1.5 per cent depending on the tenure and size of the fixed deposit. Axis Bank and IDBI Bank are the only banks that do not charge a penalty. RBI guidelines allow banks to determine the penalty on premature withdrawal. "If someone is breaking a contract they will have to pay a penalty," said K.C.Chakrabarty, Deputy Governor  of Reserve Bank of India. This means if a customer decides to invest Rs. 1 lakh in a three year fixed deposit and chooses to withdraw it at the end of the first year, he will get the rate applicable on one-year deposits, but the penalty will be deducted from the interest rate payable. Experts say that with penalties for premature withdrawal becoming the norm, it will be wiser to put your money into a fixed deposit scheme for a shorter tenure.

Reserve Bank of India in tax net

The Reserve Bank of India had some unusual visitors a week ago. Officials from the tax deducted at source (TDS) wing of the income tax department visited the Reserve Bank of India (RBI) headquarters to inquire into the latter’s failure to deduct tax at source since July 2007 on payments amounting to more than Rs.800 crore. The department claimed that according to income tax (I-T) rules, the RBI should have deducted TDS at the rate of 10% on this amount, which comes to more than Rs. 80 crore. After deduction, RBI should have deposited the TDS with the I-T department by the 7th of the month after the one it was deducted for. The I-T authorities found that the RBI had made payments to some government banks as “agency commission” but failed to deduct TDS on it. The commission was paid for banking and government business conducted by these banks on behalf of the RBI. The RBI, in its defence, cited a circular issued by the Central Board of Direct Taxes (CBDT) in 2003, which said that no TDS was required to be deducted on turnover commission paid by RBI to agency banks. The I-T department contended that agency commission and turnover commission are different and the circular was in force only until 2006. The department will not ask the RBI to pay the TDS because it will recover that from the banks.

RBI allows outstation cheque charges hike

The Reserve Bank of India has allowed banks to hike charges for outstation cheques and cheques under speed clearing “to hasten the migration of transactions to electronic mode“, the central bank said on its website. Henceforth, banks will be allowed to charge customers for outstation cheques and cheques under speed clearing valuing above Rs. 1 lakh. Both these charges were capped at Rs. 150 before the notification.

Intermediaries can’t outsource KYC, says SEBI

The Securities and Exchange Board of India wants financial intermediaries to stop outsourcing their know your client (KYC) processes to third parties. The suggestion is part of a SEBI discussion paper on outsourcing by intermediaries. “The informal feedback indicates that the compliance with securities laws, investor grievance redressal and KYC must not be outsourced under any circumstance,” says the discussion paper. SEBI has invited comments from market intermediaries by February 5. According to an industry expert, mutual funds, brokers and depository participants are among the financial intermediaries who have been outsourcing their KYC processes.

Salaried taxpayers may be spared filing returns

Salaried taxpayers with no other income could get a respite from filing tax returns. The Income Tax (I-T) Department is open to examining a proposal to exempt them from the annual chore. Asked whether the department would think about doing away with income-tax returns for employees, who had no other income apart from salaries in a financial year, Central Board of Direct Taxes (CBDT) Chairman Sudhir Chandra said the department would certainly consider the proposal. He agreed that for a substantial chunk of salaried employees, savings bank interest is the only additional income and that in most cases, this not substantial. This proposal, if approved, will benefit a large section of people and would reduce the I-T departments workload in a big way. Of the country’s 35 million taxpayers, roughly half are salaried employees. The proposal to do away with returns for salaried taxpayers was earlier internally mooted within CBDT a few years ago. The argument in favour of the proposal was that income records for this class of taxpayer were available with both employers and banks.

Anand Sinha to take over today as Deputy Governor of RBI

Anand Sinha, who is currently an Executive Director of the Reserve Bank of India, has finally been elevated as the Deputy Governor of the central bank. The finance ministry notified Sinha's appointment on Tuesday.  Sinha, 59, who would have retired as ED after reaching 60 by February-end, has been given a two-year extension as the Deputy Governor. “I will take over the new charge on Wednesday,” he said. After Sinha’s appointment, the central bank is expected to announce a reshuffle of departments among the four Deputy Governors. Sinha who has managed some of the most important departments like Banking Operations and Supervision and helped in shaping the paper on entry norms for new private and foreign banks, will take the place of Usha Thorat, who retired in November 2010. Thorat had to retire as she was denied two-year extension (beyond 60), which has been given to some of her predecessors. However, Thorat had completed a five-year tenure as a Deputy Governor when she retired. Sinha will be the fourth Deputy Governor at the RBI, joining Shyamala Gopinath, K.C. Chakrabarti and Subir Gokarn. The normal practice is to appoint two deputy governors from within the central bank, besides a banker and an economist who are appointed from outside.  Gopinath who is on a two year extension will also be calling it a day after reaching 62 in June. The MoF is expected to start looking for Gopinath's successor soon. 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 Sinha and slotted another Executive Director Shri H.R.Khan next to Sinha. However same search committee is expected to undertake the exercise all over again, said sources.

“Inclusive growth and human resource challenges are the two big issues for banks - Sandip Ghose

Sandip Ghose, Regional Director, Reserve Bank of India, said, “Inclusive growth and human resource challenges are the two big issues for banks. Banking sector is going to face a shortage of skilled manpower in the future. Bankers should not forget that human resource issues are as important as cost and availability of credit. Bank CMDs should play a major role in planning HRD requirements for the next decade or so. They should focus at strategy rather than number crunching. He was talking at a Conference on “Emerging Role of Banking Sector in Economic Development and Growth of Businesses, “organized by PHD Chamber in New Delhi on Monday.

Govt working with RBI for deeper penetration of banking services

Finance Minister Pranab Mukherjee on Tuesday said that the government in consultation with the Reserve Bank of India (RBI) is trying to reduce the inter-mediation cost to improve penetration of the financial services in the country. “...the cost of banking intermediaries in India is high and bank penetration is limited to only a few customer segments and geographies. The government is trying to address this in collaboration with the Reserve Bank of India, but much more is needed to be done,” Mukherjee said in his pre-budget consultation with bankers and financial services providers. The finance minister emphasized financial inclusion was a key determinant of sustainable and inclusive growth. Access to affordable financial services - especially credit and insurance - enlarges livelihood opportunities and empowers the poor to take charge of their lives. It is critical to connect the banked and the unbanked sectors and enable the unbanked to become vibrant and productive participants in the process of economic growth, the finance minister said. The government has accorded high importance to financial inclusion to cover the entire gamut of financial services pertaining to savings, credit, insurance and transfers, he added. As a part of the financial sector reforms in India, Mukherjee said, an apex-level Financial Stability and Development Council (FSDC) has been set up with a view to strengthen and institutionalize the mechanism for maintaining financial stability. Without prejudice to the autonomy of market regulators, this council would undertake macro prudential supervision of the economy and address inter-regulatory co-ordination issues. It would also focus on financial literacy and financial inclusion, he said. It has also been decided to set-up a Financial Sector Legislative Reforms Commission (FSLRC) to rewrite and clean up the financial sector laws and bring them in line with the requirements of the sector, he said.

SBI plays 'priority' card to avoid higher teaser loan provisioning

State Bank of India (SBI) – the country’s largest lender and the pioneer of teaser loans in the country – has requested the Reserve Bank of India (RBI) to waive the higher provisioning requirement for these loans. RBI had mandated higher provisioning for teaser loans — which offered lower rates in the initial years and higher in the subsequent ones. The standard asset provisioning requirement for such loans is two per cent, as against 0.4 per cent for any other loan. As a result, SBI, which has a portfolio of nearly Rs 32,000 crore of teaser loans, would have to make an additional provisioning of nearly Rs 400 crore. After the RBI move, SBI tweaked its home and auto loan schemes from January 1. Instead of a fixed interest rate, it started offering a fixed discount. However, it did away with the fixed rate. The interest now changes with the base rate.

Withdraw cash from PoS with ICICI Bank debit card

The country''s largest private sector lender ICICI Bank today introduced cash withdrawal facility at point of sale terminals at merchant outlets. ICICI is the first lender to offer this facility inthe country, the bank said in a release here. Currently cash withdrawal using a plastic card is available only at ATMs. The new facility will be available for all ICICI Bankdebit cards holders who can withdraw up to Rs 1,000 a day as per Reserve Bank guidelines and can be done with and without associated purchase transactions at PoS terminals, the bank said in a statement here today. Launching the facility, Managing Director and Chief Executive Chanda Kochhar said, "ICICI Bank continues to be at the forefront of offering new functionalities and convenience to customers by leveraging technology. The launch of cash withdrawals at PoS terminals will create a new mode of access to financial services, which not only enhances customer service but can also be leveraged for financial inclusion." The ability to offer cash is likely to be attractive to merchants as it means they can reduce the risk and cost associated with managing cash.

RBI, SEBI again slam reform role for FSDC

The Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) have once again opposed the finance ministry’s move to include development or reforms in the financial sector as part of the mandate of the newly-formed Financial Stability and Development Council, or FSDC, bringing to fore the regulators’ unease over the government’s intrusion into their turf.  Both these regulators had from the beginning resisted the proposal to broaden the mandate of the FSDC, saying the council should restrict itself to issues related to financial stability. At the first meeting of the council a few weeks ago, which was presided over by Finance Minister Pranab Mukherjee, Sebi and RBI again flagged the issue and made it clear that financial sector reforms should not form part of the council’s mandate. Such a move would impinge on the autonomy of the regulators, they said, according to a person with direct knowledge of the issue.  The trigger for these fresh concerns was a recent notification by the government that said the FSDC would deal with issues relating to financial stability, financial sector development, inter-regulatory co-ordination, financial literacy and financial inclusion, and macro-prudential supervision of the economy, including the functioning of conglomerates. The contention of the regulators is that the decision of the government goes way beyond what was originally announced in the budget last year. To buttress their argument, they have pointed out the structure of similar agencies operating abroad, saying most of them focus solely on financial stability.   Sebi has backed RBI on this, saying the structure of the council should be such that it remains a forum for discussing mainly financial stability instead of overreaching, the person quoted earlier said. There has been a fair amount of exchange of communication on this between the government and regulators, which have now sought clarity from the centre before final guidelines on the functioning of the council and its sub-committee are firmed up.

Compulsory off for SBI staff to sniff out frauds

All Officers Told To Take ‘Vigilance Leave’ For 10 Days Every Financial Year

SBI has told all its officers to take compulsory ‘preventive vigilance leave’ for at least 10 days every financial year. The decision, taken by the high-powered committee of the bank’s board, was communicated to employees a week ago. It follows a string of frauds that have rattled several financial institutions in recent months.  While reviewing high-value frauds, the committee found they had been perpetrated by officers who had established a reputation for being dedicated and hardworking. These are employees who did not avail of any leave earned by them. The frauds only came to light when such employees went for training or took leave for some other reason. Public sector banks are strengthening their internal processes and reporting systems to counter fraud, and some of them may introduce a policy of compulsory leave, said a senior official with another state owned bank.  State Bank will amend its Officers Services Rules to cover 50,000 employees. In the next stage, the same rules will apply to more than 1 lakh clerical staff. According to a senior SBI official, the committee feels it’s a “prudent risk-containment measure”. Making employees step into the shoes of colleagues who go on leave may help in quicker detection of fraud.  There are MNC banks which go a step further. For high-risk activities like bond and foreign currency trading, these banks assign compliance officers to scan the books while the dealer is holidaying.

AT SIXES & SEVENS

The January 25 monetary policy review may be the trickiest for governor Duvvuri Subbarao in his 28-month tenure at the central bank. He got behind the wheel when the financial world was crumbling. The wisdom then was ‘just throw money’. Now, Subbarao can’t please all. Will he be with the masses, or the markets? The former bureaucrat raised policy rates six times in 2010. With soaring prices, liquidity crunch, hot money flows, fiscal and current account deficits threatening to destabilise the markets, the efforts, so far, look half-hearted. In a similar position, Dr.Y.V.Reddy, the former Governor asserted “getting dal-chawal at affordable rates is more important here.” Market players hated Dr. Reddy for spoiling the party, but sing hosannas now. This may be Mr Subbarao’s turn to grab the glory.

RBI’S SILENCE PERIOD

RBI Deputy Governor, Subir Gokarn, was the guest speaker last week in a seminar organised by FICCI. Soon after his keynote address, the media cornered him, in an effort to get a sound byte on rising inflation and a slowdown in the economic growth. Mr Gokarn found it difficult to wriggle out. But he had his way. The Deputy Governor changed his track by putting a counter question, “Can anyone remind me which month are we in? When reporters said ‘January,’ he quickly said, “Ah! It is a silent period for RBI (since RBI monetary policy is announced this month)” and walked off. It is another matter that early this week, RBI Governor D Subbarao moved the money markets with his comments that RBI is desperate to control inflation.

Extension for LIC, UBI chiefs?

The decision of the Finance Ministry on the tenures of two CEO’s in the financial sector will be watched with great interest. This relates to the term of LIC chairman, T.S.Vijayan, and CMD of Union Bank of India, M.V.Nair. Both of them have completed their five-year tenure, but unlike many CEOs, they are not yet 60 — the age for retirement. That would mean looking at two options — either an extension or a new assignment for them.

Rangarajan seeks rate hike to check inflation

Even though the intractably high food inflation faced by India is primarily due to supply side constraints, a solution will have to necessarily come through further tightening of the monetary policy , because there is practically no other handle the government is left with, Prime Minister's Economic Advisory Council chairman C Rangarajan said. His comment comes at a time when the RBI, which increased interest rates six times in 2010, is widely expected to raise key rates by at least 25 bps at its January 25 review. "I think there is a case for the monetary policy to be tighter because if the food inflation persists, it could spread to other sectors of the economy ," he said. He added that a bunching of government expenditure in the last two months of the fiscal would help address the liquidity problem in the banking system, which is worrying India Inc. To ease liquidity, RBI last month reduced SLR by one percentage point to 24%. The former RBI Governor said he expected headline inflation to moderate to 7% by end-March (which is way higher than RBI's projected level of 5.5% or earlier forecast of 6-6.5% by other key policymakers). Stating that we will have had two years of high inflation by end-March, he noted that the elevated level of inflation this year had little to do with external factors, in contrast with last year when global commodity boom too drove domestic prices. This is because the domestic prices of petroleum products have been insulated, to a large extent, from the spike in global crude prices. But, Rangarajan said, if crude prices rise beyond a level, then they would indeed start impacting domestic prices.

Centre for Advanced Financial Research and Learning (CAFRAL)

Smt. Usha Thorat, Ex-DG has taken over as the Director of the CAFRAL on January 17, 2011. The Centre has been set up as a non-profit organization in the form of a Trust under the Indian Trusts Act as a centre of excellence for research and learning in the field of banking and finance with the objective to develop a valuable resource centre for research and capacity building for central bankers, regulators and senior management of banks in India and outside.

LIC infra bond hits regulatory wall

The Life Insurance Corporation (LIC), will not be able to issue tax-saving infrastructure bonds aggregating 5,000 crore to retail investors this fiscal due to a regulatory glitch, which was discovered after India’s largest investment institution was named an issuer of these bonds by the income-tax department.  Insurance regulations allow life insurers to raise funds only for promoting their core business. So, logically, life insurance companies cannot raise money for any other activity.

RBI issues new guideline for NBFCs

The Reserve Bank of India (RBI) on Monday said all nonbanking financial companies (NBFCs) should provide 0.25% of their outstanding loan book, even as the loans are good, as provisions.  This is over and above the standard provisions that NBFCs have to make for bad debts. “In the interests of counter cyclicality and so as to ensure that NBFCs create a financial buffer to protect them from the effect of economic downturns, it has been decided to introduce provisioning for standard assets also,“ RBI said in a notification on Monday.

Banks lag in inclusion mission

The commercial banks in Karnataka are lagging behind the schedule of achieving the financial inclusion targets set up by the Reserve Bank of India (RBI). As against the target of reaching out 2,253 villages with a population of over 2,000 by March 2011, the banks have covered only 1,075 villages by end of December 2010, thereby achieved about 47 50 per cent of the target. According to data available with the State Level Bankers’ Committee (SLBC), Karnataka the banks in the state have been set a target of covering 3,395 villages with population of over 2,000 having no bank branches in the state. These villages have no access to banking facilities.  Financial inclusion is the availability of banking services at an affordable cost to disadvantaged and low-income groups. In India the basic concept of financial inclusion is having a No-Frill savings account with any bank. As advised by the RBI, the banks had indicated in their board approved financial inclusion plans (FIPs) that they would provide banking facilities to 2,253 villages by March 2011 and 3,395 villages by March 2012. “Certain discrepancies like duplication or overlapping of villages, inclusion of villages already having branches, and such others were observed and subsequently the target was revised. Thee banks have now been asked to submit the monthly progress made in new formats prescribed by RBI and ministry of finance indicating revised villages,” he said at the 115th SLBC meeting, here today.  Making his observations at the SLBC meeting, here today, he said he bank officials in the designated districts are working on a part-time basis to achieve the desired financial inclusion goals. The banks need to provide adequate resources to achieve targets under the “one district many banks” model.

Assocham urges RBI to increase bank liquidity

The Associated Chambers of Commerce and Industry of India (Assocham) on Monday cautioned the Reserve Bank of India (RBI) against any attempt at tightening its monetary policy and maintained that the need of the hour was to increase bank liquidity and sustain credit growth in the face of the unprecedented rise in the inflation rate. Assocham President Dilip Modi urged the RBI to reduce its rates by 50 basis points so as to provide banks with an additional Rs.21,000 crore of liquidity. He contended that liquidity was a pre-requisite for achieving the 9 per cent plus growth rate during the current fiscal and also pointed out that banks had already pleaded for reduction in CRR and SLR to make available more funds due to spurt in credit offtake and also because they were facing reduced deposit growth. Mr. Dilip said that funds and lower cost of funds were necessary to create large and improved supply-chain infrastructure, capacity building as well as innovation to address the demand and supply mismatch. Any meddling with the policy rates, he warned, would derail the growth trajectory and recommended removing supply constraints and enforcing reforms in critical sectors and preparing the country for higher growth challenges.

RBI may define good, bad years, adjust bank provisioning norms

The Reserve Bank of India (RBI) may define good and bad years for banks, based on certain economic indicators, to determine how much provisioning they should make for bad debts, according to two people familiar with the matter. This is part of the move by RBI to align banks with Basel III norms, which offer guidance on various operational issues, including capital adequacy. As per the norms, it is a macro prudential issue to set aside more capital when the economy and profitability is good and use those extra provisions when these are not performing as well. When profitability weakens, banks can set aside less capital. The move may placate banks that have been complaining to RBI about stiff provisioning norms. The phased implementation of Basel III norms will start from 1 January, 2013. “RBI may bring in this norm (on provisioning) even before it implements Basel III in India,” said another senior banker who didn’t want to be identified. Under the current rules, banks are not allowed to use funds set aside as provisions for capital building. This may also be relaxed, allowing banks to use the funds for other purposes if needed, said the banker. RBI officials have already said on various platforms that the provisioning requirements could come down. Executive Director Anand Sinha indicated this in December, but didn’t give any timeframe. Sinha, who was speaking at Bancon, the annual bankers’ conference, said the high provisioning requirements were stipulated at a time when Indian banks were having good profits. “It is not meant to be kept at that level,” Sinha had said, noting that some banks have resented the high provisioning requirement. “It was part of the process that we are adopting. In good times, you should set aside more capital while in bad times, you should release more capital. It is a first step that we have taken but we are working out details of it, whether it would be 70%, or whatever. It is for building up stock (of capital) in good times,” Sinha later clarified at the sidelines of the conference.

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.