RBI action against PayPal as new edition of capitalism - Priyankan Goswami

The ongoing issue in the country between PayPal the new RBI guidelines is being shamelessly portrayed as a correct step of Reserve Bank of India by the bureaucrats, stock brokers and high capitalists of the country. Although the new rules of PayPal are set to disturb and create huge inconveniences to the Indian freelancers and small scale & growing IT Service providers, these lots are found to continue giving reasons for the guidelines. The 7 day time limit within which PayPal users are bound to withdraw money is being portrayed by the pro-RBI lot as a mandate which will allow better tax flow and help boost economy. However in actual, -by the new guidelines PayPal was mandated by RBI to pay interest to its Indian users for keeping money for more than seven days, something which a global virtual monetary service can never comply because of obvious reasons.  This is plain dictatorship from RBI in either bringing PayPal into a framework within which the Banks in India operate, or to tie down their hands and restrict their powers in Indian market ( one of the biggest globally) so that other Banks in India can take benefits off the gap created by the situation. In fact with PayPal being tamed down, it is bigger and better chance to reap benefits for other Payment gateway services of other banks / Providers in India & abroad such as ICICI Payment Gateway (PAYSEAL), Citibank Payment Gateway, HDFC Bank Payment Gateway and AXIS Bank Payment Gateway and even third party gateway providers like CC Avenue- Mumbai, Transecute- Mumbai & Time of Money.  It would be worth mentioning that with the increasing popularity and huge fan following of Pay Pal amongst Indian customers was hampering the business of Banks in India more and more, until these dictatorial guidelines restricted PayPal, at the cost of huge blow to Indian freelancers of course.  Another question that arises here is why the Indian freelancers who work for their living for foreign services have to pay taxes to the Indian Government, apart from paying service taxes for using Internet and Phone connections. Such freelancers are mostly dependent on small projects (ranging from data entry to creation of small software’s) of foreign companies and clients because of the inability of the Government and current system to provide them with their daily bread and butter. They would work for another country with no aide and help from the Indian government and yet pay taxes to Indian Government. What for?  With the new guideline asking PayPal to report any transactions above 500 dollars to the government, the RBI tried to showcase that the Government is now trying to have better transparency and control of funds flowing in and out of the country. But the question is, – all this while was there no check or verification on transactions taking place to and fro? The answer is YES, there were of course verifications of the PayPal transactions. As reported in a previous article in Times of Assam, the flow of funds to Indian PayPal customers is actually through PayPal India, which is monitored and transactions verified by Authorities. So the claim by RBI and the pro-RBI guideline group is nothing but a false propaganda, misleading public, to tie up PayPal and thereby help the capitalistic banks in India to rise and shine. We cannot ignore the fact the millions of fraudulent money hidden by Indians in Swiss Banks have been ignored by Government so far by Authorities except for giving Ashwashan (Assurances) to eradicate it. In fact a huge number of such people whose money is well hidden in Swiss Banks are the bureaucrats, stock brokers, bankers, etc who run the show in capitalistic India. Ultimately the entire game plan of RBI in this gimmick is something similar to the Government’s lowering down costs of vegetables and food items for the public and increasing price of petrol or cooking gas at the same time, so that the people ultimately pays more (yet be happy to see onion or brinjal prices going down!). There’s no doubt rulers of India are getting more and more capitalistic, helping the same rich section getting richer by sucking everything out of the common public. The Pay pal RBI story is part of the same ploy; inconvenience to freelancers, small scale IT service providers are going to create opportunities to the bigger players, restriction on PayPal would allow Indian Banks to capture more market.

SBI has last laugh, 'teaser' loans get nod

If there's one person who would be pleased with the Economic Survey, it would be State Bank of India chairman O P Bhatt. The government has after all sided with him in the public sector banker's battle with the regulator over "teaser rates".  To begin with, government has said home loans offered by SBI (and almost all banks earlier), for which interest rates remain fixed in the initial years before turning flexible, should be called "terraced" loans. On these loans, typically, monthly installments would rise over time.  Singling out the success of SBI's fixedcum-floating rate home loans, the survey said the product launched after the financial crisis of 2008 helped several new home buyers. Till November 2009, SBI had sanctioned over 28,000 such loans with an aggregate value of Rs 3,273 crore and defaults on them have been negligible.  Amid protests from some of SBI's rivals, RBI tried to discourage banks from offering similar loans by mandating that they set aside more capital to deal with potential default. But the government does not seem to be in favour of this approach.  "In general, it is worthwhile giving banks and financial institutions the freedom to introduce new products and thereby expand the options available to consumers and firms," it said.

Govt to remove `hurdles' for MFIs

Hyderabad:   With micro finance institutions trying to lure the poor by introducing new products that supposedly do not come under the purview of MFI Act, the state government is all set to issue a notification that will replace the word "SHG women" and include a generic word " BPL households", so that MFIs continue to adhere to the stringent norms laid down in the Act. According to sources in the chief minister's office, the law department vetted the notification on Friday in order to ensure that MFIs adhere to the existing stringent rules. "The notification aims at bringing all kinds of MFI loan products, existing and future, under the purview of the Act. The MFIs are lending extensively to poor self-help group women and even their families. The notification will be made public in a day or two," the source at the CMO said.

RBI tells banks to stop re-circulation of soiled notes

SAMBALPUR(Orissa): Soiled notes may soon be a thing of past as the Reserve Bank has asked all bank branches handling large amounts of currency to put in place note-sorting machines by the end of next month with a view to halting re-circulation of unfit currency notes.  "The Reserve Bank is committed to a 'clean note' policy. RBI exchanges soiled notes for clean ones, and mutilated notes for new ones subject to certain conditions," central bank Governor D Subbarao said at the Convocation function of Sambalpur University here.  "In pursuit of our clean note policy and to check counterfeiting, we also prescribed that by March 31, 2011, all bank branches with cash receipts of over Rs 50 lakhs per day be equipped with a note sorting machine so that every high denomination currency note is checked for fitness and genuineness before being put back in circulation," he said.  Furthermore, he said, RBI has instructed banks to ensure that the notes that they issue through their ATMs are also pre-checked for genuineness and cleanliness.  He pointed out that cost and longevity are important dimensions of currency management.  "We are a large cash economy; in fact, we are the second largest producer and consumer of currency in the world, next only to China . Producing such a large amount of currency is expensive," he said.  Talking about introduction of plastic notes, Subbarao said, one option for economizing is replacing paper currency with plastic one as some countries such as Singapore and Australia have already done.  "We are planning to try this out on a pilot basis, starting with a plastic note in the Rs 10 denomination, which we will distribute out of five of our regional offices in the country including our Bhubaneswar office," he said.  During the pilot phase, RBI needs to study not only the relative costs but also the carbon footprint associated with the recycling and disposal of plastic notes vis-à-vis paper notes.  "If the pilot proves successful, we will mainstream the use of plastic currency," he said.  By far the most important facet of currency management is building in security features to prevent counterfeiting. People should be aware of these security features so that they can tell a forged note from a genuine one, he said.  This is the motivation for the awareness campaign that the Reserve Bank has launched in the print and electronic media to educate people on the security features, he said.

RBI hints at policy stance rejig to rein in inflation

Reserve Bank of India (RBI) Governor D Subbarao, on Thursday, said it can change policy stance at any time to rein in inflation based on the macroeconomic situation.  “Notwithstanding (the) scheduled quarterly and mid- quarterly reviews, we reserve the right to alter our policy stance at any time to respond to the evolving macroeconomic situation,” Subbarao said said at the Convocation function of Sambalpur University. The statement assumes significance in the light of double digit food inflation and rising crude oil prices. Subbarao said “we are deeply conscious that inflation is a regressive tax that hurts the poor the most as their earnings are not protected against rising prices.”   He admitted “the tension that we need to manage is that economic growth requires that we maintain a low interest rate regime whereas inflation management warrants that we raise interest rates.” As part of managing growth-inflation dynamics in the post-crisis period, RBI has raised policy interest rates seven times since March 2010. Subbarao said, “we are sensitive to the need for supporting growth as economic growth is a necessary condition for poverty reduction.”  On capital inflows, Subbarao said, “the liquidity infusion policy of the US Fed, popularly known as quantitative easing (QE), has triggered larger capital flows to emerging market economies (EMEs).”   This has in turn put upward pressure on EME exchange rates eroding their export competitiveness and pushing up asset prices. EMEs had to adjust their macroeconomic policies to manage the implications of these flows, he said.

RBI to float discussion paper on deregulating savings a/c rate

The Reserve Bank today said it will come out with a discussion paper on deregulation of interest rates on savings account.  "There is a view that we should deregulate the interest rate on savings bank accounts too. We are examining the pros and cons of doing that and will shortly put out a Discussion Paper for eliciting feedback," RBI Governor D Subbarao said at the Convocation function of Sambalpur University.  At present, RBI only monitors interest rates on NRI deposits and on savings bank accounts, while interest rates both to savers and borrowers now work on the market principle of competition among banks.  "Regulation has both costs and benefits. excessive or inappropriate regulation increases intermediation cost, impedes efficiency and stifles innovation...," Subbarao said.  Currently, banks pay 3.5 per cent on savings deposit. While the RBI as part of the economic reforms programme deregulated fixed deposit rates, it had not freed the rates which banks pay on savings deposit.  While banks adjust fixed deposit rates keeping in view their asset liability position, they pay 3.5 per cent on savings bank as mandated by the Reserve Bank.

Managing growth vs inflation biggest challenge: RBI

Terming management of tension between demands of growth and of inflation as a major challenge after the global financial crisis, the Reserve Bank of India (RBI) today said though India recovered early, it was hit by inflation before others. "In the aftermath of the crisis, our biggest challenge has been to manage the tension between the demands of growth and of inflation," RBI Governor D Subbarao.  "Even though we have recovered from the crisis ahead of most other countries, inflation too has caught up with us sooner than elsewhere," he said. Economic growth requires maintaining a low interest rate regime whereas inflation management warrants raising interest rates. "In managing this tension, we are deeply conscious that inflation is a regressive tax that hurts the poor the most as their earnings are not protected against rising prices," the RBI governor said. As part of managing growth-inflation dynamics in the post-crisis period, the apex bank has raised policy interest rates seven times since March 2010, he said, adding the apex bank was are also sensitive to the need for supporting growth, a necessary condition for poverty reduction.  On financial inclusion programme that seeks to provide banking access to poor and those living in the villages and remote parts of the country, the RBI chief said banks had been advised to draw up board approved Financial Inclusion Plans for a period of three years upto March 2013. Subbarao said this should be integrated with the business plan of the bank. A uniform model has not been imposed so that each bank can build its strategy in line with its business model and comparative advantage, he said. In order to further financial literacy, the RBI has established centres focused on financial education at its regional offices in Chandigarh, Pune and Bangalore. "We hope to replicate this in other cities too," he said. The RBI has also encouraged commercial banks to set up financial literacy and credit counselling centres to help people develop better financial planning skills and to learn of the opportunities available in the financial sector, Subbarao said. "Most importantly, we are encouraging both central and state governments to include financial literacy in school and college curriculum so that the next generation enters the adult world financially literate," he said.

Budget to decide on growth-inflation tradeoff

At over 8 per cent, inflation has been consistently high over the past few months. And that probably is the biggest challenge for finance minister Pranab Mukherjee, who faces the difficult choice of choosing between a strategy aimed at containing high prices or sustaining the growth momentum.  Experts say, presenting a non-expansionary Budget, which means a fiscally tight Budget with higher taxes on commodities and services, is the only way out. But a look at the government's accounts and policy compulsions might render it difficult. The Reserve Bank of India (RBI) would like the government to adopt a credible fiscal consolidation plan. That is important because monetary policy framed by the central bank is effective when there is fiscal consolidation. “The government must adopt a credible fiscal consolidation plan, which is important because monetary policy is most effective when there is fiscal consolidation,” said RBI Governor D Subbarao. 

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State Level Bankers' Committee review held

DEHRADUN, 23 Feb: The State Level Bankers' Committee third quarterly review of all banks upto December was conducted here today. The meeting was inaugurated by Principal Secretary and FRDC Rajiv Gupta. He directed the banks to increase the flow of loans in villages and suburban areas. A review was also conducted of all the plans and projects being run by banks like the 'Atal Adarsh Gram Yojana', 'Chief Minister's Jadi-Booti Vikas Yojana', 'Kisan Credit Card' scheme, 'Pradhan Mantri Rozgar Srajan Programme' and others.Present on the occasion were Sunil Pant, Chief General Manager, State Bank of India, Principal Secretary Alok Jain, Dr Amarendra Sahu, Regional Director of the RBI, Lucknow and others.

Cuttack bank fined for RBI rule violation

The Urban Co-operative Bank, Cuttack is once again in news for wrong reasons. The RBI on Monday imposed a monetary penalty of Rs one lakh on the bank for flouting the apex bank's instructions. The Urban Co-operative bank had opened four collection centres in various schools of the city without prior approval of the RBI. The Urban co-operative bank authorities claim that the counters were opened to provide better services to the people. "We had opened the collection counters to provide better services to our customers. At the counters we collected school fees from the students. We did not violate the instructions intentionally," said Manas Ranjan Pattanaik, chief executive officer of Urban co-operative bank. He added that an appeal will be made before the RBI for a reconsideration of the penalty. According to sources, the RBI had issued a show cause notice to the Urban Co-operative bank earlier, in response to which the bank submitted a written reply also. But the RBI was not satisfied with the reply and had imposed the fine of Rs one lakh. The RBI release said "After considering the facts of the case and the bank's reply in the matter, the RBI came to the conclusion that violations were substantiated and warranted imposition of the penalty."

RBI rejects NBFCs' parity demand

RBI has rejected the demand for level-playing field by NBFCs on par with banks. Responding to a presentation made by NBFC representatives, RBI deputy Governor Shyamala Gopinath said: " banks were governed by separate and more stringent set of rules and they have various statutory liquidity requirements. So there is no point in asking for parity with banks."  NBFCs discussed a number of issues, including tax deduction allowed to banks on their NPAs, NBFCs not being included in the process of financial inclusion, among others. They also asked for a revision of deposit limits accepted by them, which has remained unchanged since 1998.  One of the major points of contention was the various versions of the definition of 'infrastructure' being used by various regulatory bodies, which needs some streamlining based on the nature of assets, class of sector and other parameters. Besides, they also asked for extending the scope of SARFAESI to NBFCs.  NBFCs met the RBI top official, following the central bank's recent circular asking them to step up capital to 15% of their assets from the earlier stipulated 12%. Ms Gopinath said: "In our communication with NBFCs, we had found that except for one, most of them already maintained their capital adequacy ratio above the benchmark."

RBI Working Group to clear up NBFC issues

The Reserve Bank of India (RBI) has formed a working group to look into the various issues related to the Non Banking Finance Companies (NBFCs). "We have formed a working group that is headed by Usha Thorat, former Deputy Governor, RBI which will look into various issues and problems faced by NBFC," said Shyamala Gopinath, deputy governor, RBI while addressing the seminar organised by Indian Merchants' Chambers on issues and challenges faced by NBFC sector. The working group also includes members of NBFC sector.

Consolidation of public sector banks back on front burner

The long-standing proposal for consolidation of public sector banks is back on the government's agenda. Senior officials in the banking sector have told FE that finance ministry is likely to appoint a committee to look into the consolidation of such banks. An announcement is expected in the Budget. The committee, which will have officials from the finance ministry, Reserve Bank of India and some bankers, will look into the merits of bank consolidation, recommend a plan of action to achieve the goal and also identify possible banks to take the process forward. Recently, the standing committee on finance headed by Yashwant Sinha also recommended that the government to spell out clear policy on bank mergers and conduct an in-depth analysis on various aspects of bank consolidation.

Subbarao risks losing war on inflation

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The importance of being Prof Reddy - S.S.Tarapore

The former RBI Governor's book attributes the global crisis to a climate of competitive deregulation in the industrialised world. Apprehensive of overheating, he argues that the benefits of growth trickle down slowly, while inflation hurts the poor instantly.  Dr Y.V. Reddy was Governor of the Reserve Bank of India (RBI) from 2003 to 2008. During his tenure he had more than his fair share of brickbats. But once the financial crisis hit the global economy and India weathered the storm with minimal damage, his percipient policies were acclaimed, both in India and globally, as being oracular. As an interlocutor, he participated vigorously in the international debate on the global financial crisis and in the designing of a new international financial architecture. This voluntary role was, in some ways perhaps, more distinguished than his now acclaimed role as Governor. Professor Reddy's book Global Crisis, Recession and Uneven Recovery, published by Orient Blackswan (2011) has already received media attention which is necessarily instantaneous and short-lived. However, even those who have read the book carefully would find it difficult to absorb the leitmotif of this seminal work which is breathtaking in its expanse.  In a foreword Andrew Sheng says, “India is a land of many talents but it was in the stars to have central bank governors of the calibre of Professor Reddy.”  Sheng commends Prof Reddy's concern for the poor, as in the run-up to the recent bubbles too much attention was devoted to becoming rich, with an inclination to forget the under-privileged. Examining the causes of the global crisis, Dr Reddy argues that least regulation was considered to be the best and self-regulation was equated with optimal regulation. In some industrial countries development of the financial sector was co-terminus with their national interest which resulted in a race to reduce financial sector regulation. Dr Reddy attributes the global crisis to regulatory capture of the government by market forces. While the achievements of the financial sector were glorified, the penalties imposed by regulators were underplayed. Respectability was accorded to unfettered market forces which fostered untrammelled greed. Human values changed which elevated markets to the status of God. In the all-pervasive climate of “greed” Dr Reddy recalls Gandhiji's statement that there is enough on this earth to meet the needs of all but not the greed of all. It is fortuitous that the global crisis occurred before India embarked on an irrevocable direction of excessive deregulation of the financial sector. Dr Reddy recalls the pithy statement of Dr Mervyn King, Governor, Bank of England, that banks are global in life but national in death — in effect, the buck stops at the national government to pick up the losses. Globalisation of finance without globalisation of regulation has inherent problems, but experts are unanimous that there is unlikely to be agreement on global regulation. Discussion on the Tobin Tax (i.e. on financial transactions tax) has now emerged on the agenda at international fora. In 2004, Governor Reddy, in a speech referred to the need to study Tobin tax kind of measures. There was an uproar both in financial circles and government and Governor Reddy was forced to recant. It must be of great satisfaction to Governor Reddy that he was in the avant garde. Dr Reddy suggests that individual countries may find it appropriate to introduce such taxes without waiting for a global consensus. Dr Reddy's assessment is that the potential output growth is in the range 8.5 -9.0 per cent. The concept of overheating raises hackles in India and when Governor Reddy referred to “over-heating”, the government advised him not to use this term — a case of macho spirits prevailing over hard realities. Governor Reddy followed a monetary policy suited to an ‘over-heated' situation without referring to the forbidden word! Stressing the need for stability in the EMEs, Dr Reddy argues that the gains from growth trickle down to the poor after a time lag but the pains of inflation visit the poor instantly. Responding to the critics on the excessive build-up of forex reserves by the EMEs, Dr Reddy argues that greater blame should accrue to the rich who consumed more, rather than the poor who worked harder and saved more. In dealing with the threat to stability, monetary policy is the first line of defence, particularly when governance is weak or absent — this was amply borne out by the Indian experience in 1979-80, 1990-91 and 1995-96. While analysis is focused on what went wrong in the major industrial countries, not enough attention is given to understanding why countries like Canada and Australia came out relatively unscathed from the global crisis. In sum, one just cannot do justice to the rich expanse of this book. Suffice it to say that this book is a lexicon on global and national finance which should be mandatory reading for all policymakers, regulators, academics and others interested in the financial sector.

Pranab Set to Give You a Salary Hike

Finance minister Pranab Mukerjee is set to spring a surprise on personal income-tax payers hurt by a sharp increase in prices. He could lighten the tax burden for those with an annual income of Rs 5 lakh by Rs 7,660 a year to compensate them for the increase in cost of living. The sum saved will be much higher for those with a higher annual income. The relief is set to come from a rejig in tax slabs, to be aligned with those recommended in the direct taxes code. “The UPA government will partially roll out the direct taxes code in the coming Budget to provide relief to the aam aadmi,” said a top government functionary. The bill has proposed a 10% tax rate for taxable income between Rs 2 lakh and Rs 5 lakh, 20% for income above Rs 5 lakh to Rs 10 lakh and 30% for income above Rs 10 lakh. An individual can also claim a deduction of Rs 1.5 lakh a year, which will be split into two segments. One will be a deduction up to Rs 1 lakh on investments in long-term savings instruments such as Public Provident Fund, new pension schemes and recognised superannuation funds. In addition, a deduction of up to Rs 50,000 will be available on premiums paid for life insurance, medical insurance and tuition fee for children. The income tax payer will not have to pay an education cess of 3% as well either in the new structure. The tax break of up to Rs 1,50,000 on home loan interest will continue. So, the tax burden of an individual with an annual income of Rs 5 lakh would work out to Rs 15,000 a year instead of Rs 22,660 now, if he has no housing loan. Income-tax slabs were last changed in 2010-11. The slabs were widened again to compensate for a higher cost of living and reward the missing middle for better compliance. The government also introduced infrastructure bonds, with a separate ceiling of Rs 20,000 to increase investment avenues for individuals, taking the total tax deduction to Rs 1,20,000. The tax break on infra bonds was meant to be available only for one year.

Panel discourages super profits by bourses, says Jalan

The committee headed by Bimal Jalan to suggest a roadmap for stock exchanges has generated a lot of interest with the response being extremely positive or extremely negative. In his first interview since the report on regulation and governance of market intermediaries was submitted, Jalan, a former Reserve Bank of India Governor and a lawmaker, tells TOI that the idea behind the recommendations was to benefit investors at large.

One big step at RBI

When D. Subbarao took over as Governor of the Reserve Bank of India (RBI), he promised to make the functioning of the bank more transparent and demystify policymaking.  On Tuesday, RBI took a big step towards that goal: it released the main points of a meeting of its technical advisory committee (TAC) on monetary policy. It promised to release these records in future with a four-week lag.  What is remarkable is that RBI is not mandated by law to release such data, as other central banks such as the US Federal Reserve and the Bank of England are. Therefore, criticism that RBI did not disclose which member voted what way is misplaced. It does not matter if the sum and substance of deliberations, including dissent, are reported accurately. The danger here is that the fear of disclosure of the voting record may prevent members of TAC from speaking freely.

A peek in

Transparency is an essential feature for any public agency in a democracy. The central monetary authority is no exception. This is why Reserve Bank Governor Duvvuri Subbarao must be congratulated on publishing the minutes of the discussion that took place before the RBI released its latest credit policy. This is a welcome step, as the RBI needed to move ahead both on defining clearly the objective of monetary policy, and making the decision-making process by the monetary policy committee open and transparent. The RBI has traditionally been a laggard in terms of transparency; two recent academic surveys found that, while Asian central banks as a whole had been improving their position in terms of openness, the RBI’s performance on this score had stagnated — and, according to one of them, actually worsened between 1998 and 2006. This must not be allowed to continue. The RBI needs to set itself a goal. One that is both tangible and desirable: to achieve the median transparency score among G-20 nations. It should rank at least 10th out of the 20 members.  Full reform of the RBI involves independence, transparency, accountability and inflation-targeting. While at the present time attempting this is difficult, certain improvements of the monetary policy process can now be undertaken. Consider one key element of the process, the executive monetary policy committee or MPC. This committee, through voting, makes decisions that set the interest rate. In the UK, the MPC comprises the governor, three deputy governors, and three economists appointed by the Treasury. (The finance secretary would participate in the discussions but not vote.) This same structure appears to be quite appropriate for India. In such a structure, the committee would sit every month, following a pre-announced schedule. The bank’s research department would make presentations to the MPC about what is taking place in the economy. The MPC would then vote, and interest rates would be hiked or lowered. Each MPC member would write down a 1000-word rationale statement of why she voted how she did; and in a fortnight, full information — how each member voted, as well her written rationale — would be placed on the bank website. The markets would be assured that interest rate changes would almost never take place other than on these dates. The RBI has taken one step forward. It must go still further

RBI defers banks' compensation norms implementation

The Reserve Bank of India (RBI) has deferred the implementation of guidelines on compensation for wholetime directors and other executives of private and foreign banks in India by a year to FY13, it said on Wednesday. The guidelines had been due to be implemented in FY12 but the Reserve Bank of India said the move was deferred to give banks sufficient time to frame their policies.   In July, the RBI has issued draft guidelines on compensation for whole time directors, chief executive officers, risk takers and control function staff of private sector and foreign banks in India. It said it was examining comments received.  It has asked banks to refer to the Basel Committee on Banking Supervision's (BCBS) document on Methodologies for Risk and Performance Alignment of Remuneration, which was issued in October, and start preparatory work for formulating compensation policies.

No blanket nod sought for merging five subs with SBI: Bhatt

Country's largest lender, State Bank of India , on Wednesday said it has not sought a blanket approval from the Government for merging the remaining five subsidiaries with itself. Bank Chairman O P Bhatt said both the mergers which have been done till now -- State Bank of Indore and State Bank of Saurashtra -- have been done with prior permission on a case-to-case basis from all the concerned bodies like the respective Boards, the Government and the RBI.  "We have not sought any blanket permission for the mergers," Bhatt told reporters here when asked about a media report on Wednesday which said SBI is mulling to merge all the remaining subsidiaries in the next 12-18-months.  He further said that SBI did not meet the Parliamentary Standing Committee on Finance on Tuesday.  State Bank of Hyderabad , State Bank of Patiala , State Bank of Bikaner and Jaipur, State Bank of Travancoreand State Bank of Mysore are the subsidiaries which are yet to be merged with the bank and it is argued that merging them will usher economies of scale and reduce administrative costs.  On SBI's bond issue, he said that the bank has received subscriptions of around Rs 6,000-crore for its Rs 2,000-crore retail tax saving bond issue (with the green-shoe option) and expects total subscriptions to touch Rs 10,000-crore by February 28 when the issue closes.

Budget: Long tenure deposits to get a tax break?

Rising inflation has forced the Reserve Bank to tighten its monetary policy. As a result, cost of funds has gone up. The banking industry hopes the finance minister will announce policy measures to reduce the impact on banks’ margins. The biggest demand of the banking sector is tax breaks on longer tenor deposits to help deposit growth. Bankers also expect the government to announce subsidies for each no-frills or zero balance account opened so that banks can service first time customers and meet the target of opening 50 million such accounts in 73,000 villages with a population of at least 2,000 by next year. But, that’s not all. Banks expect the government to come out with a roadmap for takeout financing that will address the issue of infrastructure lending. One such measure could be allowing banks to issue infrastructure bonds with tax benefits. The banking industry also wants government subsidy or concessions on interest rates provided on lending to State Electricity Boards given their weak financial health. That will do away with asset quality concerns in power financing segment.

RBI tightens rules for credit swaps debut

The Reserve Bank of India has laid down foolproof guidelines for the introduction of credit default swaps - an insurance against bonds default , speculation on which brought down the global finance to its knees in 2008. High capital requirements, restricting the participation to a few in financial services, a tight transaction norm and limiting it to just vanilla corporate bonds will ensure there is no trading risk on credit default swaps, or CDS. But the absence of immediate profit opportunity could delay the instrument becoming popular or widely sought after. It may deter many players from taking up the business, including market-making, given the high capital requirement and low profitability, at least in the initial years. Only institutions will be able to buy CDS, or protection against default, only to the extent of underlying value of bonds. All CDS trades should have RBI-regulated entity at least on one leg of the transaction and the protection seller cannot unilaterally cancel the contract.

RBI Raises Red Flag on Surging Current A/c Deficit

Central bank Governor Duvvuri Subbarao pointed out dangers of a widening current account deficit on economic stability at a recent summit of the regulators, which may prompt some policy actions by the government. Subbarao flagged his concerns on the dangers of relying on volatile capital flows to finance the country’s rising current account deficit—the excess of imports over exports of goods and services—at a recent meeting of the Financial Stability and Development Council, or FSDC, ahead of the union budget, said people familiar with the discussions. The deficit, if unchecked, could lead to adverse investor perceptions about the economy. The council, which is headed by Finance Minister Pranab Mukherjee and has the chiefs of all financial sector regulators and senior finance ministry officials as its members, meets periodically to discuss issues relating to financial stability, macro prudential supervision and inter-regulatory co-ordination. Liberalisation of foreign direct investment, making bank deposits attractive for non-resident Indians, and freeing up of petroleum products prices could ease the deficit problem that is nearing levels seen during the 1991 currency crisis when the nation pledged its gold reserves to redeem itself. If the deficit situation deteriorates, the rupee could come under pressure, worrying overseas investors. “Though a weak currency typically boosts exports and trade balance, depreciating the currency may not necessarily address the problem in case of India as a sizeable portion of imports (e.g. oil) are price inelastic to a great extent,” said Siddhartha Sanyal, chief India economist at Barclays Capital.

Launch of Transparent Pricing Data for the Indian Microfinance Market

For the first time in history, true-cost microloan product pricing data for the Indian microfinance market is now publicly available.  MicroFinance Transparency has completed an analysis of microloan pricing in India and shares the results on its website www.mftransparency.org. MFTransparency will present analysis of the data as well as other findings of the Transparent Pricing Initiative in India at an industry conference in Mumbai on February 25, to be followed by an internal conference held by MFTransparency, the RBI and the College of Agricultural Banking in Pune on Feburary 28.

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Red beacon for RBI Governor withdrawn

In a seemingly major embarrassment for the Reserve Bank of India (RBI) Governor D Subbarao, the Road Transport and Highways Ministry has directed the Maharashtra Government to withdraw the permission granted to him to use the red beacon atop his car. “The State Government of Maharashtra should immediately withdraw the permission for allowing the use of red beacon light on the vehicle of Governor, Reserve Bank of India,” said a letter from the Ministry earlier this month. In November last year, the Maharashtra Government granted permission to the RBI Governor to use the coveted red dome light on his vehicle. The permission came from that State Government as RBI’s central office is situated in Mumbai. The RBI Governor’s office had requested the State government to grant the status. The State Government informed the Transport Ministry here about the decision. On its part, the Transport Ministry referred the matter to the Home Ministry, which has the authority to decide the issue. Replying to the Transport Ministry’s letter, the Home Ministry, in its letter dated January 14, said, “The Governor of Reserve Bank of India has not been included in the Table of Precedence issued by the Rashtrapati Bhavan.” The Home Ministry even attached a copy of the Table of Precedence dated July 26, 1979 but updated “till now” and including all amendments made so far along with its letter to the Transport Ministry.  The RBI Governor is included nowhere in the Table of Precedence, which lists 26 categories of dignitaries right from the President to joint secretaries, officers of the rank of major-general and equivalent rank.  In view of the Home Ministry’s decision in the matter, the Transport Ministry said, “The MHA has informed that the Governor of RBI has not been included in the Table of Precedence issued by the Rashtrapati Bhavan. Therefore, the RBI Governor does not hold the rank, status and privilege equivalent to the dignitaries specified in the notification.” As a consequence, the Transport Ministry, in its letter dated February 3, asked the Maharashtra Government to withdraw the permission granted to the RBI Governor to use the red beacon on his Government vehicle with immediate effect.

RBI imposes penalty on four cooperative banks

The Reserve Bank today imposed penalties of Rs 1 lakh each on four cooperative banks on various charges including violation of anti-money laundering guidelines. The four banks are the Jamnagar Mahila Sahakari Bank, Amreli Nagarik Sahkari Bank, Shri Mahila Sewa Sahakari Bank, Ahmedabad, and the Virambam Mercantile Cooperative Bank, the RBI said in different statements. While Jamnagar Mahila Sahakari Bank and Amreli Nagarik Sahkari Bank were found guilty of violating instructions related to anti-money laundering guidelines, the Ahmedabad- based Shri Mahila Sewa Sahakari Bank was held responsible for violating instructions on grant of unsecured advances in excess of the prescribed ceiling. The Virambam Mercantile Cooperative Bank, meanwhile, was charged with non-filing of cash transaction report with concerned authorities. RBI did not provide further details of the cases. RBI's action comes a day after it imposed penalties of up to Rs 5 lakh on two cooperative sector lenders -- Surat Mercantile Co-operative Bank and Urban Co-operative Bank, Cuttack -- for violation of banking norms.

Illegality of Islamic Banking in Bharat - Dr. Swamy's letter to RBI Governor

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RBI employees want autonomy on staff issues

The Reserve Bank of India (RBI) employees on Wednesday protested against the government move to control the central bank’s staff-related matters. Employees across the country wore badges opposing statutarisation of staff regulations and resolution of pension related issues. “The government move to control staff regulations of RBI threatens the autonomy of the RBI. This would mean the central bank board and the governor would have no say in matter relating to RBI,’’ said a protesting employee union member on the condition of anonymity. “We have raised the issue with the RBI governor however, no action has been taken on the same hence we are protesting,’’ he added.  At present, RBI controls matters relating to incentives, promotions and remuneration of its staff. Statutarisation would bring these matters under the purview of government. “Our pension updation has also been stuck as the RBI board is opposing statutarisation. The government has been putting pressure on RBI to make staff regulations statutory under Section 58 of the RBI Act, 1934, and bring them under the subordinate legislation of Parliament.

SBI plans to merge 5 subsidiaries in 12-18 months

The State Bank of India proposes to merge its five remaining subsidiaries with itself over the next 12-18 months. In its deposition before the Parliamentary Standing Committee on Finance, the country's largest lender said the consolidation exercise has been systemically planned as part of a logical step to bring in economies of scale, reduce administrative overheads, redeploy and channelise trained manpower to business development and, in the process, also reduce avoidable competition from different arms of the same group.

Par Panel for clear policy on PSU banks merger

Accusing government of adhocism, a Parliamentary Committee today demanded a clear policy on mergers and consolidation in the public sector banks, including amalgamation of associates with the State Bank of India (SBI). "There is a strong element of adhocism in the policy stance and approach of the government in brining in legislative changes in the Acts regulating the SBI and its subsidiaries in particular," Standing Committee on Finance headed by former Finance Minister Yaswant Sinha said in its report tabled in Parliament today. It is also imperative to assess in clear terms, the reasons for rising NPAs in the SBI Group of banks as well as the desirability of pursuing the policy of merging the subsidiary banks with SBI, particularly in the light of issues relating top manageability of large sized banks, it noted. It is appropriate on part of the government to make an in-depth analysis of issues relating to mergers and consolidation of the public sector banks in general, it said. "The Committee expects the government to spell out the policy-related aspects in this regard, it said. Meanwhile, it cleared the State Bank of India (subsidiary banks laws) Amendment Bill, 2009 for passage by Parliament. The amendment proposals of the State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009 have been necessitated owning to transfer of ownership of SBI from Reserve Bank to central government, it said. It also suggested amendment in the SBI Pension Fund Rules, which is detrimental to the retirees of the merged subsidiary banks. The panel expects the government to expeditiously act on these matters. The Bill, which, seeks to empower the government to fix the authorised or the issued capital of a subsidiary of the SBI or to appoint its top officials, was referred to the panel on December 18, 2009 for examination.  Once passed, the bill would empower the Centre to increase or reduce the authorised capital of a subsidiary bank, fixation and raising of issued capital, issuing bonus shares to shareholders and appointment of managing director, among other things. The legislation would amend the State Bank of Hyderabad Act and the SBI (Subsidiary Banks) Act to incorporate these provisions.

Securitisation volumes fall by a third in Apr-Dec

New RBI norms, hardening rates, liquidity concerns curb appetite.  Hit by a slump in single corporate loan sell downs, securitisation volumes shrank in April-December 2010 to Rs 18,800 crore from Rs 28,200 crore in the year-ago period, according to ratings agency Icra. Securitisation is the process of converting existing assets or future cash flows into marketable securities. Typically, loans in segments such as vehicle, home and corporate are pooled and packaged into securities. The repayments from borrowers are assigned to investors in securities. The Reserve Bank of India (RBI) has proposed stringent norms for securitisation, hardening interest rates.

India back on pre-recession growth trend: World Bank

Washington: The Indian economy seems to be back to the growth trend before the global financial crisis with particularly strong GDP growth over the first half of the 2010-11 fiscal, but the inflation is worrying, the World Bank has said. The Reserve Bank of India (RBI) is likely to continue its policy of cautious rate hikes in an uncertain environment, the World Bank said in the second of its semi-annual series of India Updates released Tuesday.  

A reforms stimulus

The crying need to bring inflation to heel should hopefully force finance minister Pranab Mukherjee to present a tight budget on 28 February. The Reserve Bank of India (RBI) has already been busy tightening its monetary policy by increasing interest rates seven times since March. This overdue withdrawal of monetary and fiscal stimulus could hurt growth in the short run. It needs to be balanced with a fresh reforms stimulus.    Here’s why. Almost exactly a year ago, the finance ministry ended the first chapter of its excellent Economic Survey on an optimistic note: “It is entirely possible for India to move into the rarefied domain of double-digit growth and even attempt to don the mantle of the fastest-growing economy in the world within the next four years.”  The optimism came at a time when India was being lauded for its quick rebound from the brutal global downturn. A lot has changed since then. Now the threat of double-digit inflation is a far more potent issue than the prospects of double-digit growth. Policy attention has dramatically swung from the latter to the former.  Demand management is thus the big topic of the day. The best way to control inflation in the short run is to compress private demand through higher interest rates and compress government demand through a lower fiscal deficit.

RBI panel mulled linking repo to CD ratios

The Reserve Bank of India’s (RBI) technical advisory committee had considered linking the repo facility to credit-deposit ratio of banks in the third quarter monetary policy review in January, the apex bank said in a statement. “If implemented, the move could have limited lending to banks with high credit-deposit ratio and those who were borrowing frequently from RBI’s repo window at the same time,” said a senior public sector banker. In the first ever disclosure of the minutes of the Technical Advisory Committee meeting a week before the announcement of the third quarter monetary policy review, it is stated that a member of the committee had suggested the statutory liquidity ratio (SLR) could be increased to reduce the borrowing capacity of banks and the repo facility could be linked with the credit-deposit ratio of banks to bring in discipline.  Though the central bank did not take this step, it did raise concerns on the widening gap between credit and deposit growth in the review. “The Reserve Bank will constantly monitor the credit growth and, if necessary, will engage with banks which show an abnormal incremental credit-deposit ratio,” RBI said. The incremental non-food credit-deposit ratio was at 102 per cent by end-December 2010, up from 58 per cent in the corresponding period of the previous year. Credit growth clocked 23 per cent as on January 28, much higher than RBI’s projection of 20 per cent for financial year 2010-11. Banks have been borrowing around Rs 1 lakh crore daily from RBI’s repo facility since November 2010. Two members of the panel were also of the view that small and managed depreciation in currency could be considered to manage CAD, but RBI maintained it would intervene only if volatility was high. While one of the members had suggested a 50 basis points increase in the repo rate and 25 basis points increase in the reverse repo rate, another member suggested a rise in the cash reserve ratio (CRR) to contain inflation. But RBI went ahead with a raise in both policy rates by 25 basis points, an action the majority of its members upheld.

Income-tax department says record TDS unpaid

The TDS (tax deducted at source) wing of the income-tax (I-T) department in Mumbai has detected a record Rs4,000 crore in non-payment of TDS in the first 11 months of the fiscal year, tax officials familiar with the development said. “Our surveys will significantly improve collection of TDS in future. Last fiscal we had detected only Rs60 crore in non-payment of TDS,” an I-T official told Mint. He did not want to be named because he is not authorized to speak with the media. The I-T department’s surveys haven’t spared even the Reserve Bank of India (RBI), (over commissions paid by it to banks), besides companies such as Reliance Industries Ltd (RIL) and Jet Airways (India) Ltd.  In mid-January, the department surveyed India’s central bank and claimed that RBI did not deduct tax on agency commission of more than Rs800 crore paid by it to banks for doing government business since 2007.  An RBI spokesperson said in an email response to Mint: “The I-T department had asked RBI about the amount of agency commission paid by RBI to banks for doing government business. We have informed the I-T department that as per a CBDT (Central Board of Direct Taxes) circular of 2003, RBI is exempt from deducting TDS on agency commission paid by it to banks for doing government business.”  However, the department’s contention is that the CBDT circular was in force only till 2006, and RBI should have deducted tax at the rate of 10% on the agency commission.

RBI raises alarm as Bengal goes into severe overdraft crisis

The Reserve Bank of India has warned the Union finance ministry that West Bengal is facing a "severe overdraft crisis" — in other words, it is going bankrupt. The state's financial condition is so bad that it may have to dip into central funds for welfare projects if it has to pay its employees the salary for February.  Sources in the RBI say that as on February 21, Bengal has taken more than `1800 crore as loan. It has also been regularly dipping into the ways and means advances (WMAs) to meet its daily expenses. It has come to such a pass that the Buddhadeb Bhattacharjee government has been surviving on overdrafts running into hundreds of crores for the past 10 days.

Corporates need to spruce up risk management: Gopinath

Reserve Bank of India Deputy Governor Shyamala Gopinath has cautioned that in an open economy like India , there is need for greater recognition of currency and interest rate risks and the risk management in banks and corporate firms need to gear up their risk management practices further in this area. “It is our experience that a large number of corporates still do not have well-designed risk management policies and practices to take care of volatile exchange rate movements and give scant regard to tail risks. There is also need for greater disclosure and adherence to accounting standards for financial instruments,'' said Gopinath who was addressing .Annual Conference of the Foreign Exchange Dealers’ Association of India (FEDAI) on Friday ``Approach to Capital Account Management - Shifting Contours''. There is also need to more comprehensively qualitatively assessment of of India's external liabilities to encompass liabilities of subsidiaries and branches of Indian financial institutions overseas, not in nominal terms but through a risk-based approach on the probability of recourse to parent bank liquidity support, said Gopinath. However, with focus on capital flows on a net basis, it is often not realized that portfolio flows were $174 billion a year over last three years on a gross basis, far outstripping FDI flows at $37 billion a year. In gross terms, over the last five years (2005-06 to 2009-10) FII flows have accounted for 47% of the gross capital inflows to India as against 9% for FDI inflows. This of course has more to do with the nature of these flows with a much larger churn for portfolio capital. High gross flows make economy more susceptible to such reversals and as such we need to continue to maintain adequate buffers, said Gopinath. In the current context, a high current account deficit (CAD) has been absorbing much of the capital flows in aggregate terms. The concerns, however, arise on account of the composition of flows coupled with lower order of reserves accretion and faster increase in external liabilities, added Gopinath. The enhanced exposure to external liabilities is reflected in the sharp increase in the ratio of external debt to foreign exchange reserves from 89.1% of GDP in 2008-09 to 99.1% as at end June 2010. Moreover, the ratio of short-term debt to reserves has increased from 17.2% to 21.0% during the same period. Another issue that may come up going forward relates to repayment of FCCBs. The redemption pressures on account of FCCBs would start building up from 2010-11 and peak in the next couple of years till 2012-13. She further said that there have been some concerns on the declining FDI flows in the recent past though as stated earlier it has little to do with the regulatory framework per se except in certain sectors. The moderation in FDI inflows to India during April-November 2010 has been driven by sectors such as construction, mining and business services.

Technology not reaching customers: Chakrabarty

RBI Deputy Governor Dr.K.C.Chakrabarty has said the benefits of technology adopted by the banks have not percolated in terms of cost, speed and convenience of the customer. The banks should move towards empowering the present day customers of information or digital age by greater choice, greater access, and better, faster, more efficient modes of delivery and service. "Customers are not going back to the old ways of banking. They are moving forward. If the banks do not complement their speed, the customers will pass by,'' said Chakrabarty.

Diesel price may be freed if inflation falls

Dr. Rangarajan, a former governor of the Reserve Bank of India, said headline inflation was likely to come down to 7 percent by the end of March on moderating food prices. Annual inflation based on wholesale prices eased marginally to 8.23 percent in January as against 8.43 percent in the previous month. ‘We have witnessed two years of high inflation. It has been around 7-8 percent. It needs to be brought down to a comfortable level of 4-5 percent,’ said Rangarajan adding the policy markers would continue to tighten monetary and fiscal policy until inflation was brought down to a comfortable level. ‘Inflation distorts the economy. It hits the poor hardest. We have to bring it down,’ he added.

Loans under JNNSM at 5% not violation of base rate norms: RBI

The Reserve Bank today said banks financing power generation equipment under the Jawaharlal Nehru National Solar Mission (JNNSM) at a concessional 5 per cent interest rate is not violation of norms. This financing below the base rate would not be considered violation of guidelines, RBI said in  a statement. "We advise that such lending at interest rates not exceeding five per cent per annum where refinance of Government of India is available, would not be considered to be a violation of our Base Rate guidelines," it said. In the new lending rate mechanism, no loans except few exceptions can be offered below the base rate of a bank. Base rates of most of the banks are 9 per cent. Other category of loans exempt from the guideline include loans to banks'' own employees and loans to banks'' depositors against their own deposits. The Ministry of New and Renewable Energy (MNRE) has formulated a scheme on financing of off-grid and decentralised solar (Photovoltaic and Thermal) applications as part of the JNNSM, it said. Under the scheme, banks may extend subsidised loans to entrepreneurs at interest rates not exceeding five per cent where refinance of two per cent from Government of India is available, it added.

Andhra Pradesh set to usher in new products under new MFI Act

Sensing foul play in the introduction of new products like loans for men and interest-free loans by microfinance institutions (MFIs), the Andhra Pradesh government is set to issue a notification to bring these products under the purview of the new MFI Act. MFIs in the state, whose revenues dropped after the introduction of the MFI Act, were finding new methods to carry on their business by introducing fresh products like loans to men and interest-free loans, a senior state government official said. According to R Subrahmanyam, Principal Secretary (Panchayat Raj and Rural Development), some MFIs are offering loans to the husbands of women members of selfhelp groups(SHGs), saying that extending loans to them will not attract the provisions of the Microfinance Act, which came into existence in December. Some MFIs were considering extending interestfree loans, arguing they would not come under the purview of the Act, he said. “That shows the desperation. When you want to make hyper profits, try to duck and find ways. We will not let that happen. A notification will be issued in a day or two, making it clear that these kinds of loans will also come under the Act,” Subrahmanyam said. The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010 is aimed at regulating the sector by keeping tabs on lending and recoveries by MFIs. It prohibits them from lending to SHGs already covered by the formal banking system, without seeking prior approval from banks.  Share Microfin, one of the largest MFIs in the country, recently launched ‘Suraksha Loan’ exclusively for men. In acircular to its branches, the company said the loan had to be extended to the husband of a woman member of an SHG. The circular stated the outstanding loan would be nullified only in case of death, but not suicide. Sources in SKS Microfinance said extending interest-free loans was a vague idea and one of the 40-odd concepts the company was mulling over.  “Even if they term these loans as interest-free or loans to men, they will attract all sections of the Microfinance Act. It will be viewed as a violation,” Subrahmanyam said.

PMEAC forecasts 9% growth in FY12, pitches for GST rollout, stimulus cut

RBI clarification on forex trading

The Reserve Bank of India (RBI) has clarified that existing Foreign Exchange Management Act (Fema) norms do not allow residents to trade in foreign exchange through electronic or Internet based trading portals.  The clarification comes after some advertisements recently by electronic /Internet portals offering trading or investing in foreign exchange with guaranteed high returns. “Many companies even engage agents who personally contact gullible people to undertake forex trading/ investment schemes and entice them with promises of disproportionate / exorbitant returns. RBI cautions the public not to remit or deposit money for such unauthorized transactions. The advice has become necessary in the wake of many residents falling prey to such tempting offers and losing money heavily in the recent past,“ the central bank said.

Enabling Inclusion - Aman Srivastava

Various studies have revealed that consumption is usually much less volatile than income, indicating a fair pattern of inter-temporal savings, even amongst the poorest households. But despite this active level of financial management, these households have no recourse to formal financial systems. Policymakers in India have recognised that improving current systems and designing new, innovative systems to reach the poor will require radical improvements in cost efficiency and an associated change in the existing set of regulations. The RBI has in recent years put in place several regulations to encourage financial inclusion by granting greater freedom to the concerned players while simultaneously seeking to protect the interests of the target populations. While many of its regulations have created an enabling environment for inclusion, some, understandably, have limited the progress that could have been made. This is an outcome of the ‘Regulator’s Dilemma’, a term coined by David Porteous: How can regulators balance their need to promote broader access to financial services with ensuring the stability of the financial system? This is a fine balancing act, failure to achieve it could lead to the choking of incipient attempts at providing universal access or financial destabilisation and the bankruptcy of the vulnerable. Ultimately, regulations have to be designed keeping in mind the risks involved. The risks will vary with the model adopted, whether the model is transformational or additive to banking. In addition, regulatory coordination will have to be achieved amongst the respective regulators to ensure they are not working at cross purposes. Since the current regulations touch upon the participatory capacities of players across all the concerned sectors, this discussion is segmented according to the regulations applicable to each sector. Which sectors are expected to play a leading role in expanding financial inclusion? Banks and mobile operators will be in the spotlight, along with any other companies that may partake in the business correspondent (BC) model. The chief regulators to walk the tightrope, then, are the RBI, TRAI and to a limited extent, the Competition Commission of India.  Several strides have been taken by the RBI in easing the regulatory environment to enable the entry and scaling up of participants. However, much more still needs to be done to ensure continued growth in this sector. For example, MSPs will have to provide inter-operable services by setting up some sort of clearing/settlement system, which will invariably involve the National Payment Corporation of India as a facilitator. Besides, banks will never have strong incentive to cater to poorer segments as long as their revenues come from floats and not from transactions.  While the RBI is currently marketing the FI paradigm through the bank-led model, it isn’t averse to giving centrestage to non-bank actors. Banks need to act quickly on the privileged position they currently enjoy.  Since financial inclusion through non-traditional modes is a new concept, and banking alliances with BCs a recent phenomenon, much is still to be learned over the coming years about customer protection issues, AML/CFT concerns, and the feasibility of various models. Regulations will have to keep evolving, and it shall be interesting to follow this evolution, which is already in motion and beginning to tangibly modify the financial landscape.

—The writer is an economist at the Centre for Financial Inclusion, Indicus Analytics. You can reach him at aman.srivastava@indicus.net

BoI to cover 400 villages under BC model

In pursuance of the RBI guidelines and instructions to all the bankers operating in the state, the Bank of India (BoI) will cover all the 400 villages in its share, each with over 2000 people, under the business correspondent (BC) model by the end of the current fiscal. The BoI has also planned to further boost up credit lending so that the state's CD ratio increases.  While this would mark the completion of the phase-I of the project, all the bankers have to bring the remaining villages, whatever the size of their population, under the BC model by 2013, said BoI executive director N Seshadri, who is in Bihar in connection with the inaugural launch of the same model at Sakra Mansurpur village in Muzaffarpur district by the RBI Deputy Governor on Monday.

Contenders unsure, new bank licence norms delayed

Draft guidelines on new banking licences have been delayed. According to sources familiar with the development, the main reason for this is that many of the comments received by the Reserve Bank of India (RBI) from various stakeholders on its discussion paper on the issue were contradictory in nature. As a result, the RBI could not come out with the draft guidelines by end-January — as it had said. According to a source in Indian Banks’ Association (IBA), the draft guidelines are expected to come out by the end of this financial year now and after that many players who are eyeing a licence might back out because the government and the RBI are expected to come up with some stiff terms on financial inclusion. “The government does not want new players to enter the banking industry and crowd the metros and big cities. Financial inclusion will get top priority in the draft guidelines,” the source said. In its second quarter review of the monetary policy on November 2, the RBI had said that the draft guidelines shall be put up in the public domain by January-end for public comments. In December, the RBI had released a gist of comments on the discussion paper on the entry of new banks in the private sector. It is now almost a year since finance minister Pranab Mukherjee said in his Union Budget speech on February 26, 2010 that in order to extend geographic coverage by banks, the RBI will consider giving some additional banking licences to private companies and non-banking finance companies. Some experts support the delay in granting of licences.  “If the RBI were to really very clearly articulate what is the responsibility rather than the opportunity, it would be more interesting. Then what will happen is that only those who have the long-term commitment to the economy will come forward. So it is better that the draft guidelines come out that way,” said Ashvin Parekh, partner and national leader, financial services, Ernst & Young. In the last one year, the list of players eyeing a banking licence has increased. It includes large corporates as well as medium and small players.

UCO Bank Adopts Village in Gujarat

UCO Bank in Gujarat state adopted Lakshmipura village with the sole purpose of uplifting the economic conditions of the village and making the inhabitants selfreliant by financing various productive activities and completion of 100% financial inclusion in the village. Bank At this occasion, sanctioned loans to the villagers for various activities and donated computers for use in local school. Seen in the picture are A.K.Bera Regional Director of RBI, Rajesh Kumar, GM, RBI, A.K. Roy, ZM, UCO Bank and others

Microfinance, macro problems

Indian activists protest in front of The Reserve Bank of India against micro finance institutions in Hyderabad.

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