Credit offtake from public and private sector banks in the country grew by 23.4% for the one-year period ended January 28, indicating an upswing in industrial activity, says the Reserve Bank of India (RBI). For the one-year ended January 28 credit offtake stood at Rs 38.47 lakh crore as against Rs 31.18 lakh crore during the year ago period. During the period, deposits went up to Rs 51.28 lakh crore from Rs 44.39 lakh crore as on January, 2010, according to latest data from the RBI. In its annual monetary policy at the beginning of the fiscal, the RBI had estimated that credit offtake would grow by 20% this fiscal.
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Thursday, February 10, 2011
RBI Allows State-Run Banks To Amortize Pension Expenditure
India's central bank Wednesday let state-run banks provide extra expenditure on staff pensions and gratuities in installments over the next five years. India's nationalized banks recently re-opened the option of a pension for staff who had not opted for it earlier. The Indian Banks' Association, the representative body of the banking sector, had asked the Reserve Bank of India to let them amortize the additional expenditure. The RBI has let the state-run banks amortize the amount over the next five years, starting from the fiscal ending March 31. The banks will have to provide a minimum of one fifth of the total amount involved every year, it said.
Muthoot to revise offer document after RBI circular
Muthoot Finance, the largest gold loan non-banking finance company (NBFC) in the country, is set to tweak its business model while filing the draft red herring prospectus (DRHP) after factoring in the Reserve Bank of India’s (RBI’s) recent directive on gold loans.Recently, RBI notified that bank credit to NBFCs giving loans to individuals and other entities against gold jewellery would not be treated as exposure to the priority sector. The move is expected to impact the borrowing cost of these companies, which account for more than 32 per cent of the Rs 80,000-crore gold loan market in India, as regular loans are costlier than priority sector loans. Moreover, as these loans will not enjoy priority sector status, the pace of securitisation or assignment to other banks will also fall, which may hit these NBFCs. Selling receivables was one of the main source of capital for these NBFCs. It also helped banks meet priority sector taragets.
Nabard kicks off infrastructure lending on a commercial basis
The National Bank for Agriculture and Rural Development (Nabard) regulator for regional rural banks and cooperative banks since 1982, has begun lending directly to infrastructure projects at commercial rates as part of a transformation and pitting it against traditional lenders to the sector. Nabard, which had a balance sheet of more than Rs.1.53 trillion as of December-end, will lend Rs. 42 crore to Karnataka State Warehousing Corporation (KSWC) to set up 1,06,000 tonnes storage capacity at nine different locations in the southern state. The loan is being given at an interest rate of around 10% and a maturity of 12 years, Nabard's Executive Director, Prakash Bakshi told Mint. This forms part of the total Rs. 173 crore loan that KSWC is seeking and which Nabard is considering. “We are considering other infrastructure projects as well,“ Bakshi said. “The idea is to support the development of rural infrastructure besides increasing the revenue of Nabard.“ Nabard is setting about changing its business model by funding infrastructure projects in the power and agricultural sectors on a commercial basis and expanding its role in financing state-government sponsored projects as Mint reported on 28 November. Its balance sheet comprises total funds received and loans disbursed. The entry of Nabard into direct infrastructure lending brings it in competition with commercial banks and specialized infrastructure lending companies, which have so far been dominating the space, analysts said.
Wednesday, February 9, 2011
No FIR’s on depositing fake currency, businessmen ask RBI
The Chattisgarh Chamber of Commerce and Industries has asked the Reserve Bank of India Governor D Subbarao to change certain rules pertaining to administration of banking regulations. The office bearers of the chamber have asked for an appointment with the RBI Governor in this regard. The president of the chamber Shrichand Sundrani, general secretary Jitendra Baralta, treasurer U N Agrawal and others demanded that the no FIR (First Information Report) should be lodged on submission of fake currency notes in banks as businessmen do not always check every currency note before accepting it. They should be instead destroyed instead of filing FIR. Presently, an FIR is obligatory if bank receives fake currency. The president of the chamber said that another regulation which needs to be looked into is that of automatic closure of any account from which there is no transaction for a period of 6 month. He said that opening of accounts of every group-member of a business venture is compulsory as per the orders of the Income Tax department. These accounts are not in regular use. The office bearers also made several other demands like clearing loan applications in time, standardisation of amount necessary for opening bank account etc.
RBI Governor in Bhopal on Feb 9
The Governor of the Reserve Bank of India Dr D Subbarao will be in Bhopal on February 9. He will preside over a meeting of RBI’s central board in the capital. He will also inaugurate an exhibition depicting the 75 year history of the bank.
NE lags in electronic clearing system: RBI
Ruling that the Northeast was yet to pick up the electronic clearing system (ECS), a senior Reserve Bank official today said Clearances through the ECS in the region is only one per cent of the national average. "More awareness in required to refine the payment and settlement systems in the region. Of late, Manipur has started payment of salaries through this system. In Meghalaya some debit clearing (like BSNL bills) is done through ECS," RBI Regional Director Surekha Marandi said. Addressing a workshop on popularizing ECS for payment of salaries and pension, she said the electronic transfer of payments were safe, efficient, time saving time and it helped better fund management. "Clearances through cheques take three days time, while through ECS it is done in one day. The ECS also ensures better customer satisfaction," she said.Meghalaya Chief Minister Mukul Sangma said all state government employees will be brought in the loop."The beneficiaries of government schemes and other weekly payments will be done through this system in near future," Sangma said. Meghalaya additional chief secretary (in charge finance) BK Dev Verma said the ECS reduces the paper work and the exercise of going to banks. "The possibility of fraud is also nil," he said. Meghalaya government is in the process of starting e-payment of pension. "Next, we will start the payment of salaries through ECS. The banks have to gear up to handle the tasks, because gradually all government transactions will be done through electronic payment," Verma said.
Banking access to all villages with 2,000 people: RBI
The Reserve Bank of India (RBI) has planned to make banking accessible to all villages with population more than 2,000 by March 2012, bank governor D. Subbarao said Tuesday. " RBI has planned that all villages with population more than 2,000 must have access to banking such as through ATMs, business correspondents and rural mobile banking ," Subbarao told students of the Indian Institute of Management-Raipur (IIM-Raipur) while making a presentation on the working of RBI. "It is a challenge before the RBI to maintain growth and control inflation," he said. He explained in detail about several functions of the RBI - from printing and distributing currency to acting as monetary authority, regulatory and supervisory body for banks. The RBI chief also sought to correct people's 'wrong perception' regarding RBI as a regulatory body for interest rates, saying RBI doesn't regulate interest rates on borrowing and lending except for NRI deposits and savings bank accounts. He also explained how RBI acts as an 'external sector gatekeeper' by managing current account deficit
Kamath worried over inflation impeding growth
ICICI Bank Chairman K V Kamath today sounded alarm bells on rising inflation saying price rise numbers at the current level are not at all comfortable. "Current inflation numbers are not at comfortable levels. If we need to make growth sustainable, we need to control inflation and interest rates," Kamath told reporters on the sidelines of the Nasscom India Leadership Forum 2011 here. On the impact of the successive interest rate hikes by the Reserve Bank of India (RBI), he said, if interest rates are hiked further, it can play a spoilsport for the present high level of growth. On whether high interest regime is here to stay, Kamath said, till inflation does not come under control, it will remain high. He further said, it is difficult to foresee an easy money regime now as inflation so far has not been responding to the efforts of the central bank. "For the past one-and-a-half years, inflation has not been responding to the traditional monetary and fiscal instruments," Kamath said.
Two-year FDs fetch more than 5-yr deposits
Banks are offering their highest returns in the one to two-year category of deposits, an indication that they expect interest rates to come down in the medium term. A host of banks have revised their lending and deposit rates but are reserving the most-attractive returns on the medium-term fixed deposits. The highest rate offered by the country's largest lender, State Bank of India, is 9% and this is the return on its 555-day and 1,000-day deposits. But those who decide to keep their money for a longer term will less. A five-year deposit with SBI will fetch only 8.25% while the return on 10-year deposits is 8.75%. Conventional economics says that rates rise along with tenure, and the current pricing of deposits appears to be an anomaly. But bankers have an explanation for this. They say there are two reasons for why medium-term rates are higher. The first is that they believe that inflation would come down which would make lower fixed deposit rates more acceptable in the next year. Secondly, they say that it is impossible to predict future rates and since most of their loans are extended on floating rates, they would rather have the option to reprice deposits after a year. Meanwhile, more banks have increased their lending rates. in the wake of the 0.25% increase in policy rates by the Reserve Bank of India even as the liquidity position eased marginally in the money markets.
NABARD asks bankers to implement government sponsored schemes in Himachal
NABARD has asked regional rural banks (RRB), leading commercial banks, cooperative banks to play a proactive role in implementing government sponsored schemes formulated for weaker sections of society. Speaking a day long workshop here today, AD Ratnoo, CGM NABARD Shimla asked the participating banks to action plan for the coming year, which needed to be submitted to NABARD so that targets set out could be monitored. The branch managers of banks were asked to ensure that they were equipped with the guidelines and instructions of RBI, NABARD and central government sponsored schemes such as Dairy Entrepreneurship Development Scheme, Integrated Development of Small Ruminants, Rabbits Self-Help Groups and Joint Liability Groups.
RBI snubs NRIs, says not eligible for interest sops on home loans
The Reserve Bank today said non-resident Indians would not be eligible for incentives on interest on home loans of up to Rs 10 lakh. Banks provide one per cent interest subsidy for home loans of up to Rs 10 lakh. "Housing loans extended to NRIs for construction of farm houses, and to staff members of the banks are not eligible for subsidy under the scheme," it said in a notification. The central bank said the notification follows the recent clarifications issued by the government. The government, in the Budget of 2009-10, announced a scheme of one per cent interest subvention in respect of individual housing loans up to Rs 10 lakh, provided the cost of unit does not exceed Rs 20 lakh. The scheme was valid till September 30, 2010, with an initial allocation of Rs 1,000 crore. During the last Budget, the scheme was extended till March 31, 2011, with an additional provision of Rs 700 crore. Further, RBI directed the banks to use their own funds for upfront credit of subsidy under the scheme till government makes reimbursement and added that loans sanctioned prior to October 1, 2009 would not qualify for reimbursement under it. "While calculating the interest subsidy, each disbursement may be treated as a separate loan and for each disbursement, subsidy claim may be made for twelve instalments," RBI said. The apex bank also asked all the lenders to submit their claims on a monthly basis in respect of all housing loans eligible for subsidy under the scheme.
Tuesday, February 8, 2011
Experts solve forex riddle for students
With a view to provide basic information about foreign exchange (forex) facilities available for students/ researchers going abroad, the Reserve Bank of India (RBI) in association with Indian Institute of Technology (IIT), Patna organised an interactive session programme titled “Forex for you”. Students from IIT, NIT and other engineering colleges attended the session. A panel of experts comprising G. Mahalingam, Regional Director, RBI Patna, S. Maurya, Deputy General Manager, RBI, Shrimohan Yadav, General Manager, RBI, Naveen Chandra, AGM, SBI, and A. Saha, GM, Thomas Cook answered students queries over financial issue. Students were inquisitive about a number of things such as how to unravel black money, how to control inflation, how monetary value is determined, what will be the future of the economy, implications of artificial depreciation of Chinese yuan, what quantum of forex could be taken away to a foreign country and how much of it could be remitted back, whether an engineering graduate can undergo training in RBI, can banks be asked to reduce the interest rate on education loans etc. “The experts broadly spoke about the various facilities relating to foreign exchange available to students and to the general public for different purposes such as travel, study, employment, business, medical needs etc,” In response to a question regarding the future of Indian economy, Mahalingam said: “India is managing its affairs pretty well. Fiscal deficit is well managed, the only concern is the inflation which is because of supply side problem and RBI can interfere to control it only when it is a demand driven.” “Please don’t worry about India’s economy. You (students) go abroad for study and comeback as we want you to be in the country,” Mahalingam told students.
S K Kotian, Ex-DGM, RBI passes away
S K Kotian, the director of Bharat Co-operative Bank Limited passed away on Sunday February 6 owing to brief illness. Kotian basically hails from Kallamundkoor in Moodbidri taluk of Dakshina Kannada district. He retired as Deputy General Manager with Reserve Bank of India and continued to serve the Board of directors in Bharat Co-operative Bank. He was the active member of Billavar Association at the suburban Borivali. He is survived by his wife and two daughters
RBI to open sub-offices in NE capitals – Surekha Marandi, Regional Director
Reserve Bank of India will open sub-offices in all the capital states of North-East, starting with Agartala. RBI Regional Director Surekha Marandi told PTI today the process of setting up the first sub-office in Tripura capital of Agartala is on. "We are waiting for Tripura government''s offer. As soon as the state government allots a building, we will start the process," she said. The RBI official said the sub-office at Agartala should be ready by the end of this year. Sub-offices will be set up in other capitals as well in a phased manner, Marandi said, adding that RBI was trying to increase the outreach of banks in the region.
New cheque clearance system to begin in Chennai by mid-2011
Rejection of cheques with over-writing or other corrections, currently limited to the national capital, will begin in Chennai by the middle of the year, but the pan-Indian implementation of this new cheque clearance system by RBI may take a few years more. The new Cheque Truncation System, under which cheques are cleared through their digital image being passed through the banking system and without their physical presentation, will be implemented in Chennai in its second phase by Newgen Software. The system was introduced in Delhi by the company in December 2010, marking the first phase of the new system, proposed by RBI earlier last year.
Andhra Bank submits financial inclusion roadmap to RBI
Andhra Bank, one of the leading public sector banks in the country has submitted a roadmap to the Reserve Bank of India (RBI) to provide banking services to 1144 unbanked villages in the country with a population of over 2000 by March 2012. The Hyderabad-based bank has also fixed an interim target to cover around 500 villages by the end of the current financial year under the Financial Inclusion Plan . The RBI has asked the public sector banks to extend their banking services to the unbanked villages having a population of over 2000 by March 2012. Andhra Bank would offer banking services trough the Business Correspondents (BCs) model by leveraging technology. The bank has already covered 195 villages under FIP, sources said. In order to strengthen the FIP, the bank has opened 8.60 lakh “No Frill Accounts” under branch banking. With its pan-India presence, the bank has 2615 delivery channels consisting of 1587 branches, 36 extension counters, 38 satellite offices and 954 ATMs. Out of the total target of 1144 villages to be covered under the FIP, 101 villages are in the bank’s Berhampur zone, that covers seven districts in the south Orissa and Srikakulam district in Andhra Pradesh. The districts in Orissa to be covered under FIP are Ganjam, Gajapati, Nabaranagapur, Kandhamal, Kalahandi, Koraput and Rayagada. Before the end of the current financial year, we will cover at least 30 villages under the FIP, said Regidi Appadu, Deputy General Manager (DGM) of the bank’s Berhampur zone. All the 30 villages are located in Srikakulam district in Andhra Pradesh. Under the FIP, the bank has already undertaken the Andhra Bank Gramina Kranti Patakam, a Smart Card based project for payment of the wages for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and the social service schemes like the old-age pensions at the panchayat level. “Out of 7.45 lakh beneficiaries in Srikakuam district in Andhra Pradesh, the bank has already issued the smart cards to 3.40 lakh people”, Appadu said. The same scheme would be launched in Orissa after signing memorandum of understanding (MoU) with the state government. “The scheme is likely to the implemented in Orissa after March this year”, he added.
RBI directive will not affect us, says Manappuram chief
The Reserve Bank of India's directive that loans given against jewellery as collateral would no longer be eligible for priority sector lending will not have much of an impact on NBFC Manappuram General Finance and Leasing, according to a top official of the company.
Finmin, RBI should join hands on inflation
Last year’s Budget had two surprises for the Indian financial sector. First, finance minister Pranab Mukherjee’s announcement that the Reserve Bank of India (RBI) would soon issue licensing norms for new private firms in the banking space and, second, the formation of the Financial Stability and Development Council (FSDC). On both issues, I am told RBI was consulted only a few days ahead of the budget. And, on both, the Indian central bank had reservations. It had been talking about consolidation in the banking sector, and not entry of new companies, till Mukherjee said this in his budget speech in February 2010. Even though the stated objective of FSDC is to “strengthen and institutionalize the mechanism for maintaining financial stability” and it plans to monitor macro-prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues “without prejudice to the autonomy of regulators”, both RBI and the capital market regulator are distinctly unhappy and they see it as a dent on their autonomy. The first draft on FSDC, circulated by the ministry, evoked strong reactions from RBI. It was circulated just before the promulgation of an ordinance by the President of India that sought to resolve the face-off between the stock market and insurance regulators. The 18 June ordinance, the Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010, which later became a law, empowers the finance ministry to resolve all future regulatory disputes, including those involving RBI. Faced with stiff resistance from RBI, the ministry made cosmetic changes in the structure of FSDC and the regulatory dispute resolving law, but it did not budge an inch from its resolve to push through these issues. One wishes that it shows same resolve to address other financial sector related issues, some of them are a decade old. The biggest threat to growth is high inflation and it can be contained only when the finance ministry and RBI mount a joint offensive, through fiscal and monetary measures. Mukherjee can make a beginning, using the budget 2012 as a platform.
Are our banks lending more than they get as deposits
Indian banks are lending more than what they get as deposits — this is what was Reserve Bank of India (RBI) Governor Duvvuri Subbarao’s concern during the third quarterly review of the monetary policy. The governor said the incremental credit-deposit (C/D) ratio of the banking sector was 102 per cent at the end of December 2010, up from 58 per cent in the corresponding period of the previous year. Incremental C/D ratio indicates how much a bank has lent for every additional rupee it has received as deposit. Ideally, banks cannot lend, for example, more than Rs 70 for every Rs 100 they mobilised as deposits, because they need to set aside Rs 30 in the form of cash reserve ratio (CRR) and statutory liquidity ratio (SLR). But, RBI says, for every additional Rs 100 deposit, banks are lending Rs 102, even after meeting CRR and SLR obligations.
After SKS, more MFIs to cut exposure to Andhra
Many microfinance institutions (MFIs) are considering reducing their business in Andhra Pradesh after the state government decided to continue with the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act. State-based Share Microfinance and Spandana Spoorthy said they would reduce their exposure to the state from 40 per cent to 5-10 per cent if the state government continued with the Act. Last week, SKS Microfinance, the only listed MFI in the country, had threatened to pull out of the state if the government did not revoke the Act. Last year, the Assembly enacted the Act and imposed stringent regulations in response to complaints over high interest rates and coercive loan recovery practices adopted by MFIs. “Operations have come to a standstill in the last three months. Fund-raising has become an issue and banks are yet to disburse loans,” said Uday Kumar, chairman and managing director of Share Microfinance.
RBI to issue new Rs 10 coin
The Reserve Bank of India will soon put new coins of Rs 10 denomination into circulation to felicitate its Platinum Jubilee. The front face of the coins will have the Ashoka Pillar embossed in their centre, an RBI release said. The reverse will bear the emblem of the Reserve Bank of India, a palm tree tiger, along with the year "1935-2010" below the emblem, it said.
Pvt banks, NBFCs may be hit on RBI's take on gold loans
The last quarter before the closure of financial year, private banks are busy buying loans from non-banking finance companies to meet their 40 per cent priority sector lending target set by the banking regulator. The Reserve Bank of India on Friday said that banks cannot show loan given against gold jewellery under priority sector lending. This news comes as a thunderbolt for both private banks and NBFCs specialising in loans against gold. The move by RBI is due to the high interest rate charged on these loans – 18 to 24 per cent – and end-use of funds by the NBFC got from banks may not be for priority sector lending. These loans given against gold jewellery are called ‘bridge loans' as they for a short duration of three months usually taken by small traders and businessmen. Mr S.K. Mishra, General Manager (priority sector), Indian Overseas Bank, said the impact would be greater on private banks compared with public sector banks. Public sector banks have a large network of branches in the rural areas and therefore easier to meet the priority sector lending.
Bank on decentralisation
The changes that have been taking place in State Bank of India (SBI) since July 2006 coincide with the chairmanship of O P Bhatt who took over in July 2006, ending his five-year term in March 2011. There is no doubt that the bank’s performance data in the last five years has improved. Despite the handicaps that the bank faced in the form of highly unionised staff at the branch level, and the demerits associated with public ownership, the bank has done well, surpassing its peers on various business indices. SBI’s excellent track record can be attributed to Bhatt’s leadership. Bhatt introduced certain changes to achieve the stated objectives. However, these changes have made branch managers the weakest link in the whole system. It may be recalled that former SBI chairman R K Talwar said every branch manager represents the chairman of the bank. Accordingly, Talwar strove to decentralise the decision-making process to strengthen the branch manager’s position. Since then, SBI has come full circle with Bhatt weakening the branch manager’s position. Bhatt and his team believed that centralising management would speed up the decision-making process. If the bank were to take an independent survey of customer satisfaction at branches, the data would speak for itself. The computerisation of SBI branches has done little to improve service levels. Also, one does not see or experience the performance celebration at branch levels for reasons best known to the branch staff. However, having taken the lead in all business parameters, it is for SBI’s next leadership to sustain the bank’s performance in the years to come —this would be the best tribute to Bhatt’s leadership. This is on the assumption that the government (and the Reserve Bank of India) does not renew his tenure, although he deserves it. K.V.Rao, Bangalore
GOVT TO WAIT FOR RBI STAND BEFORE DECIDING ON FDI CAP
The government will wait for the Reserve Bank of India (RBI to take the first step before deciding on whether to reduce the foreign investment cap on private sector banks to below 50 per cent from the current 74 per cent. Currently, the government is not in amood to cut the cap, a proposal mooted in a discussion paper on entry of new banks, released by the RBI last year. The finance ministry said it would wait for RBI guidelines, a development which will provide much relief to ICICI Bank and HDFC Bank. Both are already known as Foreign Owned Indians Controlled entities, after foreign investment in them rose much above 50 per cent, following new norms of calculations by the commerce ministry. “We are not thinking in terms of cutting the cap on foreign investment in private sector banks. The proposal is not under consideration. We will wait for RBI norms on new banks before taking any decision in this regard,” a key official with the financial services department of finance ministry told.
Interest-free Islamic banking a boon for poor
Proponents of Islamic banking have welcomed the Kerala high court’s move to dismiss a petition challenging the state government’s support to an Islamic financial institution. Rooting for India to include interestfree windows in conventional banks, Abdur Raqeeb, general secretary of the Indian Centre for Islamic Finance said nations around the world were looking seriously at Islamic banking. “If the UK, Hong Kong, Singapore, France can incorporate Islamic banking, India too can look at it,” he said, adding that they had given the RBI and the finance ministry a report to start an interest-free window in conventional banks within the existing Indian banking regulation act. “We are hopeful,” he said. Conventional banks have started testing the waters, making inroads into the new format. In 2008, Malaysia’s Securities Commission, which aims to make the country a hub for global Islamic banking, approved Reliance Asset Management as an Islamic fund manager. Banks like ICICI and Kotak have shariacompliant windows in their Gulf operations. Asset management firms offer such services, too. But they are at a nascent stage and may grow with Gulf funds and NRIs as potential investors.
Monday, February 7, 2011
79,000 villages to get banking services – K.R.Ananda, Regional Director, RBI
Banking services will be extended to 79,000 villages with population more than 2,000 throughout the country before March 2012, according to K.R. Ananda, Regional Director for Tamil Nadu and Pondicherry, Reserve Bank of India. He was launching the RBI outreach programme, at Vellabommanpatti near Vadadmadurai on Saturday, 5th February 2011. Initially, 170 villages have been identified this year, and all these will be made as model villages. Every household in model villages will have savings bank account. The bank has identified four villages in the State including Seelapadiyankulam and Vellabommanpatti in Dindigul for this year. The Reserve Bank of India had covered eight villages in 2009-10 in the State. “Villagers will be sensitised to importance of savings. Financial assistance for income generation activities will also be offered to ensure equitable development at these villages. The bankers will depute business correspondents to provide banking service at the doorstep of villagers that will save time and journey distance,” he added. - The Hindu
Mobile cash on cards by April
The National Payments Corporation of India (NPCI), an RBI functionary, hopes to rope in about 25 banks into its fold to implement its Interbank Mobile Payment Solution (IMPS). “We have ten banks that have gone live with Interbank Mobile Payment Solution and expect 15 more to join the group before April end,” said NPCI chief operating officer, Mr M. Balakrishnan after unveiling the facility for Karur-based Lakshmi Vilas Bank in Chennai. IMPS is a real time fund transfer facility via mobile phones and does not require the account number of the beneficiary.Once registered with the bank for the service, a unique mobile money identifier (MMID) is issued to the customers, which along with the mobile phone number, is used for both credit and debit transactions. Though the service is enabled through a mobile application download, it can also be used in low-end phones by regular SMS facility. “Since IMPS does not use the customer’s account number, there is no fear of misuse of accounts through hacking of mobile phones,” Mr Balakrishnan said. - Deccan Chronicle
RBI financial outreach camp at Karsingsa
Encouraged by the response of financial outreach camps organized as part of its platinum jubilee celebrations across Northeastern States during 2009-10, the Reserve Bank of India (RBI) is launching the second phase at Karsingsa from February 12. The purpose of the camp is to bring awareness on banking facilities to every adult citizen in the targetted areas as well as to bring them under mainstream banking. The camp will also aim to disseminate information on various facilities and schemes. Stalls will be set up by the RBI, SBI, UCO bank, Arunachal Pradesh Cooperative Apex Bank, NEDFI, SIDBI, KVIC, NSIC, Agriculture and Veterinary department, State Forest Research Institute and model village among others. Among others, Deputy Governor, RBI, Syamala Gopinath will attend as chief guest while Chief Secretary, Arunachal Pradesh, Regional Director, RBI Surekha Marandi, Banking, Ombudsman for North East, Chief General Manager, State Bank of India NE Circle, General Manager, NABARD, District Magistrate will also attend the camp. -The Sentinel
Why a banker questions RBI
There aren’t too many instances of the chief executive of a bank questioning the wisdom of the Reserve Bank of India (RBI) in the country’s banking history. The State Bank of India’s (SBI) refusal to set aside money for making provisions, as directed by RBI, for the so-called teaser home loans is raising many eyebrows. No banker is willing to formally comment on the stance of Om Prakash Bhatt, chairman of SBI, the nation’s largest lender, but in private, a few say Bhatt “has the guts to take on the regulator” while the more diplomatic ones dub his “defiance” as “creative tension between the regulator and a regulated entity”. Bhatt has done something no Indian banker has done before. According to the regulator, teaser loans carry high risk and it is willing to revert to bring down the provision rate from 2% to 0.40% for those loans which do not turn bad one year after the loan rates go up. Bhatt contests RBI’s perception of risk and says the home loans that SBI offers at a discount for the first two years are special loans and no teaser loans. He also claims while giving such special loans the bank takes into consideration a customer’s capacity to service the loan when the rates go up. In the absence of any risk of default, the bank does not need to make extra provisioning, as directed by RBI. The audit committee of SBI’s board, headed by chartered accountant Dileep C. Choksi, has endorsed the chairman’s decision. Shyamala Gopinath, an RBI Deputy Governor director of the bank’s board, is a member of the audit committee. Apart from higher provisioning for teaser home loans, Bhatt also has reservations about RBI’s decision on 70% provisions for bad loans. In a television interview, after announcing the bank’s third quarter earning, he dubbed the RBI norm as “arbitrary”. There are three types of bad loans—substandard, doubtful and loss assets. Till recently, banks were required to set aside the entire amount of loss assets, or those assets which can never be recovered, while provisioning requirement for other two categories varied, depending on their age and quality. RBI in 2009 made 70% provision mandatory for bad assets for all banks. In other words, irrespective of the degree of deterioration, banks need to set aside Rs70 for every Rs100 worth of bad loans. SBI has so far done close to 64% provisioning for its bad loans and sought time to raise it to 70%. Bhatt’s argument is while money has already been set aside for different categories of bad assets, what’s the point in raising the overall bad loan provisioning to 70%? Can a commercial banker question the rationale behind a regulator’s decision? While the industry is divided on this, I would be curious to know how does the RBI nominee on the bank’s board react to such moves? RBI says teaser loans are not only risky, but also an instrument that discriminates one set of borrower against others. This is because new customers get such loans at a discounted rate while the existing customer had paid higher interest rates. If this indeed has been the case, why can’t the RBI nominee on the board settle it at the board level? There is a government nominee, too, on the board. Can a bank chairman overrule these representatives when it comes to taking decisions on such contentious issues. After he steps down in March, Bhatt’s successor in April will have tough time in keeping both the regulator and the investors happy. I am taking a break and will not write this column for the next two weeks. - Mint
When economists turned the spotlight on themselves at Davos
The just-concluded meeting of the World Economic Forum at Davos had proved to be a virtual non-event, overshadowed as it was by the crisis in the Islamic world. But economists basked in the limelight as they were a much-sought-after tribe. Their wide-ranging forecasts — the likelihood of the next economic crash, growth outlook for China, the possibility of a debt crisis, et al — were in demand, at a time when their track record has never been more pathetic — a fact that, ironically, came to the fore in the conference itself. Economics, we all know, is not an exact science and, when it comes to forecasts of this profession, taking them with a generous pinch of salt would be in order. How credible are these forecasts? In his thought-provoking Three Sacred Cows of Economics, Alex Rubner spoke of an economist who had forecast the age of a river as one million and twenty-one years. Asked how he can be so accurate, the economist replied that, twenty one years ago, the age of the river was estimated at one million years. Nearer home, the Reserve Bank of India, when it came to projecting the inflation rate by the end of March 2011, it had simply shifted the sign post. In stead of the earlier 5.5%, it has now revised it to 7%. Why? Because between the second- and third-quarterreviews, the underlying price scenario had changed for the worse. When the forecasts cover a wide field and many uncertainties loom large, the perils of economic prediction are obvious. But, undeterred, at the World Economic Forum 2011, five top contemporary economists ventured to predict the future of economic forecasting. But economists are not the ones to shy away from problems and this time around in Davos, they understood that they are the problem. At a closed-door dinner session, some of the best minds in the profession decided to turn the focus on themselves. Among the galaxy of attendees were such luminaries as Robert Shiller of Yale University, Joseph Stiglitz, the Nobel laureate, Simon Johnson of MIT Sloan School of Management , Raghuram Rajan, formerly director of research with the International Monetary Fund and now with the Chicago Booth School of Business, and professor Carmen Reinhart of Maryland University. And, for a change, this debate generated more light than heat. The underlying complexities were examined — the uncertainties, the political factors, natural disasters, outbreak of wars — and why forecasts based on such variables tended to go wrong. As one executive of an asset management company put it, an economic forecast is one input among many. It could be the starting point of an analysis or discussion. Raghuram Rajan referred to IMF’s forecast about Africa, which was belied when the economy of one country had collapsed following an outbreak of conflict, impacting the growth estimate of the entire continent. - DNA
Egypt crisis to impact policy: RBI
Events in Egypt will have an impact on Indian monetary policy, the country's central bank Deputy Governor told reporters on Sunday. "After making the policy announcement on 25th Jan, a whole set of events unfolded in the Middle East, which are starting to have an impact on oil prices, obviously, which we did not anticipate at the time we made the announcement," Subir Gokarn, Deputy Governor at the central bank, said. TOI
India to use indigenous paper and ink in currency notes
To counter the menace of fake currency notes, the government will soon start using indigenous paper and ink, Union finance minister Pranab Mukherjee said today. So far, we have been using foreign paper and ink. But now, we will start making our own paper and ink to control fake currency notes," Mukherjee said. - DNA
Sunday, February 6, 2011
Need for regulatory forum to resolve customer grievances - Dr.K.C.Chakrabarty, RBI Deputy Governor
“Scams are everywhere. And they will continue to be, because every sector has finance involved. But citizens suffer because of scams, and they need to be empowered, said Sanjay Nirupam, member of Parliament, speaking on the first anniversary of Moneylife Foundation on Saturday. He also released a Position Paper on issues faced by retail investors prepared by Moneylife Foundation. Dr K.C.Chakrabarty, Deputy Governor of the Reserve Bank of India, spoke on customer issues relating to banking and para-banking services. He said, “In this country, 50% people don’t have bank accounts, 90% don’t have access to loans and 98% don’t have access to capital markets. Banks must increase their reach to rural people, and ensure better service.” He also said that there is a need for effective regulatory forum, and there should be a system to resolve the issues. Customers must raise their concerns and demand justice. Speaking on the problems faced by the customers in banks, he said, “India is a big country, and I agree there are many problems. Unfortunately, banks are not properly equipped, technologically or otherwise, to solve the problems and provide good service. There needs to be a strong movement. But the citizens should also understand that there are certain limitations, many of them are legal.” Moneylife Foundation was launched by Mr Sanjay Nirupam a year ago on 6th February.
RBI clarifies stand on gold loan move
High interest rate and lack of clarity on end use of funds was the primary reason behind the regulator asking banks not to classify loans to non-banking finance companies (NBFCs) for on-lending against gold jewellery as priority sector lending. On Wednesday, the Reserve Bank of India (RBI) had asked banks to not classify loans extended to NBFCs which were lent by NBFCs against gold as priority sector loans. Gold loan companies are lending the money at a very high rate to customers. The money may not be going to priority sector borrowers. We do not know whether the gold loan companies are using the money, which they borrowed from banks, for borrowers who come under priority sector,” K C Chakrabarty, Deputy Governor of the Reserve Bank of India, said on Friday. According to norms, banks have to extend 40 per cent of their loans to the priority sector. NBFCs, however, do not have such mandate. Chakrabarty, however, clarified that banks could continue to lend to the NBFCs which are in the gold loan business.”
The way forward for microfinance
Social sciences literature now recognises social, human, and cultural capital, in addition to economic and physical capital. Even though independent, different types of capital possess attributes of interdependency and reciprocity. Simply, this means that even social capital can be transmuted into economic capital. And, women groups repaying loans to microfinance institutions through frequent instalments in a group setting exemplify social capital at work. The underlying idea, as Robert Putnam found in the Italian rotating credit associations, is that membership in associations (or SHGs) generates trust and norms of reciprocity. Typically, SHGs are small groups possessing ‘thick trust’ (trust based on personal knowledge of other actors in the group) that makes responses of group members predictable and enforcement of loan repayment relatively easy; therefore, attracting financial institutions to lend. Accordingly, in social capital — relationships of trust embedded in social networks — the poor have a non-monetised resource that metamorphoses into loans and the attractiveness of the SHG model is founded on inclusiveness, the unique democratic accessibility of social capital, because all other forms of capital exclude the poor, ignorant, and unpropertied. Furthermore, researchers agree that social capital is a multidimensional construct having several forms and two forms of social capital — bonding (that links people together with others like them) and bridging (social ties that cut across differences such as caste, class or religion) — distinguished by Avis Vidal, are generally accepted. Bonding social capital promotes exclusive identities, gives precedence to the group over community and generates specific reciprocity; in contrast, bridging social capital is outward looking, promotes acquaintances with different and distant people and leads to generalised reciprocity. Importantly, as the work of Xav Briggs has shown, the outcomes associated with the two forms of social capital are different. Bonding capital helps the poor to get by or cope with particular challenges (social support), as opposed to bridging capital that helps to change the opportunity set and get ahead in life (social leverage). Presently, lending activities of MFIs are primarily confined to lend and enforce collections drawing down on the social ties found in supportive groups. Recently, Dr Rangarajan, chairman of the PM’s Economic Advisory Council, also referred to the “flawed business model” in which the MFIs primarily leverage on the existing social ties to engage in multiple lending, that too for consumption. Additionally, insights available from a recent MIT study (Abhijit Banerjee and others, 2009) in 104 slums of Hyderabad show the importance of context while designing interventions for the poor. The MIT study found that pre-existing conditions of households matter. In response to MFI loans, households with existing businesses increase spending on durable goods (e.g., investment). Households with high propensity to start businesses, finding loan amounts to be inadequate to start businesses reduce spending on temptation goods (e.g., tobacco, alcohol). And, households with low propensity to start businesses increase spending on nondurables spending (e.g., food, marriage, illness). Therefore, the challenge, in addition to broadening and deepening ties, is to design specific interventions that are based on the existing business activities of households and their propensity to engage in income-generating activities. The fact that the bonding and bridging capital interact and mediation by intermediary structures is possible provides a useful way to access outside resources (build bridging capital) to transform social ties to economic capital. Drawing from practice stories elsewhere, MFIs can work as intermediary organisations to design deep contextual interventions. Households having pre-existing businesses will require social ties that provide more than mere emotional support and everyday favours. More useful are bridging contacts that can help them to get a crucial new idea or news of an impending market downturn or provide political and managerial access. The value of such bridging networks lies in the fact that they are not passive bridges, but are active links relaying important information and are also capable of endorsing (vouching for) the poor having limited access to money and other scarce resources. For households with little propensity to do business, the MFIs intervention will include training and other support to help the households — including those with no formal schooling or language skills — to acquire and practise ‘public life skills’ to earn more than subsistence wages that only help them to cope with daily life. Research by Michael Woolcock and others is increasingly pointing to the contribution of such linking social ties to help the poor to expand their opportunity set, for example, getting jobs through external contacts. Finally, for households with high inclination to engage in income-generating activities, getting ahead in life will require training and other support, such as leveraging funds from the government and locating funding sources to meet their complete fixed and working capital needs. All in all, social capital is about relationships; therefore, freely accessible to the poor and the common availability differentiates social capital from other forms of capital. The MFIs have mainly limited themselves to using the existing bonding capital in groups to lend and recover. However, the simple but crucial support/leverage distinction and the fact that the two forms of capital interact and mediation by intermediary structures is possible have the potential to give competitive advantage to the poor by broadening and deepening their social networks and the MFIs can purposefully facilitate the development of meaningful bridging ties by working as intermediary organisations to help the poor to get ahead in life and move beyond the support networks that only help them to stay where they are and only cope with calamities of life. - Sameer Sharma, IAS
RBI fines 2 Gujarat-based banks
The Reserve Bank today imposed a penalty of Rs 1 lakh each on two Gujarat-based banks for irregularities in reporting of cash transactions. The RBI said the two banks -- Ghoghamba Vibhag Nagrik Sahakari Bank and Janata Co-operative Bank -- had violated the guidelines for reporting of cash transactions of over Rs 10 lakh.
Not surprised if RBI increases rates by 25%: Rangarajan
With a spike in food inflation, C Rangarajan, Chairman of Economic Council to the Prime Minister, today said he would not be surprised if RBI hikes the rate by 25 basis points to contain it. Replying to a question about whether he expected another hike in the rates due to the increase in food inflation, Rangarajan said, "I will not be surprised if the RBI raises the rate by 25 basis points". Driven by high prices of fruits, milk, meat, eggs, India's food inflation crossed 17% for the week-ended January 22. Rangarjan, who was speaking on the sidelines of a book release function organised by Southern India Mills Association, said RBI would continue to act as long as there was a need to contain the rapid escalation in food prices.
SKS threatens exit from Andhra
SKS Microfinance may consider pulling out of Andhra Pradesh if the state government does not revoke its recent restrictive legislation on microfinance institutions by April 1. “Until RBI (Reserve Bank of India) steps in and does something on the AP Act, we are going to see some uncertainty. The committee (Malegam panel, which recently gave a report on the issue to RBI) has given seven reasons why the state government should not have its Act. The committee has also said April 1 is when it would like to see these recommendations in place,” said Vikram Akula, chairman of SKS Microfinance.
Foreign bankers hope RBI plan won’t up tax burden
Although appreciative of the Reserve Bank of India’s stance that foreign banks should operate in India as wholly-owned subsidiary (WOS) rather than as a branch of the parent, foreign bankers are hoping the conversion would not mean too much of a tax liability.
Moreover, the RBI's proposal that the WOS become a listed entity over time, resulting in a dilution of the parent bank's holding, has not gone down too well with the fraternity. A dilution of the parent bank's stake would mean it would have to give up total control and also some share of the profits. A local listing, foreign banks fear, would restrict their ability to capitalise on the parent bank’s balance sheet. Some foreign banks are dispapointed that the RBI may restrict the entry of new players as also the expansion plans of existing foreign banks once their assets in India exceed 15% of the assets of the banking system. “We would suggest that the RBI consider increasing this limit given that the opportunity in the country is tremendous,’’ said the CEO of a foreign bank. There are 34 foreign banks operating in India as branches, accounting for 7.65% of total banking assets as on March 31, 2010, up from 9.03% a year ago. If credit equivalent of off-balance sheet assets are included, their share was 10.52%. The share of top five foreign banks alone was 7.12%. Currently, top five foreign banks account for more than 70% of total balance sheet assets of foreign banks in India.
Friday, February 4, 2011
India's microfinance sector can expect healthy growth if RBI the sole regulator for the sector
India's microfinance sector can expect healthy growth if the Reserve Bank of India (RBI) becomes the sole regulator for the sector, SKS Microfinance chairman Vikram Akula said on Thursday. The fast-growing Indian microfinance sector suffered a setback in October when Andhra Pradesh, which had the largest microfinance market in the country, approved legislation to regulate the industry following complaints about high interest rates, aggressive recovery practices and overextended borrowers. "The Banking Act supercedes anything else in the country," and it would be a matter of time before the RBI became the single regulator of for-profit microfinance companies resulting in "measured, yet healthy growth," Akula told reporters. Growth in the sector would be significantly affected if Andhra Pradesh does not recognise the RBI as the sole regulator, he said, adding the company may have to downsize its operations in the state. The RBI panel earlier this month recommended an interest rate cap of 24.7 percent, limited to two the number of microfinance firms that can lend to the same borrower, and also called for a customer protection code for microfinance companies. The creation of a separate classification of MFI-NBFCs (microfinance institution - non-banking finance companies) and access to priority sector lending to companies that fall under this category were two of the recommendations that Akula highlighted as being positive to the sector. The RBI formed a panel in late October in response to the Andhra Pradesh rules, which severely curtailed microfinance activities in the state, curbed collections and hurt new business.
Set up risk mitigation system: RBI to Fx dealer banks
Revising the guidelines for foreign exchange business, the Reserve Bank of India (RBI) today asked banks dealing in forex to set up a comprehensive risk management procedure for trading as well as non-trading activities. "Banks should have a comprehensive and adequate risk management procedure covering both trading and non-trading activities...Such a procedure will assist in limiting and monitoring risk taking activities," the RBI said in revised guidelines for 'Internal Control Over Foreign Exchange Business'. The central bank has also advised the Authorised Dealer (AD) banks to tape conversations in the dealing rooms. "The tapes may be preserved for at least two months and where a dispute has been raised, until the issue is resolved. Access to the equipment and tapes should be subject to strict control," it said. The RBI has also asked the banks to set the limits for inter-bank business as well as transactions in overseas markets. "The limits when exceeded should be promptly reported to appropriate senior management and got approved," it said, adding the procedure would help in exercising control over the forex business and contain risks. Asking the banks to strengthen concurrent audit mechanism, the RBI said that minor irregularities in forex trading should be rectified immediately and the serious ones should be reported to the controlling authorities for action. The RBI has also asked the ADs to segregate their operations into dealing room, risk management, and settlement and reconciliation of accounts. The AD banks, RBI said, should ensure that brokers should not take over the functions of dealers. "Complaints relating to malpractices by brokers should be promptly brought to the notice of the Foreign Exchange Dealers Associations of India, Mumbai," it said. The internal control guidelines were initially framed by the RBI in 1981 and were revised in 1996. The RBI said they are being revised again in view of rapid changes in the global and domestic forex markets and developments in the field of information technology, and introduction of forex derivatives trading.
RBI Governor appears before PAC on 2G issue
The Reserve Bank of India (RBI) Governor D Subbarao, who was Finance Secretary when the 2G spectrum allocations were made, today appeared before Parliament's Public Accounts Committee (PAC) and shared "accurate information" on the controversial issue. Subbarao, as Finance Secretary, had raised questions over the entry fee for mobile operators ahead of the 2G spectrum allocations that led to the resignation of Telecom Minister A Raja and his subsequent arrest by the CBI. "The current RBI Governor was the Finance Secretary and he shared accurate information regarding his communications with the Department of Telecommunications (DoT)," PAC Chairman Murli Manohar Joshi told reporters here. He said the Committee members held "significant discussions" on the issue but ruled out submission of an interim report on the matter during the Budget Session of Parliament. He said the Finance Ministry, Telecom Regulatory Authority of India and DoT were interconnected and hold consultations before taking any significant decisions. “We have received very important and pointed information from him,” said PAC chairman Murli Manohar Joshi after the meeting.
RBI to tighten oversight norms for portfolio management
The multi-crore fraud at the Gurgaon branch of Citibank has prompted the banking regulator to review existing norms for the portfolio management services (PMS) of banks. With the Reserve Bank of India’s (RBI’s) inspection report on the Citibank fraud ready, banking industry sources said RBI would compile a comprehensive report on the loopholes in PMS guidelines. The report, which is being prepared by the department of banking supervision, will be discussed by the board for financial supervision and the guidelines revised based on feedback. According to RBI norms, no bank can offer PMS without specific permission. However, bank-sponsored non-banking financial services companies are allowed to offer discretionary PMS. PMS offered by banks are classified into four categories: Referral services, investment advisory, non-discretionary and discretionary. Sources said present norms do not clearly distinguish between investment advisory and non-discretionary PMS. The regulator will address the issue while revising the norms. It will also look into the way discretionary PMS are provided by banks. According to sources, the central bank may also bring in norms to govern relationship managers, something current guidelines do not. “Some countries do have norms for relationship managers, and the central bank feels the need to have some kind of code of conduct for them,” said a source. Sources also said that until fresh guidelines are formed, RBI may go slow on issuing fresh permission to banks for PMS. Some government-owned banks, which were planning to offer PMS, are now awaiting RBI’s revised norms before starting operations. Present norms do not allow funds to be accepted by portfolio managers for less than one year. In addition, portfolio funds cannot be deployed in the overnight, inter-bank term deposit & bill rediscounting markets or lent to corporate bodies. Banks must maintain client-wise records of funds accepted and investments made. Portfolio clients are entitled to a statement of account.
Kerala HC paves way for India’s first Islamic bank
The Kerala high court on Thursday 8 dismissed a petition challenging the state government's plans to co-promote an Islamic 8 finance institution. The move could pave the way for introduction of Islamic finance products by existing lenders and also reduce regulatory objections for an Islamic Bank. On Thursday, a division bench comprising Chief Justice J Chalameswar and Justice P R Ramachandra Menon dismissed petitions objecting to the creation of an Islamic financial institution and said the proposed body was to work in accordance with financial laws of the country even while it complied with sharia rules. The move has much broader implications considering Islamic finance has not taken off due to a stand taken by RBI that such a form of banking is not possible given present regulation. This stance was taken by an internal working group of RBI whose report was never made public. In the past, Islamic scholars had made representations to RBI to allow such products. Subsequent representation to allow Islamic finance products was stalled as the government was awaiting the verdict of the Kerala High Court. The key difference between Islamic and conventional banking is that while the conventional form offers interest on deposits mobilized, Islamic finance works on the principles of investment and sharing of profits. Islamic banking products are offered by leading banks in the West who also use Shariah compliant products to mobilize funds from the Middle East. Exisiting lenders like State Bank of India too have considered the feasibility of launching Islamic finance products through its international banking operations. However, these products have not taken off because of lack of regulatory clarity. Some bankers feel that considering that India has the second largest Muslim population in the world, there will be large potential for Islamic banking products.
UK Sinha appointed Sebi chairman
A 1976 BATCH IAS OFFICER OF BIHAR CADRE, UK SINHA IS CURRENTLY THE CHAIRMAN AND MANAGING DIRECTOR UTI AMC. HE ALSO HEADS THE MUTUAL FUND INDUSTRY BODY AMFI. Market watchdog's eighth chief's three-year term to start on February 18. The government on Thursday appointed UTI AMC chief U K Sinha as the chairman of capital markets regulator, Securities and Exchange Board of India (Sebi). A 1976 batch IAS officer of Bihar cadre, Sinha replaces C B Bhave who retires on February 17, 2011. Sinha has been appointed as Sebi chief for a period of three years from February 18, 2011, said a notification issued by the government on Thursday. He will be the eighth chief of Sebi.
CARRYING THE TORCH OF TRANSFORMATION
Dr.C.Rangarajan, who served as governor of the Reserve Bank of India from 1992 to 1997, was also a distinguished academic, having held faculty positions at University of Pennsylvania and Indian Institute of ManagementAhmedabad. During his tenure at RBI, first as deputy governor and then governor, Rangarajan was responsible for initiating several reforms such as harnessing information technology to streamline banking sector operations. His contribution in helping India manage the fallout of the 1991 financial crisis is notable. It was due to his efforts that the automatic monetisation of the government’s deficit was terminated, which enabled the central bank to absorb the huge losses incurred through various non-resident schemes. Upon completion of his tenure at RBI, Rangarajan was appointed chairman of the Prime Minister’s economic advisory committee.
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