RBI warns on inflation risk; rate rise seen

The Reserve Bank of India (RBI) said inflation may stay high for longer than earlier anticipated due to a rise in global commodities prices and domestic supply pressures that have pushed up food prices. The central bank also said downside risks to growth had receded.  After raising rates six times since March to tame inflation, the central bank paused in December but indicated at the time that further rate hikes were possible, with inflation remaining well above its comfort zone. “As a result of newer factors and increased risks, the inflation trajectory is likely to show some persistence and moderate only gradually.” The central bank also called for measures to address structural drivers of inflation, which include inefficiencies in the agricultural sector. A sharp rise in food prices, a key driver of inflation in India, has been putting upward pressure on broader prices. The wholesale price index, the most widely watched gauge of prices in India, rose 8.43% in December from a year earlier, compared with 7.48% in November and well above the RBI’s March-end projection of 5.5%.

RBI Credit Policy: Debt instruments stage a comeback

The interest rates in the debt market that are already at quite high levels due to the multiple rate hikes by the RBI last year are expected to harden further in the near term. The RBI expressed concern over the high inflation rate due to the sharp increase in food, energy and commodity prices, and gave indications of further monetary tightening, going forward, to tame the inflation rate. The monetary policy tightening by the RBI has brought debt instruments back into the limelight as their yields have gone up due to the interest rate hardening. The rates on bank fixed deposits have gone up to almost nine percent levels. On the other hand, the volatility and stretched valuations in the stock markets have tilted the risk-return equation towards risk. Therefore, risk-averse investors are increasingly looking at increasing their portfolio allocation to debt-based instruments.

HEED RBI’S WARNING

On Tuesday, the eve of Republic Day, Reserve Bank of India Governor D Subbarao sent out a clear warning: inflation was here to stay due to a variety of factors, both domestic and global. His prescription for controlling inflation — raising interest rates by a mere quarter per cent — has come in for much criticism from economists who feel that the unabated inflation, which worsened in December, warranted a much bigger rate hike to signal that easy credit will not be tolerated any longer. Credit or loans by banks has grown faster than what the RBI projected, while growth in deposits has slowed. Dr Subbarao felt anything over a quarter per cent hike would limit his leeway in case inflation remains stubbornly high in the coming months. The RBI’s objective is limited to curbing inflation, which is spilling over from food to manufacturing. It is well known that monetary tools for controlling inflation are limited when it is caused mainly due to high food prices — particularly of items of daily consumption such as fruits, vegetables, milk, eggs, fish. The RBI chief stressed the need for “rapid action” to increase the output of several products whose demand is rising due to changing consumption patterns, reflecting increasing incomes. The government would do well to heed Dr Subbarao’s warning: unless meaningful output-enhancing measures are taken, the risk of food inflation getting entrenched looms large. The government should realise that food imports are not an easy option, given that global food prices have risen by 25 per cent in December, according to FAO estimates. A top FAO official noted in Davos earlier this week that the current world food crisis could be ascribed to falling investments in agriculture. Much of the rise in food and commodity prices can also be blamed on speculation — it would be in India’s interest to support French President Nicolas Sarkozy’s proposal to curb speculation in all commodities. The FAO official said he felt prices could get out of hand unless all futures markets were regulated — in fact he warned of the possibility of food riots like those seen in 2007-08. For the Manmohan Singh government, meanwhile, time may be running out — the importance of finding an urgent solution to the food crisis simply cannot be overestimated.

Credit Policy targets inflation

India's annual industrial output in November grew at its slowest in 18 months but headline inflation in December accelerated with costlier food items. These confirmed expectations of a rate increase. The RBI said demand-supply mismatch and rising global commodity prices will continue to put pressure on inflation, which could hurt economic growth. 'Persistent high inflation could endanger the growth objective and also amplify risks to inclusive growth. Containing inflation will have to be the predominant objective of the monetary policy in the nearterm', the RBI said in its macroeconomic review released on the eve of the quarterly policy.  It further said the upside risk to inflation has increased, and supply side constraints and high global commodity prices could dampen the impact of a tight monetary policy. According to the RBI, while inflation is likely to soften in the coming months, it is likely to stay elevated above the earlier anticipated path. It has projected overall inflation to be at 5.5 percent by March end. The overall inflation for December shot up to 8.43 percent on high prices of food items, from 7.48 percent in November. The RBI said continued high food inflation is the main cause for the overall inflation holding up, adding that return of inflation to a more acceptable level will be gradual.

Shri S.Karuppasamy appointed as Executive Director

Shri S.Karuppasamy, Regional Director, Kolkata has been appointed as Executive Director.  The portfolios looked after by him are as under:-

1.   Department of Expenditure & Budgetary Control

2.   Department of Information Technology

3.   Legal Department

4.   Urban Banks Department

Tax vex on bank arms resolved

Foreign banks converting their branches into wholly-owned subsidiaries will not be required to pay capital gains tax from the transfer of assets and properties during this procedure. The finance ministry has resolved the tax tangle in the issue and wants the Reserve Bank of India (RBI) to go ahead and allow foreign banks to convert themselves into wholly-owned subsidiaries at the earliest. “There were some tax issues in conversion of branches into wholly-owned subsidiaries. We have resolved that matter. The new norms should come as soon as possible,” said a finance ministry official. Last week, RBI had released a discussion paper on the presence of foreign banks in India. It had sought comments on the subsidiary-led model for foreign banks operating in India, instead of the existing branch mode of expansion. It also proposed incentives to promote the subsidiary route.  In its discussion paper, RBI had said that for capital gains tax arising from the transfer of property, goodwill and other assets of a capital nature to its newly incorporated subsidiary in India, the provisions of Section 47(iv) of the Income-Tax Act, 1961, would be applicable to foreign banks converting their branches into subsidiaries.  Section 47(iv) exempts from capital gains tax the transfer of a capital asset by a company to its subsidiary if the parent company or its nominees hold the entire share capital of the subsidiary or the subsidiary company is an Indian company. The exemption, however, does not apply if the parent company dilutes its stake in the subsidiary before a period of eight years.  “You have to continue with the parent-subsidiary relation for eight years if you want the exemption,” said Hiresh Wadhwani, a tax partner with Ernst & Young. He added that for full capital gains tax exemption without a lock-in of eight years would require an amendment to the law. The issue has been resolved under Section 49(e) of the Income-Tax Act, which states that where the capital asset becomes the property of an assessee under any such transfer, the cost of acquiring the asset would be deemed to be the cost for which the previous owner of the property acquired it. “If there is no change in the value of assets, there will be no capital gains tax,” explained another official. The first official also said the central bank’s discussion paper was in line with the finance ministry’s thinking that a subsidiary model would help contain risk within the country. “The government greatly favours this,” he said. He added that just like domestic banks, subsidiaries of foreign banks would be allowed to open branches in Tier-3 to Tier-6 cities, unlike branches of foreign banks. The subsidiaries would be considered Indian banks and regulated by RBI, the official added.

Deposits shrink by Rs 26,000 cr

 After surging around Rs 2 lakh crore in the last fortnight of December, bank deposits fell Rs 25,742 crore during the 14-day period ended January 14. According to the Reserve Bank of India (RBI) data, deposits grew 16.43 per cent on a year-on-year basis till January 14. Credit off-take dropped Rs 43,327 crore during the fortnight and grew 23.6 per cent on a year-on-year basis.  In the third quarterly monetary policy report, RBI had raised concerns over the widening gap between credit and deposit growth. RBI asked banks to bring down their incremental credit-deposit ratio or face action. RBI has projected 20 per cent credit growth and 18 per cent deposit growth for 2010-11.  The incremental non-food credit-deposit ratio rose to 102 per cent by end-December due to the gap between credit and deposit growth. In the corresponding period of the previous year, the ratio was 58 per cent. To lure customers, banks have raised deposit rates by up to 250 basis points in the past few weeks. “We recently increased deposit rates, so the full impact will be seen towards January-end. Our daily monitoring has shown a slight increase,” said a senior executive of State Bank of India.

PayPal Changes Limits For Indian Users After RBI Guidelines

Following the latest guidelines issued by the Reserve Bank of India, popular online banking platform Paypal has made several drastic changes to their user agreement for India. Paypal has already issued notices to their Indian customers about the change. The PayPal letter states: "As part of our commitment to provide a high level of customer service, we would like to give you a 30-day advance notice on changes to our user agreement for India. With effect from 1 March 2011, you are required to comply with the requirements set out in the notification of the Reserve Bank of India governing the processing and settlement of export-related receipts facilitated by online payment gateways (“RBI Guidelines”).

RBI raps banks for misreporting loans to priority sector

Flagging the issue of misreporting of priority sector lending (PSL) performance by banks, the Reserve Bank of India (RBI) on Friday said loans wrongly classified as PSL would be included in the shortfall under priority sector targets. The annual financial inspection of books has shown instances of misclassification of loans under priority sector. Such misreported loans in the current financial year would be added to the shortfall reported on the last reporting Friday of the following year for allocation to various funds, RBI said in a communication to banks. Also, banks buy priority sector loans from intermediaries like microfinance institutions and non-banking finance companies. Banks reckon the present value of these loans by discounting them at their lending rate, which is typically much lower than the actual rate charged to end–borrowers by such intermediaries. Such practice leads to overstating of the actual amount of priority sector loans to the extent of the premium paid by banks to such intermediaries. Hence, must report the nominal amount actually disbursed to end priority sector borrowers and not the premium-embedded amount paid to the intermediaries.

Jain Irrigation to form non-banking finance company, raise Rs700 crore

Jalgaon-based Jain Irrigation Systems (JISL) plans to set up a non-banking finance company (NBFC) to finance farmers’ needs, said managing director Anil B Jain. The company’s board has already approved the move and will apply for a nod from the Reserve Bank of India for the same this quarter. “It normally takes 3-4 months for the approval to come through,” said Jain. JISL is hoping that the NBFC will help boost its sales. “Farmers need timely and adequate credit which the NBFC can provide and it can also improve JISL’s balance sheet by reducing debtors,” he added. To begin with, the company will finance just the purchase of it own products. JISL, the world’s second largest micro irrigation systems (MIS) maker after Israel’s Netafim, and India’s biggest, currently aids farmers in sourcing credit to buy its products. There are also government subsidy schemes for the same. Jain said the company also plans to raise by June Rs700 crore through a qualified institutional placement (QIP). “It will partly go into capital infusion for the NBFC and partly reduce our working capital debt,” Jain said. The JISL board also on Friday approved the hiving-off of its solar division, under which it makes solar lanterns, solar water heaters and, lately, solar water pumps. For the three months ended December 31, JISL saw its net sales grow by less than 10% to Rs693 crore while its net profit rose 24.6% to Rs71.47 crore. Jain said the heavy and unseasonal rains dented the topline. “In the first nine months, our irrigation business grew by 27% while we expected a growth of 30%. But the current quarter is better,” he said. JISL has an order backlog of Rs1,100 crore, most of which is in drip irrigation.

OMO, deposit accretion picking up: RBI

The country's apex bank, the Reserve Bank of India (RBI), today said that Open Market Operations (OMO) in the bond market is more a monetary policy tool and not a debt management instrument. "It is more of a monetary policy tool and not a debt management instrument," a senior RBI official told reporters here today. OMO is not being used to influence bond yields, he said. "OMO is done in a more enduring manner and not to influence the yield curves," the official said. On the statutory liquidity ratio (SLR) now at 24 per cent, the RBI's Deputy Governor, Subir Gokarn, said the apex bank presently feels that there is no need to tinker with it.  SLR is the amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves. The RBI had reduced the ratio from 25 per cent to 24 per cent in December 2010. On January 25 (2011), the RBI, in its efforts to combat the prevailing high inflation, lifted its key short-term rates -- repo and reverse repo rates -- by 0.25 per cent each to 6.5 per cent and 5.5 per cent, respectively.

RBI objects to states using PSBs for own inclusion drive

The Reserve Bank of India (RBI) has expressed concern over dilution of its financial inclusion programme as some states, such as Uttarakhand, have launched similar schemes causing confusion among the institutions responsible for implementing them. "Banks have already submitted their financial inclusion roadmap to the RBI," a government official said. "Now, some states want banks also to participate in their own schemes, which will increase burden on them and further dilute the primary task set by RBI."  The RBI had also mentioned the issue of overlap at the state-level bankers' committee. "States can push the co-operative banks and regional rural banks for their own schemes," a senior finance ministry official said. "Public sector banks are under the domain of the Central government and the RBI, and will follow the roadmap as decided." As of now, only 45% of the Indian population has access to basic banking services. The bank to people ratio is also very low with one bank branch catering to about 16,000 people. The finance ministry recently directed bank chairmen and executive directors to monitor 1% of the new villages that come under inclusion plans, and the general managers for 5% villages covered under such plans.

RBI to issue Rs 5 coin on Rajendra Prasad birth anniversary

The Reserve Bank of India (RBI) today said it will shortly put coins of Rs 5 into circulation, with the theme of 125th birth anniversary of the first President of the country Rajendra Prasad. The face of the coin shall bear the lion capital of Ashoka Pillar and it shall also bear the denominational value "5" in international numerals below the lion capital, RBI said in a release. The reverse of the coin shall bear the portrait of Rajendra Prasad in the centre, it said. Coins are legal tender as provided in the Indian Coinage Act, 1906. The existing Rs 5 coins in circulation shall also continue to be legal tender, it added.

Govt spending can be frontloaded in FY12: RBI

There was a possibility of heavy government spending in the first half of the next financial year beginning April, on account of large government cash holding, Subir Gokarn, deputy governor at the Reserve Bank of India (RBI) said on Thursday. He said RBI would not conduct open market purchase of bonds to contain any rise in yields as it was a monetary policy tool to address liquidity issues and not debt management. "When the (government borrowing) schedule is set with the existing cash balance in mind, that can front-load spending. So that is a possibility," he said. Gokarn was speaking to reporters after the central bank raised key rates by 25 basis points to clamp down on resurgent inflation and warned of persistently higher food prices unless steps were taken to boost supplies.

Limit on annual income can be changed – Malegam

The Malegam panel’s recommendation that only those households which have up to Rs 50,000 in annual income should be eligible for borrowing money from microfinance institutions (MFIs) have drawn flak from all quarters. Critics say by suggesting a cap on loan rate, the panel is also denying market forces in shaping the cost of loans. But noted chartered accountant Y.H. Malegam, 77, who has been serving as director on Indian central bank’s board for 17 years, said one should look at the philosophy of the report and not the figures. The objective is to define what microfinance is and regulate them and the numbers can be revised. He said in an interview that there could be a distinction between borrowers in rural, semi-urban and urban India. While Rs50,000 annual income criterion can be kept for rural India, it can be raised for semi-urban and urban pockets. He, however, strongly defended the idea of capping the exposure limit for an individual borrower at Rs25,000 and the loan rate at 24%. He described MFIs as “greedy” and said the mandate of the panel was to protect borrowers and not lenders. MFIs have enough profits and they can use part of it to reduce interest rate, he said. If indeed the Reserve Bank of India accepts the recommendations, there will be no need for the Andhra Pradesh law for regulating MFIs in the southern state, he said.

RBI seeks public comments on Malegam report

The Reserve Bank today invited public comments on Malegam panel report which suggested among other things capping interest rate at 24 per cent for loans extended by microfinance institutions. The committee, headed by Reserve Bank's Central Board Director Y H Malegam, also suggested that small loans cannot exceed Rs 25,000 and creating of a separate category of non-banking financial companies (NBFC-MFI) for the MFI sector.  "The RBI has invited views/comments of all stakeholders and the public at large on the Malegam Committee report on MFIs...Latest by February 13, 2011," the central bank said.

Finmin backs RBI on subsidiary model for foreign banks

The Finance Ministry has come out in support of the central bank's recent proposal to permit expansion of foreign banks in the country through the subsidiary model, as opposed to the current model of expansion through branches. It is also considering allowing capital gains tax waiver for such conversion. "We will be taking it up at the earliest and hope to set up norms for starting it soon," a senior finance ministry official said. The norms are expected to exempt such subsidiary firms from capital gains tax as well as allow them expansion in smaller cities of tier 3, 4, 5and 6.

RBI again warns banks on asset-liability mismatch

Two days after the Reserve Bank of India (RBI) raised a red flag over the high incremental credit-deposit (ICDR) ratio, it on Thursday commented adversely on banks’ average maturity of deposits.  "The maturity of deposits has gone down drastically. More than 70 per cent of these are of around two years. While on the lending side, if you consider infrastructure, it needs financing for a longer term,” RBI Deputy Governor Anand Sinha said in an interaction with analysts. “This imbalance needs to be controlled, otherwise it could pose a big systemic risk. If you do not have resources, then (you must) slow down credit growth.”  The asset-liability management of banks is critically dependent on the maturity profile of their deposits. As banks generally raise resources through short-term liabilities to finance both short and long-term assets, the liquidity and credit risks get multiplied, particularly during crisis periods. On Tuesday, the central bank said the ICDR of banks was 102 per cent, indicating that banks were supporting their loan growth by borrowing one-day money from the repo window of RBI. ICDR indicates how much banks are lending for every rupee received as deposits. For every Rs 100 deposit, banks have to set aside Rs 30 in the form of the cash reserve ratio and the statutory liquidity ratio, which are six per cent and 24 per cent, respectively. So, for every Rs 100 deposit, banks can only lend up to Rs 70. Apart from deposits, banks can use borrowed funds for lending. However, RBI data show that Indian banks rely heavily on deposits, which constituted 78 per cent of all liabilities of banks in 2009-10. Borrowing accounted for only 8.7 per cent. The high ICDR is mainly on account of lower deposit growth as compared to credit growth. While credit growth has been a little over 24 per cent in the past one year, deposit growth has been 16 per cent. During the beginning of the financial year, RBI had projected credit and deposit growth at 20 per cent and 18 per cent, respectively. The central bank still maintains the projection and wants banks to cut credit expansion. RBI data show that for 2009-10, public sector banks experienced a shift in their deposit liabilities towards the short-term end of the maturity spectrum, while loans and investments moved towards the long term. New generation private sector banks, which normally rely heavily on short-term deposits, exhibited a shift in favour of medium and long-term deposits, while their loans moved closer towards the short end of the spectrum.

RBI tightens provisioning norms for non-banking financial companies

Setting the stage for a rate hike by non-banking financial companies (NBFCs), the Reserve Bank of India on Monday tightened the prudential norms for NBFCs to protect them from any impact of possible economic downturn. Under the new RBI norms, both deposit and non-deposit taking NBFCs will have to set aside 0.25 per cent of performing loans to meet any financial exigencies.

Inflation needs to be restrained to promote growth: RBI

Indicating another hike in key policy rates in its quarterly review on Tuesday, RBI on Monday said that containing inflation would be the top priority as high rate of price rise could hurt the economic growth. "... containing inflation will have to be the predominant objective of monetary policy in the near term," the Reserve Bank said in its macroeconomic review released a day before the third quarterly review of the policy. The review further said that upside risks of inflation have increased and it could endanger the growth objective and also amplify risks to inclusive growth. The economy grew by 8.9% in the first half of the current fiscal, but inflation remained at a high level of 8.43% in December, led by high food prices. The food inflation for week ended January 15 was 15.52% after touching a high of 18.32 on December 25, 2010. The central bank raised key short-term lending (repo) and borrowing (reverse repo) rates for six times in 2010 to tame inflation. The quarterly monetary policy, to be released tomorrow, is expected to balance the need for containing inflation and promoting growth.

Rate hikes seen coming, but deposits first

With the Reserve Bank of India hiking repo and reverse repo rates by 25 basis points, banks are likely to increase lending and deposit rates in the near term. However, with banks looking to increase their deposit mobilisation, deposit rates are likely to go up before lending rates. Mr O. P. Bhatt, Chairman, State Bank of India, said the bank's asset-liability committee will meet soon to take a call on the increase in rates. “There has been an upward bias in rates for a very long time and you have seen this bias getting translated into increases in lending and deposit rates. But there has been a small lag between the rate hike and the transmission. It will depend on where each bank is on the liquidity curve and its asset-liability situation”, Mr Bhatt, who is also the Chairman of Indian Banks' Association. Ms Chanda Kochhar, MD and CEO, ICICI Bank, said there is an upward bias in interest rates. “Deposit and lending rates increase depends on how cost of funds is moving and what is the supply-demand situation. Cost of deposits has been moving up. So clearly there is an upward bias in interest rates. But when and how much will vary from bank to bank,” she said. Mr K.R Kamath, Chairman and Managing Director, Punjab National Bank, said there is a need for a balance between deposit and credit growth rates as the pace of the growth is not the same. “There is case for an increase in lending and deposit rates. When and how, the market will decide. In case banks are not getting deposits to fund the credit growth, then deposit rates will be increased first”, he said. Mr Anil Kothuri, Head-Retail Finance, Edelweiss Capital, pointed out that even though the RBI has increased interest rates six times in 2010 aggregating 300 bps, home loan interest rates have increased by only 150 bps. “The latest increase will put upward pressure on home loan interest rates, given that bank and housing finance companies have very little wiggle room left. Nonetheless, the demand for home loans will continue to be strong, if property prices stay stable and the environment continues to be buoyant,” he said. Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said the RBI wants the incremental growth in the repo rate to be passed on to the credit market. “The intent of the policy is absolutely clear. Deposit has to keep pace with the growth in credit,” he said.

Loan lessons

Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty retains his maverick streak. At the finance leadership summit of the Indian Institute Management, Lucknow (IIM-L), someone in the audience asked why car loans were cheaper than education loans in India. The veteran banker’s reply: "When a bank gives car loans, it knows that the borrower has a good job to repay. In education loans, the repayment capacity is not clear beforehand."

Bank of Baroda chief M D Mallya is BS Banker of the Year

Mangalore Devdas Mallya, the chairman & managing director of Bank of Baroda, is the Business Standard Banker of the Year for 2010. Mallya was chosen by a five-member jury headed by Securities & Exchange Board of India’s former chairman, M Damodaran, for BoB’s sterling performance over the last couple of years. The jury had shortlisted three bankers from 30 on performance parameters ranging from growth in deposits, advances, assets and bad debt to return on assets and business per employee.  Mallya took charge of BoB in 2008 at atime when global turbulence in the financial sector had threatened to shake India’s banking foundation. Mallya’s mandate was to take BoB to a new level and attract the young. Not only did the person with an “ice temperament” — as colleagues describe him — steer the bank out of the storm, he brought about good growth numbers and a better-than-counterparts showing. BoB’s profits grew 55 per cent in 200809 and 37 per cent in 2009-10. Return on assets improved to 1.21 per cent this financial year from 1.1 per cent last year, while return on equity increased to 22.19 per cent from 19.48 per cent. At the peak of the crisis, the bank contained its incremental delinquency ratio at 1.13 per cent (for 2009-10), with a provision coverage ratio of 74.9 per cent as on March 31, 2010. Investors took note and the stock price outperformed the sector, fetching a return of over 172 per cent. For Mallya, “cautious aggression” and “stable growth with quality” were key words that helped him steer a steady course through the mayhem. In an interview with Business Standard —the details of which are published in the Banking Annual distributed with today’s edition — when Mallya was asked if BoB’s risk appetite was less than its strength, the CMD said: “…look at our growth of 28 per cent (credit). Where is the conservative approach in that? We are aggressive, but cautious.” So, Mallya played with astraight bat, unlike those playing to the gallery with flamboyance, and it paid off.

RBI admits it’s lost its way on inflation management

RBI Governor D Subbarao said inflation management has not been proceeding the way policy makers expected it to go.  “Inflation management is not happening along the lines we were expected to,” Subbarao told analysts and investors in a conference call. “Demand-side pressures are abating because of our monetary policy.”  The RBI governor raised inflation forecast as rising prices threatens to shoot past the expectations for the second fiscal. He had raised rates seven times since March. Policy rates were raised 25 basis points on Tuesday, meeting market expectations, and he raised inflation forecast for the fiscal by 150 basis points to 7%. That led to criticism that the central bank’s inflation forecast and policy measures were not up to the mark. Inflation is at more than 8.4%. Food inflation has remained stubbornly above 15% for weeks as unseasonal rains damaged crops and rising income is leading to higher demand.  The bureaucrat-turned-monetary policy maker who had questioned the reliability of many data from the government, said factors that RBI takes are more or less what are available to analysts. “Increasingly, the central bank is working on the principle that there is no asymmetry between information that we have and that analysts have,” said Subbarao.  The index of industrial production fluctuates violently. The IIP grew 9.5% between April and November but it swung between 3% and 16%.  Mr Subbarao further said: “Liquidity deficit is independent of the government cash balances. Our comfort level is plus or minus 1%. This is linked to the statutory liquidity need. You should read this as comfort zone, irrespective of the transient factors. I don’t see it getting into a surplus. But certainly, we want to see less of it,” he added. Newly-appointed deputy governor Anand Sinha said: “So far as the increase in interest rate is concerned, it has to be a result of the monetary policy. But banks have to manage the issue of delinquency arising out of higher interest rates... Banks have to take care of their liabilities.”  Deputy Governor K.C.Chakrabarty said: “Risks are there. It depends on both the borrower as well as the bank.”

SBH to extend financial aid to 1,102 villages

Following the Reserve Bank of India (RBI) directions, the State Bank of Hyderabad (SBH) said it would extend financial inclusion across 1,102 villages with above 2000 population spread across 36 districts in Andhra Pradesh, Maharashtra, Karnataka and Gujarat. These districts together cover a rural population of about 42.69 lakh. Financial inclusion will provide banking products such as savings, loans and services like remittance and insurance in areas where there are no banking services. It caters to low income groups and offers services at an affordable cost. According to SBH, the proposed financial inclusion will be implemented in two phases. While the first phase will cover about 300 villages by March 2011, the remaining villages will be covered in the next fiscal. SBH said it has already commenced enrolment and opening of savings accounts in 261 villages covering AP and Karnataka. On Tuesday, the bank distributed biometric cards to customers in few villages in Mahaboobnagar district. As part of the project, the bank has launched overdraft products to meet the financial requirements of beneficiaries across all villages. Besides opening a savings account, customers can also opt for variable recurring deposit, term deposits, overdraft in recurring deposits and term deposits in loan category general purpose credit card will also be available to all villagers.

OMO a monetary policy tool, deposit accretion picking-up: RBI

I the second-half of 2010, transmission (of monetary policy action) has been good. "Banks have raised their rates as also their base rates," the RBI Deputy Governor said. Gokarn voiced concern over the decline in foreign direct investment (FDI) in 2010 and the possibility continuing in 2011 as well. "The recovery in the US economy may lead to global re-balancing of portfolios. This may hit the emerging markets' attractiveness and the country may not receive capital inflows that it would otherwise have," Gokarn said. This, combined with oil and fertilisers which are significantly imported into the country and whose prices are rising, may put pressure on India's current account deficit, (pegged close to 3.5 per cent of GDP) Gokarn said.

Black money: What have you done so far, SC asks govt

The Supreme Court on Thursday slammed the government again over the issue of illicit wealth parked in foreign banks, asking it to file a report on the action taken by it against people and firms that have stashed black money in tax havens abroad. Expressing concern that the black money stashed in banks abroad might have originated from arms deals, drug trafficking and smuggling, the Supreme Court asked the government as to what action it had taken against individuals and firms having foreign accounts. A bench headed by Justice B Sudarshan Reddy directed the government to file its response by Thursday next. The court also sought replies from the government, the Reserve Bank of India and the Chief Vigilance Commission of India on a petition seeking direction to the government to ratify UN convention on corruption which would facilitate in bringing back black money from foreign banks.

'Stronger action at this point might put some pressure on growth' - Subir Gokarn, RBI Deputy Governor

RBI has sounded very hawkish on inflation in recent times. The macroeconomic and monetary development (MMD) report released a day before the third quarter review said inflation was a dominant concern, while the governor recently said the central bank was desperate to bring down inflation. But a 25-basis-point rise is the least RBI could do...

Words like hawkish and desperate need to be placed in context. We are dealing with inflation of a variety of kinds. We are dealing with inflation related to domestic food prices, in that there are transitory as well as structural problems. We are dealing with inflation related to global commodity prices and, to some extent, inflation driven by domestic demand pressure. Certainly, we want to control inflation in the aggregate. But the use of instruments has to be related to the impact these will have.   So, on why an action of 25 bps as opposed to something stronger, we felt this was appropriate, given the price build-up in the non-food manufacturing segment, to us the best indication of demand-side pressures. Supply-side pressures, if they persist, will spill over and that is the risk we have pointed out. We are aware of that risk, we have repeatedly mentioned risks in the policy document and these essentially tell us we have to persist with the stance.  The actual action has to be seen in the context of the stance. The stance is hawkish. The stance is inflation is a dominant concern but the action is related to the specific circumstances we are dealing with today. Which is, there is some build-up of demand-side pressure, which we see in non-food manufacturing inflation, and stronger action at this point might put some pressure on growth, which we are trying to avoid. As the scenario unfolds, we will make our judgments and we have indicated the stance remains anti-inflationary, and this stance is not changing.

Was the high liquidity deficit a factor in deciding the hike?

It had a role, because one impact that persistent deficit is having is in making life a little difficult for banks, in terms of making long-term commitments (long term is anything beyond the immediate). That has taken call rates up outside the corridor. So, from a market perspective the deficit is somewhat tighter than the policy rates would indicate. In this situation, there was an assessment that a sharper action may have proved disruptive and we thought that was a risk we had to consider.

MMD said downside risk to growth had receded but today RBI spoke of moderation in growth.

MMD’s horizon is this financial year; it is not a very forward-looking document. It is designed to be a review. Looking at what happened in the last quarters, there are not too many risks that can take away the 8.5 per cent growth. And, here we are not giving a projection for the next year, we are giving a guidance. The guidance is simply an initial assessment of drivers of risks. When we look ahead, to some extent we see there are looming risks on growth coming from domestic and global factors, and that is what we have tried to point out.

Will the moderation mean the growth rate will be lower than 8.5 per cent in 2011-12, which RBI has projected for 2010-11?

It is too early to make that call. We will come out with the projection in the April document. There will be a base effect on agriculture which is quite clear. As of now, we expect the momentum in industry and services to continue. So, that might mathematically result in a slightly lower growth rate but not loss of momentum. But we have also highlighted risks, and those have to do with what is emerging as a somewhat unstable macroeconomic environment -- the inflation situation, the current account situation and the fiscal situation. Those are not base-line scenarios but are pointing out risks that are becoming visible, which may affect growth. That is a kind of downside risk.

Do you expect inflation to stay above your comfort zone in 2010-11?

We expect the impact of monetary actions taken so far and possibly taken in the future to keep the core inflation in check. If our baseline scenarios materialise, that is, we have a normal monsoon and some benefit from food prices and global oil prices don’t spiral out of control… but that’s a positive scenario. But if we are realistic about what is happening around us, there are these risks on the upside as well.

When do you see inflation coming back to RBI’s comfort zone?

It is a matter of how these risks materialise. I don’t have a forecast on how these risks are going to play out. It is certainly necessary for us to identify these and look at what impact they might have. That will shape our stance. But I am not in a position now to give a forecast.

Regarding the concern on high incremental credit-deposit ratio, is this a system-wide concern or related to some specific banks?

It is true for the system as a whole, because we have 24 per cent growth in credit and 16 per cent growth in deposits. But within this aggregate, there are huge differences across banks. That is why we have mentioned in the statement that we do plan to engage banks where the disparity is looking somewhat higher than the average. It is, therefore, both a system issue and a micro issue. We are telling banks these gaps are unsustainable; we do not intend to finance them by liquidity infusion. The measures we took for infusing liquidity in December had everything to do with frictional liquidity. There was build-up in government balances and for that we cannot penalise banks. But there is also the dimension that the gap between deposit mobilisation and credit growth, something inherent to the banking system, that’s a structural issue with the banking system. We have said we are not going to accommodate that gap in liquidity.

Is there a concern that banks are borrowing short and lending long?

That is the heart of the concern. If credit is growing at 24 per cent and deposits at 16 per cent, a large part of the gap is funded by borrowing overnight. That’s why the concern about sustainability comes up.

Do you expect lending rates to go up further?

That is part of the monetary transmission mechanism. From our view, having got liquidity in deficit, we would like to see policy actions on rates transmitting through quite effectively into lending rates. From our viewpoint, it is a desirable outcome. It is what we want to achieve in terms of putting a brake on the growth momentum, without disrupting it.

RBI moves gradually to contain inflation

Inflation continued to be the apex bank’s main concern. “The stance of the monetary policy is to contain the spill-over of high food and fuel inflation into generalised inflation and anchor inflationary expectations, while being prepared to respond to any further build-up of inflationary pressures,” RBI stated in its third-quarter review of monetary policy. The central bank also red flagged the high incremental credit-deposit ratio, which is at 102 per cent for the banking industry. “The message is exactly as we put out. We told banks that they must increase their deposits and they must restrain their credit. And the credit growth and the deposit growth have to be aligned. Additionally, we also said that we would monitor this very closely and use our supervisory responsibilities to ensure that those banks, which are far out of line, are brought in line,” said RBI Governor D Subbarao at a press briefing after the policy review announcement.

"Inflation is really our key priority" - Wipro Chairman Azim Premji

"Inflation is really our key priority. The hope is that we do not get knee-jerk reaction," Wipro chairman Azim Premji said. Several Indian corporate chiefs have voiced concern against excessive increase in interest rates as they fear that it could affect the pace of economic growth. They have used the recent deceleration in industrial growth to argue their case but RBI made its worries on inflation clear in the quarterly monetary policy review.

RBI warns of difficult times ahead

What the central bank seems to be saying s not just that we will have to live with high inflation and slower growth. What it also says is that inflation (and therefore higher interest rates) may deter consumption and investment, thereby affecting growth. Lower growth in turn could turn off the foreign institutional investor tap, lead to lower stock prices and affect tax collections, thus affecting the fiscal deficit, which again could lead to higher inflation. Faced with such a difficult scenario, all that RBI can do is confine itself to prevent “food and energy prices from spilling over into generalized inflation and anchoring inflation expectations”. It’s an admission that it has no magic bullet. RBI’s monetary policy statement clearly spells out the risks, not just to inflation remaining at an elevated level, but also to growth. This is what it had to say: “The combined risks from inflation, the CAD (current account deficit) and fiscal situation contribute to an increase in uncertainty about economic stability that consumers and investors will have to deal with. To the extent that this deters consumption and investment decisions, growth may be impacted. While slower growth may contribute to some dampening of inflation and a narrowing of the CAD, it can also have significant impact on capital inflows, asset prices and fiscal consolidation, thereby aggravating some of the risks that have already been identified.”

Reserve Bank’s role in inflation control is restricted: Subbarao

Reserve Bank of India Governor D Subbarao on Tuesday said the role of monetary policy in the current inflationary situation is confined to containment and prevention of food and energy prices from spilling over into generalised inflation and anchoring inflation expectations. Unveiling the quarterly monetary policy, he said, “While energy prices are driven by global developments, the food price scenario is primarily a reflection of persistent structural constraints in the domestic agricultural sector. While these have been debated upon for a long time, the recent price dynamics highlight the need for rapid action to increase the output of a number of products, the demand for which is being driven by changing consumption patterns reflecting increasing incomes.”  According to him, unless meaningful output enhancing measures are taken, the risks of food inflation becoming entrenched loom large and threaten both the sustainability of current growth momentum and realisation of its benefits by a large number of households. “Another challenge to effective management of inflation by monetary policy arises from the persistence of a large fiscal deficit. While the government may succeed in raising receipts, both from high tax buoyancy and one-off sources, the real measure of fiscal consolidation lies in improving the quality of expenditure,” Subbarao said. “If the government is able to commit more resources to capital expenditure, it will help deal with some of the bottlenecks that contribute to supply-side inflationary pressures. With reference to revenue expenditure, while large and diffused subsidies may contribute in the short term to keeping supply-side inflationary pressures in check, they may more than offset this benefit by adding to aggregate demand,” he said.  Indian equities markets, especially front-line stocks, were spooked after the Reserve Bank of India, having increased key lending rates by 25 basis points Tuesday, hinted at more rate hikes to rein in high inflation.

India's Reserve Bank hikes key rates to tame inflation

In a bid to tame prices that has seen annual food inflation soar to double digits, India's central bank Tuesday hiked its short-term lending and borrowing rates by 25 basis points that could make commercial, housing and auto loans dearer. Reserve Bank of India (RBI) Governor Duvvuri Subbarao hiked the repurchase or repo rate to 6.5 percent from 6.25 percent and reverse repo rate to 5.5 percent from 5.25 percent. Other rates like cash reserve ratio and statutory liquidity ratio remained unaltered. The key policy rates were tinkered for the seventh time since January last year as part of the third-quarterly review of the central bank's monetary policy by the governor at the headquarters on Mint Road in downtowm Mumbai. The repo rate, often referred to as the short term lending rate, is the interest charged by the central bank on borrowings by commercial banks. A hike in the rates makes cost of borrowing costlier for the commercial banks.

Finmin says RBI steps strong signal to cool inflation

Finance Minister Pranab Mukherjee said on Tuesday the steps taken by the Reserve Bank of India to calm inflationary pressures were consistent with government policies and were meant to send a strong signal that inflation has to be tackled. The RBI raised key policy rates on Tuesday and raised its March-end inflation estimate to 7% from the earlier 5.5% and cautioned that there could be a possible spillover of high food prices to a generalized inflation.  "These steps the Reserve Bank had to take to give a strong signal to tackle the inflationary pressure which is in the system. On the one hand we will have to control inflation and strong signal should be given. Supply management has to be tackled. Supply bottlenecks have to be removed," Mukherjee told a news conference.

Industry expresses concern over RBI policy change

Industry and commerce bodies on Tuesday expressed concern over the hike in repo and reverse repo rates by the Reserve Bank of India fearing that it would affect the growth prospects of the industrial sector. Stressing that industrial production had registered a sharp decline to 2.7 per cent, Federation of Indian Chambers of Commerce and Industry Secretary General Amit Mitra said that successive tightening of the monetary policy would force banks to raise lending rates given the tight liquidity situation and that would affect industry's growth path. Confederation of Indian Industry Director General Chandrajit Banerjee apprehended that the RBI action would trigger a spate of rise in interest rates negatively impacting the investment momentum.

RBI accords top priority to inflation management

“Banks have responded to this calibrated tightening by raising their deposit and lending rates, suggesting strong monetary policy transmission,” RBI Governor D. Subbarao said here, while announcing the third quarter review of Monetary Policy for 2010-11. With the current increase in interest rates, housing as well as other loans will be costlier for the customers In addition to changes in the policy rates, the RBI extended the additional liquidity support to banks under the liquidity adjustment facility (LAF) to the extent of up to one per cent and a daily second LAF up to April 8 to manage the current liquidity situation. “Inflation is clearly the dominant concern,” said Dr. Subbarao. “Even as the rate itself remains unacceptably high, the reversal in the direction of inflation is striking,” he added. He was mentioning on the moderation in headline inflation which was observed between August and November 2010 and its reversal when WPI inflation (year-on-year) moved up from 7.4 per cent in November to 8.4 per cent in December 2010, due mainly to sharp increase in the prices of vegetables, mineral oils and minerals. While the RBI retained the GDP growth forecast at 8.5 per cent with upward bias, it raised the March inflation forecast to 7 per cent compared to its earlier forecast of 5.5 per cent. Turning to the domestic macroeconomic situation, Dr. Subbarao said the 8.9 per cent GDP growth in the first half of 2010-11 suggested that the economy was operating close to its trend growth rate, powered mainly by domestic factors. “The kharif harvest has been good and Rabi prospects look promising.'' Dr. Subbarao said that tight liquidity conditions persisted throughout the third quarter of 2010-11. The RBI would endeavour to provide liquidity to meet the productive credit requirements of a growing economy, it was important that credit growth moderated to conform broadly to the indicative projection. This would prevent any further build-up of demand side pressures. “The RBI will constantly monitor the credit growth and, if necessary, engage with banks which show an abnormal incremental credit-deposit ratio,” it added. The RBI said the policy decisions would result in containing the spill-over from rise in food and fuel prices to generalised inflation; rein in rising inflationary expectations, which may be aggravated by the structural and transitory nature of food price increases; be moderate enough not to disrupt growth; and continue to provide comfort to banks in their liquidity management operations. Giving some guidance, the RBI Governor said current growth and inflation trends clearly warranted that “we persist with the anti-inflationary monetary stance.” Looking beyond 2010-11, the RBI expects the domestic growth momentum to stabilise. Inflation is expected to moderate from the first quarter of 2011-12, but several upside risks are already visible. “The monetary stance will be determined by how these factors impact the overall inflationary scenario,” the RBI said.

RBI highlights macro risks

In line with consensus expectation, the Reserve Bank of India (RBI) hiked both the repo and reverse repo rates by 25 basis points (bps) each. In doing so, following the pause in December, RBI flagged off renewed inflation concerns that had looked like subsiding for a brief while last year. Indeed, RBI is not concerned only about inflation but about a host of macroeconomic risks to the India story. These include the high current account deficit (CAD), its financing and the fiscal situation. It is this concern over how these risks could affect both the real and financial sectors that has likely persuaded RBI not to opt for a 50 bps hike.

Interest rate increase not round the corner: Bankers

Banks prepared to wait and watch, as the policy is in sync with market expectations. Terming the third quarter monetary policy review as judicious and in sync with expectations, bankers on Tuesday said although the scenario presented a case for a rise in interest rates, it might not just be round the corner.   “For a long time, there has been an upward bias in interest rates and we have seen that getting translated into actual rates increases, both on the deposit and the advances’ side. However, there is always a little lag between the transmission signal and the actual event,” said State Bank of India Chairman O P Bhatt. The asset liability committee (Alco) of the bank would meet shortly to discuss the issue, he said.  “Clearly, there is a bridge between deposit and credit growth and that’s the structural factor responsible for liquidity deficit...they (banks) must increase their deposits and restrain their credit. The credit and deposit growth has to be aligned,” RBI Governor D Subbarao said in the post-policy press meet. Union Bank Chairman and Managing Director M V Nair said though the key concern had been deposit mobilisation, attaining RBI’s projection of 18 per cent growth in deposits during the current financial year was possible. “Most banks have increased the deposit rates lately and the deposit growth has also moved up. Whether it will touch 18 per cent, I think it is possible. Otherwise, we may have to necessarily pass on the rise and increase the deposit rate which, in turn, may impact the base rate,” he said. Echoing Nair, Punjab National Bank’s Chairman and Managing Director K R Kamath added there was a need to balance credit and deposit growth in the coming quarters. “Inflation is a concern, interest rates have an upward bias. These are all indicative of things. There is a case for interest rate increase, both on the deposit and lending side, but when and how, the market will decide,” he added.

Dire need to improve govt expenditure quality

The Reserve Bank of India (RBI) on Tuesday raised the red flag on the high fiscal deficit. Highlighting the adverse effect this would have on economic stability, Governor D Subbarao said the Centre needed to curtail borrowings and spend on creating real assets. In its third quarter review of the monetary policy, the central bank read the Riot Act to the government, expressing displeasure over the means it was using to bridge the gap between revenue and expenditure. It expressed its displeasure over the government’s dependence on raising funds through disinvestment in public sector companies and receipts through sale of spectrum to bridge the gap. The third quarter monetary policy review states: “Fiscal consolidation based on one-off receipts is not sustainable.” If the government decides not to pass on the increase in petroleum product prices to consumers and farmers, it will have to make adequate budgetary provisions to meet the gap. This will constrain its ability to reduce the fiscal deficit. On the other hand, if it passes on the price rise to consumers, then it might undermine fiscal management and make it impossible to tame inflation.  The government may succeed in raising receipts through tax buoyancy and one-off sources like spectrum sale, but the real measure of fiscal consolidation lies in improving the quality of expenditure. If the government is able to commit more resources in generating real assets through capital investments, it will help deal with some of the bottlenecks that contribute to supply-side inflationary pressures. In other words, if the government invests in improving agricultural productivity, then it may go a long way in taming prices.

RBI does a balancing act

Admitting that the central bank had flirted with the idea of raising rates by 50 basis points, RBI Governor Duvvuri Subbarao told reporters that it was in the end a “judgement call” to go in for the moderate rate hike.  He explained that while the RBI had increased rates seven times since March last year, there was some more monetary transmission that had still to be played out. Further, monetary policy is not that effective when it comes to inflation driven by supply-side factors as is evident at present.   The RBI also came out with a guidance beyond the current fiscal. It said the coming year would see domestic growth momentum stabilising though the GDP growth might decline as agriculture reverted to its trend. Inflation, it said, could also moderate from the first quarter of 2011-12.

Bhatt refuses to call special home loans as teasers

The largest lender of the country, State Bank of India has declared that its special home loan scheme cannot be considered as teaser loans as per the definition of the same declared by Reserve Bank of India. "Our special home loan schemes are not teaser loans. If you go about the definition of teaser loans, as provided by RBI in the recent circular, our loan does not fall in this category. Hence, we have not made any extra provisioning on this account," OP Bhatt, Chairman, SBI said. The apex bank had been concerned over these loans since quite some time. "It has been observed that many banks at the time of the initial loan appraisal do not take into account the repaying capacity of the borrower at normal lending rates," RBI said in its November policy. "For the time being, RBI has exempted us from this higher provisioning and hence we have not made any extra provisioning for home loans in the third quarter," Bhatt added.

RBI raises inflation estimate; Basu says high prices to stay

The Reserve Bank of India (RBI) today raised its projection for wholesale price index-based inflation to 7 per cent at the end of this financial year, from its earlier estimate of 5.5 per cent.  The Finance Ministry, in its mid-term analysis in December, had pegged the figure at 6per cent, but later revised it to 6.5 per cent.  This prompted Chief Economic Advisor Kaushik Basu to say the government might have to live with high inflation for alittle longer than expected.  “The battle against inflation, which we were hoping would come to an end by March-April, will probably continue for some more months,” Basu said. If  RBI projections are true, inflation at the end of this financial year would be somewhat moderate than 10.22 per cent witnessed in March 2010. However, despite the high base effect, inflation is not coming down drastically. This clearly shows that prices rose significantly this year.

AIDED BY TECHNOLOGY, GOVT BANKS WIDEN OUTSOURCING

Call it a technology transformation. Where are the innumerable tellers, typists, peons and tea vendors that were so characteristic at a public sector bank (PSB)? Tellers have been replaced by ATMs, the work of peons are being done by computers and for other clerical jobs, including housekeeping and ATM management, there are outsourced employees or contractual workers.  The result is substantial reduction in growth of the work force. While banks have been growing at 20-25 per cent annually, fresh recruitment has been only four-five per cent.  The country’s largest lender, State Bank of India, is planning to optimise the work force in about 80 branches, whereby the job of three clerical staffers could be done by one, and the excess workforce shifted to other centres like Liability Central Processing Centre (LCPC), according to a senior official.  LCPCs at SBI are centralised service centres which specialise in opening accounts, after initial processing at branches. With almost 30 million accounts being opened at SBI each year, several committees are studying if some non-core part of LCPC operations could be outsourced, said a senior official.  “If some part of the work like feeding of the data can be outsourced, the process of account opening will be much faster,” said the executive.  “Some of the activities like marketing and call centres are being outsourced by our bank. Some recovery is also being done through recovery agents, after training,” said S L Bansal, executive director, United Bank of India.   According to RBI guidelines, activities which form part of core management functions such as corporate planning, organisation, management and control and decision-making functions cannot be outsourced. So, activities such as marketing and support functions, lead generation and promotional activities and initial contact point verification activities are generally outsourced by banks. Also, document processing, marketing and research, data processing, backoffice support services and general administration-related activities are some of the other functions which banks are outsourcing.  “In the last 10 years, recruitment in the banking industry is not more than seven-eight per cent, mostly because of use of technology. We are outsourcing work like marketing and providing leads for opening an account, but all verification and know-your-customer work is being conducted by bank staff only,” said Ramnath Pradeep, chairman and managing director, Corporation Bank.  But several clerical jobs like cheque delivery to clearing houses, which used to be done inhouse, are being outsourced to courier companies. ATM maintenance, software development, data centre operations, network administration and maintenance of hardware are some other services being outsourced.  “In the last three years, we have almost doubled in size, but the need for fresh recruitment has been reduced by use of technology. For example, we have installed mechanised cash drop boxes in our banks, which gives photocopy receipts instantly,” said T.M.Bhasin, Chairman and Managing Director, Indian Bank.

Giving employees more autonomy pays huge dividends

Workers who feel they are free to make choices at workplace and be accountable for them are happier and more productive, suggests a new book. The book, Human Autonomy in Cross-Cultural Context: Perspectives on the Psychology of Agency, Freedom, and Well-Being, co-authored by Marylene Gagne and Devasheesh Bhave from Concordia's John Molson School of Business, stated that there's no universal cross-cultural definition of autonomy. What people from one culture perceive as workplace freedom, those from another may view as simple disorganisation. "The perception of autonomy has very positive effects on workers. However, managers can't simply export North American methods of granting autonomy anywhere and expect them to work," said Gagne. No matter how autonomy is defined, when people feel they have latitude the results are impressive. Potential benefits include greater employee commitment, better performance, improved productivity and lower turnover. "Autonomy is especially likely to lead to better productivity when the work is complex or requires more creativity. In a very routine job, autonomy doesn't have much impact on productivity, but it can still increase satisfaction, which leads to other positive outcomes," said Gagne. Paradoxically, some employers are now actually reducing workers' autonomy by monitoring behaviour on workplace computers, or even on the phone or in the car. It's another reason why cartoons like Dilbert are so popular, says Gagne.

SBI to introduce green-channel banking soon

The State Bank of India is set to introduce green-channel banking to promote paperless work and reduce footfall of customers in the already over-burdened ATMs and branches.  SBI General Manager for network-I D Mozumdar said that apart from regular counters, a new counter was being opened in which customers could swipe their ATM cards and enter the pin code to receive cash from the person manning the counter. "In this way, there will be no requirement for paperwork and the process of money withdrawal will be fast," he said. 
Under the financial inclusion scheme of the Reserve Bank of India, SBI has been asked to take up responsibilities in 43 of the 156 "under-banked" blocks of the state, besides extending banking facilities to 408 villages having a population of over 2,000 people. Mozumdar said SBI would connect 200 villages by March this year through different banking techniques. "We do not require brick and mortar branches these days to extend banking facilities because technology has made the work easier and SBI is fortunate to have all the modern banking technology," he said.  All 200 villages where SBI is planning to launch services by March will be on technology platform that includes micro-ATM or mobile-based banking in which the customers having a mobile phone can access his or her account through the cellphone and bio-metric smart cards by which an user is identified on a hand-held machine through finger prints. Business correspondents appointed by bank will also disburse cash along with printed receipts and through kiosk-mode in which the bank provides a laptop with face-reading and voice-recognition software to enable transactions. 

Pension option: Banks face 12k cr liability

Banks are awaiting clarity on accounting for a liability of around Rs 12,000 crore due to nearly 2.75 lakh serving and retired employees opting for a second pension option.
Bankers said they had approached the Reserve Bank of India, seeking a longer duration to provide for the amount. Although banks have started providing for a higher pension bill, setting aside the fund to meet the liability that arises over the next few years in one shot would dent their balance sheets. Around 3.3 lakh public sector bank employees are estimated to be eligible to get pension post-superannuation as part of a second option being given to them. A second pension option was part of the wage settlement agreed upon by banks and unions, which had capped the average pay increase at 17.5%. Earlier, they could only get provident fund. Among the public sector lenders, only the SBI group had the provision of giving pension to all its employees before the wage settlement. As per the pact , bank managements will provide 70% of the deficit, while the remaining will have to be borne by the employee. The United Forum of Bank Unions, which negotiated the wage pact and pension with Indian Banks' Association, had said that employees had to pay 2.8 times of their Nov 2007 salary from the arrears of the wage settlement. Banks are in various stages of getting a firm idea on the number of employees as several of them had given time until December for employees to opt for the scheme. Bankers, however, expected over 90% of serving and retired employees to opt in favour of pension. Lenders had taken up the issue with RBI last year, which in turn is discussing it with Institute of Chartered Accountants of India that sets accounting standards. Under existing norms, at the end of their financial year in March, banks have to set aside funds to meet any actuarial shortfall. The deficit or surplus for pension is done through a technical exercise conducted by actuaries.