Employment plan rolled out for job-starved Kashmiri youth

New Delhi/Srinagar, March 3 (IANS) An expert group headed by former Reserve Bank of India (RBI) governor C. Rangarajan Thursday rolled out an employment plan for the youth in job-starved Jammu and Kashmir, envisaging vocational training for up to 100,000 of them in the next five years. The Rangarajan committee report, which was released simultaneously in Srinagar and New Delhi, assumes significance because the state, according to official findings, has some 500,000 jobless youth who are often targeted for recruitment by militant outfits to be their overground workers.  The six-member Rangarajan committee was set up in August 2010 by Prime Minister Manmohan Singh and was to submit its report within three months. Manmohan Singh had last week in parliament said the government would do everything to provide avenues for gainful employment to the youth in state. 'If we can create jobs for a lakh of students from the (Kashmir) Valley and other parts of Kashmir, I dare say it will change the mental make-up or the mindset of the Kashmiri people,' he said in his address to parliament.

Cabinet nod for Banking laws amendment Bill

The Union Cabinet on Thursday gave its approval for introduction of a Banking Laws Amendment Bill 2011 in Parliament. This Bill seeks to among other things lift the 10 per cent voting rights cap in private sector banks and pave the way for the Reserve Bank of India to give some additional banking licences to private sector players. The proposed Bill will seek to amend the Banking Regulation Act, 1949, so as to remove the voting rights cap for private sector banks. The legislative intent will be to make voting rights commensurate with economic ownership. Indications are that the Banking Regulation Act, 1949, will be amended to prescribe a minimum capital of Rs 1,000 crore for every private sector bank. The current capital requirement is Rs 300 crore. Based on the feedback from a discussion paper issued in August 2010, the RBI has proposed some amendments to the Banking Regulation Act including a change in the minimum capital requirement.

Computerisation to help RBI better monitor NPAs: Dr.K.C.Chakrabarty

The Reserve Bank of India's Deputy Governor Dr.K.C.Chakrabarty said that once the core banking solution (CBS) was complete the central bank would be in a better position to monitor non-performing assets (NPA) of banks.  "Data coming from the origin without any manual intervention will bring the reliability and integrity of the data. RBI has detected enough discrepancies in data in the bank branches," Chakrabarty revealed. The deputy governor also suggested that increasing working hours in bank branches by dividing them into shifts would not only lessen the burden on the branches, but also help banks to bring down the cost of transactions by the maximum utilisation of technology. "When the transaction cost comes down, bank can offer more interest rate on deposits and charging less interest rate on lending. When more and more people start taking use of technology, its cost comes down," he said.  On rising frauds in banks, Chakrbarty said that there are normally 20-25 lakh transactions happening in the banking industry everyday. “If any fraud is happening at any point of time in a bank, then the bank itself is supposed to examine it. All that we are trying to see if bank has got a system in place to keep a track of these frauds. In fact, it was one of the main purposes of having the supervisory mechanism in place,.'' he said. On financial inclusion, he said, "The commercial banks will be able to achieve the financial inclusion goal by March 2012 whereas the RRBs will be able to achieve it by September this year itself. Many of them, which may include Maharashtra Grameen Bank sponsored by Bank of Maharashtra have already completed it." On increasing reliance on Rural Infrastructure Development Fund(RIDF) by the banks, Chakrbarty clarified that if the banks are not able to meet the priority sector targets, then only the RIDF comes into the picture.  “The objective of RIDF is not that banks should not achieve their priority sector lending targets and give the money to RIDF. There ways to fulfill the demands of priority sector lending,” he said.

Financial inclusion key rider for bank licence: Subbarao

Aspirants for new bank licences will need to show their commitment to financial inclusion, according to Reserve Bank of India (RBI) governor D. Subbarao. “One of the criteria for evaluating the applications (for a banking licence), which we will receive in due course of time, will be the business plan for financial inclusion,” Subbarao said at a Delhi seminar on Thursday. Finance minister Pranab Mukherjee said in his budget speech on Monday RBI will issue guidelines for banking licences before the end of the current fiscal. Mukherjee had announced in his 2010 budget that RBI would consider giving banking licences to the private sector, following which the central bank had issued a discussion paper in August 2010, inviting feedback from the public.  RBI has been contemplating whether to make it mandatory for new entrants to have a rural presence or to leave it to the competition in the market to force them to look for newer markets. As part of its financial inclusion agenda, RBI has also been prodding existing banks to cover unbanked areas and those who have been traditionally perceived to be unbankable. “Banks continue to see financial inclusion as an obligation and not as a viable opportunity,” he said.  RBI has asked existing commercial banks including foreign lenders to come out with their own financial inclusion plan. “We want the commercial banks to leverage their own business model,” he said. Subbarao said financial inclusion is important for sustaining double-digit growth, increasing savings, reducing leakage and corruption and giving the banking system leverage to manage asset-liability mismatches.  Out of 600,000 habitations in the country, only about 5% have a commercial bank branch. Only 40% of the population across the country has bank accounts.  RBI has asked banks to provide banking facilities to areas having a population of over 2,000 by March 2012. There are currently around 73,000 such habitations. While banks will cover 20,000 villages this year, the remaining 53,000 will be covered in 2011-12. Jayati Ghosh, professor at the Jawaharlal Nehru University, said financial inclusion should be the dominant criteria while issuing banking licences to new players. “This has been the major weakness of our banking system as two third of the economic agents are excluded from banking services. RBI should clearly specify how many rural branches the new banks should open,” she added.

Change at the till

A generation that enjoyed the value of paisa coins will feel a tinge of nostalgia as they shed their hoard of small change over the next four months. The call-in of coins with a face value of 25 paise and less and their planned demonetisation with effect from July 1, 2011 only reflects the changed currency use pattern across all sections of society today. With rupee losing its purchasing power, commerce was already beginning to cold-shoulder the paisa; for the government, the cost-benefit factors involved in minting and keeping them in circulation were strong enough to push for their demonetisation. It is unclear how many of the coins are still actually around. According to the Reserve Bank of India's books, at the end of March 2010, there were 54,738 million “small coins” (which, by definition, include the 50 paisa), adding up to Rs.1,455 crore. The demonetisation of what is virtually “dead money” will enable the RBI to issue currency notes or coins for an equivalent amount as replacement in the monetary system. Should a significant amount of the coins tumble out of jars and piggy banks, the handling of the mountain of small change will turn out to be a challenge for the banking system. But how much of it will surface is a moot question.  There has been concern over whether the consequent rounding off of bills to 50 paise or a rupee at the till would add to inflationary pressures. It will, but its effect can only be marginal. It is for the first time since India shifted to the decimal system in 1957 that coins are being demonetised on such a scale. In the past decades, the worth of the metal content in coins has often surpassed their face value, encouraging their melting for other uses. The ferritic stainless steel coinage of contemporary issue and the aluminium-magnesium coinage introduced in 1964, in place of the nickel and cupro-nickel ‘naya paisa' series introduced in 1957, faced the same risk eventually. The minting of 1, 2, 3 and 5 paise coins was phased out in the 1970s, and they have virtually disappeared from currency — even as 10, 20 and 25 paisa coins have become scarce. And rupee coins of 1, 2, 5 and 10 denominations have come since the 1990s in growing numbers. So, time is finally running out for small change. Only four months are left for people to rustle up their coins and take them to the bank for exchange. It is possible that the exercise will excite more interest among coin collectors than the general public.

RBI REMINDER TO BANKS: INCREASE DEPOSIT RATES, CUT LENDING RATES

The Reserve Bank today again prodded banks to raise deposit rates to encourage people to save more and put the Indian economy on sustained double-digit growth and lower lending rates by cutting on salaries, wages and transactions costs.  At a meeting of the Institute of International Finance (IIF), a global association of financial institutions, RBI Governor D Subbarao also said that the central bank will come out with its views on the Malegam Committee report on micro financial institutions (MFIs) that favours a 24 per cent cap on interest rates charged by these entities, by April-end.  The central bank governor further said that the RBI will see business plans on financial inclusion of those interested in banking license.  “For double-digit growth that we aspire to, we need to save so that we can invest more and for that to happen, we need to encourage savings, which means that banks will have to increase the interest rates that they offer to depositors and they have to reduce the interest rates that they charge to borrowers,” Subbarao said.  In technical terms, he said banks have to bring down their net interest margin (NIM). This is not the first time that the RBI is asking banks to increase deposit rates. It has been asking banks to do so to retain their depositors, since rising inflation sees net earnings from deposits going into the negative zone.  Subbarao said to cut lending rates, banks have to reduce non-interest expenses like wages and salaries, transaction costs, provision costs, NPAs and enhance productivity by leveraging on technology.  He said Indian banks need to do lots of catching up with their counterparts in peer group countries.

New currency design to check black money

The finance ministry plans to phase out the varied looks of Indian currency notes by giving them a makeover. A committee appointed by the finance minister Pranab Mukherjee will soon give green signal to RBI for approving a new design for currency notes. It follows the introduction of the rupee symbol that got Cabinet approval last year. The catch in the plan is it will involve a gradual recall of the old currency notes without creating a panic in the market. The recall is where black money can be tracked very effectively.  The finance ministry officials are clear this should not be seen as demonetisation. But they acknowledge that a plan to replace the old currency, will definitely impact those who have stashed away currency in high denomination notes.  The reason to upgrade and make uniform the look of the Indian currency has been felt for a long time. For instance, two kinds of ten rupee notes are in circulation at present. These are the older white series and the more current orange coloured ones.  Since both are valid, though the latter has improved security features, it has been possible for counterfeiters to push through the older ones and get away with it. The introduction of the new design, officials feel, will not solve the counterfeiting problem unless all notes from the older series is phased out and a date set for them to cease as legal tenders.  This will not be the first time the Indian government will recall a set of currency notes. The last time it was done as a clear anti-black money operation in the seventies.  While the problem of counterfeiting has been there over the years, it is now that the RBI and the finance ministry feels that they have got a grasp over the solution.  The possibility of using it to track black money too has made the plan more attractive. It has also been helped by the incorporation of the new public sector company, SPMCIL, that has taken over and modernised all currency notes and mints across the country, in 2008.

MoF consults Sebi, RBI for shaping infra debt fund

The government today kick-started discussions on the proposed Infrastructure Debt Fund (IDF), holding meetings with banking and market regulators to discuss the broad contours of the proposed fund.  Sources told The Indian Express that the proposed fund would become a part of the Direct Taxes Code, which is currently being vetted by the Parliamentary Standing Committee on Finance and would be implemented from April 1, 2012. A source said the officials of the Reserve Bank of India, and market regulator, Sebi, met finance ministry officials to discuss the structure and the regulator of the fund. The terms of borrowing, minimum corpus requirement, among other things, would be worked out soon. The official added that the income of the fund would be exempt from tax because the intent of the fund is not to generate income but to mobilise the same in infrastructure. However, it will have to file return.

RBI to issue new Rs. 5 coin

Hyderabad: The Reserve Bank of India (RBI) will shortly put into circulation new coins of Rs. 5 with the ‘C. Subramaniam Birth Centenary' theme. RBI Assistant General Manager Vinod P. Appa Rao said the face of the coin will bear the Lion Capitol of Ashoka Pillar in the centre with the legend ‘Satyameva Jayate' inscribed below The reverse of the coin will bear the portrait of C. Subramaniam in the centre.

Coin Mela held in Kochi

The Coin Mela organized by HDFC Bank at Kochi was inaugurated by K V Viswanathan, DGM, RBI, Issue Dept, Thiruvananthapuram on 23^rd Feb, 2011. The initiative was in conjunction with RBIs Clean Note Policy to provide fresh notes in exchange for solid ones, a release said.

Banks lost Rs 2,289 crore to scamsters

The recent Rs 300- crore scam in the Gurgaon branch of Citi Bank is a pointer to a disturbing trend: the steady rise in the number of banks falling prey to such frauds. According to the data compiled by the Reserve Bank of India (RBI), the money lost to such scams has doubled in the past four years. In the current fiscal year, banks lost Rs 2,289 crore (till December), while the loss was Rs 1,057 crore in 2007- 08. It's the state-of-the-art private banks, including foreign banks, that appear to be more prone to such frauds.  The public sector banks, with their massive presence across the country, also reported an annual average of more than 3,000 cases of frauds and cheating during the past four years. Their better equipped counterparts in the private sector reported almost five times the number of cases. ICICI Bank alone accounted for almost half of the total scams reported to the RBI. Of the total 21,244 cases reported in 2007-08, a whopping 10,976 were from ICICI. Similarly, in 2008- 09, ICICI reported 13,221 of the total 23,579 cases. The bank reported 15,074 of the total 24,788 fraud cases in 2009- 10.  The second highest number of cases were reported by HSBC (3,770, 3,481, 2,741, 2028); followed by Citi Bank (1,647, 1,182, 1,277, 666); American Express banking (499, 703, 817, 637) and the distant fourth was State Bank of India (561, 745, 545, 615) during the past four financial years - 2007-08, 2008-09, 2009-10, 2010-11 respectively. The figures for the current fiscal are till December, 2010.  Maharashtra, with Mumbai being the country's financial capital, reported the maximum number of fraud cases: (1,006 in 2009- 10 and 1,045 in 2010- 11). Delhi was second with 349 cases in 2009- 10 and 338 in 2010- 11.  Union minister of state for finance Namo Narain Meena presented these figures in the Lok Sabha on Friday.  The data has thrown up interesting trends in not just scams and frauds but also the way banks were being targeted by robbers and thieves. Punjab reported the maximum number of dacoity and ATM thefts, followed by Uttar Pradesh and Haryana. State Bank of India appeared to be the favourite for thieves and burglars. SBI reported 114 such cases in 2009-10 and 79 this year, followed by State bank of Patiala - 41 and 39 respectively.

Deficit goal viable with oil pass-through – Dr, Subir Gokarn

The deficit cutting target, criticised by many economists as unrealistic, is viable if New Delhi is willing to pass along higher crude oil prices to consumers, the Reserve Bank of India (RBI) deputy governor said on Wednesday.  On Monday, the Finance Minister Pranab Mukherjee unveiled a budget for the year starting April 1 that targets a decrease in the fiscal deficit to 4.6 percent of GDP, from an expected 5.1 percent in the current year, a goal many economists have said underestimates the government's energy subsidy burden in the face of high global crude prices.  "I think the judgement about subsidies indicated that, if you are committed to lower subsidies, the implication is that if crude prices go up you are willing to pass it on," RBI's Deputy Governor Subir Gokarn told reporters.  "Given those assumptions, the budget numbers (on the fiscal deficit) are realistic, because they have pegged the subsidies at whatever limit they have," Gokarn said on the sidelines of an Institute of International Finance meeting.

A rotten scheme of things - Moneylife Personal Finance site and magazine

A rotten scheme of things - Moneylife Personal Finance site and magazine

Allahabad Bank to launch mobile banking in April

Public sector Allahabad Bank will launch mobile banking in April 2011, enabling its customers to avail banking services on their cellphones. Currently, the bank is collecting the mobile phone numbers of its customers. “The software platform for providing the mobile banking facility has already been tested and we will launch the services in April,” bank CMD J P Dua told Business Standard here.  He informed, the Reserve Bank of India (RBI) had already permitted the bank to launch its mobile banking platform.

Second identification detail for ATM transactions soon

Bank customers will soon have to use a second identification detail for ATM and debit card transactions, according to a Reserve Bank of India official. The move will help curb card frauds. Currently, customers use only PIN number for ATM transactions. G Gopalakrishna, executive director, RBI, while talking on the sidelines of a technology summit organised by Indian Banks Association, said dynamic numbers could be generated and ATMs could have an arrangement to create such dynamic numbers.With the exponential rise in the use of debit cards and ATM cards for cash withdrawal, instances of card frauds have also gone up. Taking a leaf out of the use of a second identification for online transactions involving credit cards, RBI will extend this practice to ATM operations as well. After a second identification, generally a randomly generated dynamic number, was introduced, a sharp decline in online card frauds was seen, the official said. Talking about the IT Vision Document 2011-2017 rollout, Gopalakrishna said banks will have to form a panel at the board level and appoint chief technology\information officers to oversee IT security and operations.These recommendations will be implemented within three months.The Vision Document sets priorities for commercial banks to move forward from their core banking solutions to enhanced use of IT in areas like management information systems, regulatory reporting, overall risk management, financial inclusion and customer relationship management.

PSU staff pay increased over 100% in last 4 yrs: survey

A PSU employee on an average received an annual salary of Rs 6.09 lakh in 2009-10, with total emoluments increasing more than 100% in the last four years. According to a Public Enterprises Survey of the government, it was thanks to the pay hike which was effected in 2008-09 following the implementation of the Wage Commission CommitteeDespite the salary increase, PSUs have managed to increase their net profit by 10.40% to a combined Rs 92,593 crore in 2009-10. Of the 249 Central Public Sector Undertakings (CPUs), as many as 217 make profit. However, in 2009-10, salaries and wages in all PSUs went up by 9.41% to Rs 90,863 crore in 2009-10 for the period under review. The CPSUs have also trimmed their workforce by 43,000 during the period covered in the survey. The number of people employed in the state-owned companies came down to 14.91 lakh (excluding casual workers) in 2009-10 from 15.34 lakh in the previous year, it said. About 3.54 lakh people have opted for voluntary retirement scheme till March 2010, since it was introduced in 1988. Of the total workforce in 249 Central PSUs, about one fourth of the manpower was in managerial and supervisory cadres.

Aadhaar sets stage for cash transfers

New Delhi: In line with finance minister Pranab Mukherjee’s budget announcement on Monday that the government is looking at direct cash transfers as an alternative to the current subsidy on kerosene and fertilizers and to prevent leakages, the Unique Identification Authority of India (UIDAI) is planning to open Aadhaar-linked bank accounts for the purpose. These can be used for other financial transactions as well.  The authority is in the process of empanelling banks that will open “no-frills accounts” or link existing ones, during enrolments for Aadhaar, as the unique ID programme is called. So far, UIDAI has enrolled around three million people and around 80% of them seek bank accounts.  UIDAI’s tender document states that the bank opening the account should have the capability to “provide electronic interface to facilitate disbursal of government benefits... Government may provide a list of Aadhaar numbers and amounts to the bank, and bank should be capable of routing payments to the linked bank account through an interoperable network”.  While the banks will be empanelled by April, the accounts are likely to be opened by May. UIDAI chairman Nandan Nilekani also heads a task force that’s working out the modalities for the proposed direct transfer of subsidy for kerosene and fertilizers, apart from liquefied petroleum gas (LPG).

India: come doomsday, come foreign exchange intervention - James Lamont

If a stable currency is the measure of a central bank’s success, the Reserve Bank of India has done a stand out job with its restrained foreign exchange management. Asia’s third largest economy – where officials are proud of setting the country apart from other emerging markets – is in no hurry to go the Brazil route and grasp at tougher capital controls to boost the competitiveness of its economy. Subir Gokarn, the Deputy Governor of the Reserve Bank of India, is never one for overstatement. Yet, he underlined the “Indian difference” on Wednesday when he said that only a “doomsday scenario” would persuade the central bank to return to the days of heavy currency intervention to weaken the rupee. India remains a highly regulated economy, but that option has been firmly shelved unless needed “in extremis” to fend against disruptive, rapid exchange rate movements. Speaking at the Institute of International Finance’s spring meeting in New Delhi, Mr Gokarn explained that the central bank had stuck to its exchange rate policy of “a float with some smoothing” in spite of the global economic turbulence of recent years. The floating rupee is strikingly robust, and its recent strength has not got in the way of India’s improving export performance. Amid the turbulence 2011 has brought to emerging markets, the rupee has held its ground when local equity markets haven’t. It has weathered a pronounced sell-off of equities on the Bombay Stock Exchange, swirling corruption scandals and the imminent pain of higher oil prices in an economy notoriously dependent on oil imports.  It has similarly ridden out a slew of economic policy announcements, including the national budget, undisturbed. This week it coasted at a near two month high against the US dollar at a little below Rs45 to the dollar. The rupee, alongside other currencies in the region, is likely to strengthen further in the medium term. US dollar weakness, aggressive monetary tightening and an economy growing at 9 per cent will likely ensure that is so.  Mr Gokarn is plainly of a mind for such a rise to pass unimpeded.

http://blogs.ft.com/beyond-brics/2011/03/02/india-come-doomsday-come-forex-intervention/

Cabinet may consider banking bill today

NEW DELHI: Following up on its Budget promise, the finance ministry has put up a proposal to introduce the Banking Laws (Amendment) Bill 2011 before the Union Cabinet on Thursday.   This bill seeks to address the capital raising capacity of banks and strengthen the regulatory powers of the Reserve Bank of India. After Cabinet's approval, the bill will be introduced in the current session of the Parliament.   
Finance Minister Pranab Mukherjee, in his Budget speech, had said the UPA government was committed to taking financial sector reforms further.   He said the government planned to move on the Insurance Laws (Amendment) Bill 2008, Life Insurance Corporation (Amendment) Bill 2009, the revised Pension Fund Regulatory and Development Authority bill, first introduced in 2005 and the Banking Laws (Amendment) Bill among others.  Commercial banks, especially those in the private sector, are likely to get a boost with government reviving plans to increase their voting rights through changes in the law.  The bill will give shareholders voting rights in proportion to their holding.   As of now, the voting rights of a shareholder in a PSU bank is limited to 1% of their holding while in the case of private banks, it is 10%. Many banks and investors have been demanding these changes for a long time now.   However, there was resistance from the RBI on grounds that an entity or an individual would corner a chunk of shares in the bank without regulatory approval. The RBI restricts bulk purchases now but that is only in the form of a directive. To prevent this, the bill has proposed that an individual or entity can hold more than 5% stake in a bank only after receiving approval from RBI.

Did You know ?

The National Electronic Funds Transfer (Neft) is a cheap and fast way of transferring money electronically to anywhere in the country. The person who initiates the transfer, that is the one who remits money, does not even need to have a bank account to avail the facility, although the beneficiary must have a bank account to which the money can be transferred. Customers can simply walk into a bank, with or without an account there, and use the facility to send money. They would, however, have to provide contact details and some other information.  Though the system was developed to facilitate domestic fund transfers, it can also be used to transfer funds to Nepal from India, subject to the procedures prescribed by the Reserve Bank of India (RBI). The money is remitted in Indian rupees and withdrawn in Nepalese rupees. The conversion from Indian to Nepalese rupees is done at the Nepal SBI Bank Ltd (NSBL) while making payments to the beneficiaries. But you cannot use the system to transfer money the other way round, that is to India from Nepal.

Govt may have to look at diesel decontrol: Basu

NEW DELHI: The government's chief economic advisor Kaushik Basu on Wednesday once again revived the issue of diesel price deregulation against the backdrop of soaring global crude oil prices. Speaking at a global conference of bankers and economists, Basu said the government may have to confront the issue of deregulating diesel prices if global crude prices continued to rise and remained high for a long time. Reserve Bank of India Deputy Governor Subir Gokarn also expressed concern over rising crude and commodity prices and said they posed a risk to the central bank's efforts to control prices which have started moderating.  "It (inflation) is moving downwards... it is a reflection of our monetary actions. But the risk of it turning around because of energy and food remains," Gokarn told reporters

YUNUS REMOVED AS GRAMEEN BANK’S MD

Nobel laureate Muhammad Yunus has been removed from his position as head of microlender Grameen Bank, Bangladesh’s central bank said on Wednesday, following allegations of irregularities in its operations.   Yunus, 70, set up Grameen Bank and has been its managing director since 2000. Lauded abroad by politicians and financiers, he has been under attack from Prime Minister Sheikh Hasina’s government since late last year, after a Norwegian documentary alleged Grameen Bank was dodging taxes.   Yunus has denied any financial irregularities and his supporters say he is being discredited by the government because of a feud with Hasina dating back to 2007, when he tried to set up a political party while Bangladesh was ruled by an interim military government.   “We have delivered a letter to the Grameen Bank that Muhammad Yunus has been removed,” said the central bank governor’s spokesman, A F MAsaduzzaman.   On Tuesday, a central bank official said a letter had been sent to the Finance Ministry demanding Yunus retire immediately because he had been in his post at Grameen for nearly a decade longer than the law allowed.   The official retirement age of managing directors at commercial banks is 60.   Yunus has said the bank’s board, which is mainly made up of borrowers, allows him to stay on as long as he is able to perform his duties. In a sign of a rift within the microlender, Grameen Bank said Yunus was staying on while a government-appointed chairman said the order had been implemented. It was unclear how the deadlock would be resolved.  “This is a legal issue. Grameen Bank is taking legal advice. It is also examining all the legal aspects of this issue,” Grameen Bank said in a statement.   “Grameen Bank has been duly complying with all applicable laws. It has also complied with the law in respect of appointment of the managing director,” the statement added.   “According to the Bank’s legal advisors, the founder of Grameen Bank, Nobel Laureate Professor Muhammad Yunus, is accordingly continuing in his office.” Separately, Grameen’s government-appointed chairman Muzammel Huq told Reuters : “Today I received the letter from the central bank and I was directed to implement the decision.” “The decision has been implemented with immediate effect,” Huq  added. Last month, Finance Minister Abul Maal Abdul Muhith said Yunus should step down, as he was now “old and we need to define the bank’s role and bring it under close regulation”.

CONDITIONS APPLY - RBI ready to let big firms set up banks

The Reserve Bank of India (RBI) is ready to allow big industrial houses to set up banks, but only after it gets the power to supersede boards of banks that are not being run properly. RBI also wants the right to oversee the operations of the promoting company and any affiliates that will have business relationships with the bank.   The central bank will issue guidelines on new banking li- cences by 31 March, finance minister Pranab Mukherjee said in his budget speech on Monday, but no banking li- cences will be issued until the Act that governs banking is changed and the regulator gets the powers mentioned above. “RBI has proposed some amendments in the Banking Regulation Act,“ Mukherjee said in his budget speech. “I propose to bring suitable legislative amendments in this regard in this session.“  Mukherjee had first an- nounced that the banking reg- ulator would consider giving new banking licences to companies in his last budget.  “The central bank and the fi- nance ministry have reached an understanding that issuance of licences to new players is contingent on changes in the banking law,“ said a government officer familiar with the development, who did not want to be named considering the sensitivity of the issue.  Currently, RBI does not have the power to dismiss a bank board, but under section 45 of the Banking Regulation Act, 1949, it can force amalgamation or merger of a bank with another, and force a recon struction of the board to pro- tect the interests of depositors, shareholders and employees.

RBI to upgrade fund transfer system

The Reserve Bank of India (RBI) plans to upgrade its high value online fund transfer system, RTGS, to enable handling of up to five million transactions a day and incorporate various new facilities for the bank customers.   The RTGS (real time gross settlement) system facilitates online transfer of highvalue funds between bank customers of different banks on realtime basis and currently handles about 300,000 transactions per day.  Keeping in view of the ever rising usage of the system, RBI has decided to replace the existing RTGS system with a next generation real time gross settlement system, a senior official said.

Shri R. Gandhi, assumed charge as Executive Director of the Reserve Bank of India

Shri R. Gandhi, assumed charge as Executive Director of the Reserve Bank of India today. As Executive Director, Shri Gandhi will look after Department of Banking Operations and Development, Department of Administration and Personnel Management (including Rajbhasha), Human Resources Development Department and Department of Information Technology. Prior to his appointment as Executive Director, Shri Gandhi was in charge of Department of Currency Management. Joining the Reserve Bank of India in 1980, Shri Gandhi has been in charge of the Reserve Bank's Hyderabad and Delhi offices and the Department of Information Technology. He also held charge of the Institute for Development and Research in Banking Technology (IDRBT) as the Director for a brief period. Shri Gandhi possesses a Masters Degree in Economics, is a certified member of the Indian Institute of Banking and Finance (IIBF), post graduate certificates in MIS, System Programming and Capital Markets. Shri C. Krishnan retired as Executive Director from the Reserve Bank on February 28, 2011.

Shri A.K. Bera, RBI Regional Director visited Surat

Shri A.K. Bera, Regional Director, Reserve Bank of India visited Surat to witness the initiative undertaken by the State Bank of India under the "URBAN FINANCIAL INCLUSION". The initiative has been started in Surat for decongestion at the Bank Branches to facilitate the Migrant Labourers from West Bengal, Orissa,Bihar,Uttar Pradesh etc. They normally, visit the bank branch for remittance purpose to their family residing far away. SBI, through the national level Business Correspondent (BC), an NGO named Zero Mass Foundation (ZMF) opened some 32 Customer Service Points (CSP) to cater banking services like opening of Bank Account under liberalized norms prescribed by the RBI, deposits, withdrawals, remittances etc through POS Machines.Up till now,more than 1 lac accounts have been opened and an average remittance of Rs.1 crore takes place per day.

RBI asks banks to use tech to cut costs, improve service

MUMBAI: The Reserve Bank of India has asked banks to use technology more effectively with a focus on bringing down costs and improving customer services in its information technology (IT) vision document for 2011-17. The vision document, prepared by the high-level committee headed by RBI deputy governor KC Chakrabarty , has directed banks to work towards implementation of technology in achieving cost efficiency in small value transactions, improved customer services and effective flow of information within the banks and the regulator. The report also pushes banks to move from core banking solutions to greater use of information technology in their management of information systems, regulatory reposting , customer relationship management and risk management and financial inclusion. The report has noted that: “Although banks have deployed technology for transaction processing, analytical processing by banks is still at a nascent stage,” adding that using technologies like cloud computing , virtualisation and open source technologies can help banks drive up their operational efficiencies and consequently, pass on the cost benefits to the customers. In terms of information management, the report does admit “a strong linkage” in the use and sharing of information for decision making is missing within the bank (read RBI). “This, to some extent, has bred information illiteracy within the organisation,” it said. The committee, in the report, specifies the role of IT in banking, with the major objective being balancing the three Cs — cost, control and customer services and adoption of technology-based strategies for financial inclusion. The analytics have to be used for improving consumer relationship management and detection of fraud in the system. Mr Chakrabarty said in his speech at a seminar organised by the Institute for Development and Research in Banking Technology (IDRBT): “Technology should work for the business in its aim to make its products and services relevant and accessible to its customers, instead of a fixed sunk cost that sits heavily on a bank’s P&L account.” He has further said, technology should also not only be looked as a cost-cutting tool but as a value creating opportunity to customers.

Banks unable to take technological advantage to reduce cost: RBI

Banks have not taken the full advantage of technology for bringing down the cost of small transactions, improving customer services and an effective flow of information within banks and with the regulator, the Reserve Bank of India (RBI) has said. “One of the shortcomings that has been observed is a disconnect between the information and technology. Although banks have deployed technology for transaction processing, the same has not been explored extensively for analytical processing,” the regulator said in its IT Vision document for 2011-17. RBI, which released the document yesterday, emphasized on the introduction of technology that balanced three Cs, namely, Cost, Control and Customer Services.  The central bank said information technology needed to be revisited, with a focus on implementing data warehousing and business intelligence, adoption of technology-based strategies for financial inclusion, improving customer relationship management (CRM), risk management, fraud detection & prevention and business continuity plans. “IT-based solutions entail operational risks, for which banks have to put in place appropriate control mechanisms and mitigation techniques. With financial stability an important target, the Reserve Bank assigns importance to mitigate IT-related risks in the banking sector,” it said. RBI will start implementing the recommendations of the Vision document shortly. The statement also chalked out focus areas for the regulator. These includes transforming it into an information-intensive knowledge organization. Harnessing human resource potential, migration to enterprise architecture for IT systems and adopting appropriate business process re-engineering are some of the areas outlined by the report.

Performance of schemes in Changlang reviewed

MIAO, Feb 22: The District Consultative Committee of Changlang district reviewed the performances of various government-sponsored schemes at Miao on February 15 under the chairmanship of ADC T Mara and attended by RBI, NABARD and SBI officials. An official statement today informed that it was observed that as against a target of 60 per cent, CD ratio it was 23.54 per cent in the district. However, the district has surpassed targets under priority sector lending, agriculture lending and the lending for weaker sections. Achievement under priority sector lending was 47.99 per cent against a target of 40 per cent, achievement under agriculture lending was 23.15 per cent against a target of 18 per cent and achievement under weaker section was 35.11 per cent against a target of 10 per cent. Achievement under Annual Credit Plan 2010-11 as on December 31, 2010 was 235.68 lakh against a target of 444 lakh which was 53 per cent of ACP. Performance under Government sponsored programmes was not satisfactory as only 17 proposals against 35 proposals under PMEGP was sanctioned as on December 31. Dibrugarh SBI AGM advised that not a single application under PMEGP should be retained by banks since last date for receipt of loan application was February 16. He also advised that banks should take a pivotal role in promotion of SHGs. Further, against a target of 200 nos. of KCCs, only 69 KCCs have been issued so far. Under SHGs, against a target of 11 SHGs, the performance so far is nil. RBI AGM S Sarkar advised the banks to achieve 100 per cent ACP as on March 31 2011. He also advised that the philosophy of financial inclusion be propagated vigorously to achieve more financial inclusion. The banks indicated that they are in the process of engaging Business Correspondents in the village having population more than 2000 and have opened 2411 no frill accounts in the district. NABARD Manager S Mazumder requested the ADC to explore the formation of SHGs in the district by adopting micro-finance vision of the State. Besides, NGOs and banks may act as a SHPI for promotion of SHGs. He also advised that Government of India, NABARD, RBI have accorded priority for issuance of KCCs and also made KCC hassle free. Therefore, banks should cover all the eligible farmers under KCC and form more numbers of farmers clubs for access to credit, technology and market. The LDM and Branch Managers were hopeful of achieving the targets under various parameters by March 31, 2011.

India’s Tax Cuts Leave RBI With Burden to Restrain Inflation - Shamim Adam and Kartik Goyal

India’s plans to lower income taxes, increase wages and boost spending risk fueling price gains that will force the central bank to raise interest rates further.  Finance Minister Pranab Mukherjee yesterday unveiled plans to increase spending by 13.4 percent to 12.6 trillion rupees ($278.3 billion) for the financial year starting April 1. The government is boosting incomes through wider exemptions from individual tax payments, reduced costs for some housing loans and the allocation of 1.44 trillion rupees in subsidies. “The budget hasn’t done enough to curb price pressures and the central bank may have to continue to do the heavy lifting to slow inflation,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “More rate actions are in the offing starting this month.” Prime Minister Manmohan Singh’s government faces five state elections this year and said last week that its “foremost” priority is to curb inflation, which reduces purchasing power in a nation where the World Bank estimates more than three-quarters of the people live on less than $2 a day. The central bank has raised its benchmark rate seven times in the past year and signaled more increases at its last meeting in January.

Stocks Gain

The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 3.5 percent at the 3:30 p.m. close in Mumbai. The Sensex has lost 10 percent this year, the world’s fourth-worst performing benchmark index, on concern government measures to quell inflation will hurt economic growth. The yield on the 8.13 percent bond due in September 2022 was little changed at 8.09 percent as of 4 p.m. in Mumbai after dropping five basis points yesterday, according to the central bank’s trading system. “India’s government is likely to face a challenging year, trying to maintain economic growth, control inflation, and achieve fiscal consolidation,” Takahira Ogawa, a credit analyst at Standard & Poor’s Ratings Services, said in an e-mail today. “The government may struggle to meet its fiscal deficit target for 2011-2012 as pressure to step up spending mounts.” India’s $1.3 trillion economy expanded 8.2 percent last quarter, making it the fastest-growing major economy after China, government figures showed yesterday. The benchmark wholesale- price inflation rate averaged 9.4 percent in the nine months through December, the most in the past decade, the finance ministry said in a report on Feb. 25.

Corruption Allegations

Singh’s budget must be approved by India’s parliament, where the ruling coalition has been battling opposition protests over corruption allegations for months. The final parliament session of 2010 was the least productive in 25 years. Even as he reduced the income-tax burden, Mukherjee moved to boost levies in other areas that might contribute to price pressures. The finance chief included more services under the tax net to lift revenue. Taxes would now be collected from air- conditioned restaurants, hotels, airlines and hospitals. He also imposed an excise duty of 10 percent on branded garments and raised the levy on drugs, textiles and medical equipment to 5 percent from 4 percent. Cipla Ltd., an Indian drugmaker, plans to pass on the increase in excise duty on medicines to customers, its Chief Financial Officer S. Radhakrishnan said yesterday.“I doubt the budget has anything very concrete to dent inflation,” said Samiran Chakraborty, a Mumbai-based chief economist at Standard Chartered Plc. “The burden of controlling inflation will be more on the monetary policy in the near term.”

Tax Relief

From the next financial year, incomes below 180,000 rupees won’t be taxed, higher than the previous threshold of 160,000 rupees. Mukherjee also announced a 1 percent interest-rate subsidy for housing loans up to 1.5 million rupees and said the government will give cash to the poor to buy kerosene. India’s state-controlled railway operator last week said it will leave passenger and freight charges unchanged to help tackle inflation that accelerated to the fastest in a decade.

“The central bank is getting some help from the budget but not very much,” said Leif Eskesen, an economist at HSBC Holdings Plc in Singapore. “It has to carry the burden on really addressing the near-term inflation pressures.” India’s manufacturing grew in February at the fastest pace in three months, according to the purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics, adding pressure on the central bank to increase rates further.

Growth Forecast

The finance ministry predicts GDP may grow as much as 9.25 percent in the year starting April 1. The government estimates growth in revenue will outpace outlays, forecasting the budget deficit will narrow to 4.6 percent of gross domestic product in the financial year starting April 1 from 5.1 percent of GDP in the previous year. “The budget may be difficult to deliver in practice as growth assumptions are quite optimistic and they are relying on a significant compression of non-planned spending including a decline in the subsidy bill,” HSBC’s Eskensen said. “If delivered as planned, it will be contractionary. There may be more subsidy outlays later in the year.” Mukherjee cut taxes and stepped up government spending in 2008 and 2009 to provide stimulus worth more than 4 percent of GDP to cushion the Indian economy from the impact of the global financial crisis.

‘Massive Withdrawal’

If the 4.6 percent fiscal deficit target “is met, then it will be a massive withdrawal of stimulus,” said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Mumbai. “It will be largest fiscal consolidation, if it is done, in the history of India.” The government plans debt sales of 4.17 trillion rupees in the next financial year, less than the estimated 4.47 trillion rupees this year. The Reserve Bank is next expected to release its monetary policy decision on March 17. Governor Duvvuri Subbarao on Feb. 26 declined to comment on whether the central bank would take interest-rate action between scheduled monetary policy announcement days. “Growth will slow down next year as the Reserve Bank of India tightening takes effect,” said Dharmakirti Joshi, a Mumbai-based economist at Crisil Ltd., the local unit of a Standard & Poor’s Ratings Services. “The government is taking steps to ease inflation in the budget and the RBI, on its part, will raise interest rates further.”

Microfinance policy - Rewind or Turnaround? - M S Sriram

RBI’s role in giving MFIs policy support was remarkable, but an appropriate regulatory framework for the sector is long overdue As the debate on the future of microfinance continues, it is worth examining the Reserve Bank of India’s (RBI’s) own discourse from 1998 onwards. This is particularly relevant after the Economic Survey tabled on February 26 and the Budget speech both make positive references to microfinance as being an important part of the inclusion agenda. Contrary to what we are led to believe – that microcredit grew on its own and RBI stepped in at this stage to take note of the current practices – RBI played a crucial and catalytic role in the development of microcredit by encouraging and prodding banks to lend to micro-finance institutions (MFIs).  In 1998, MFIs had made early forays and the practitioners had asked for a policy framework. In response, the National Bank for Agriculture and Rural Development (Nabard) set up a task force on Supportive Policy and Regulatory Framework for Microfinance in the late 1998. This task force found microfinance an emerging activity to be nurtured. It was ahead of its times in calling for registration, and regulation through a self-regulatory organisation (SRO). Pending an SRO, the task force recommended that RBI should put an interim regulatory framework. At the same time, Sa-Dhan, the association representing diverse non-governmental and private sector players in microfinance, was established. Sa-Dhan was expected to evolve as the voice of the industry and an SRO. This task force had a profound and simultaneous impact on policy making. In April 1999, the word microcredit was used for the first time in the credit policy, months after the task force was set up, but ahead of its report (October 1999). The statement said, “Micro-credit Institutions … are important vehicles for delivery of credit to self-employed persons, particularly women in rural and semi-urban areas.”And further: “A special cell … is being set up in RBI in order to liaise with Nabard and microcredit institutions for augmenting the flow of credit to this sector. The time frame for the cell … will be one year and its proposals will be given the highest attention.” The credit policy (and a notification in April 1999) drew a distinction between small loans given by banks (with a ceiling on interest rates) and the loans given to MFIs for on-lending (without a ceiling). This notification created a two-way incentive for the commercial banks:

• to abdicate (to the extent possible) their own work of reaching out to the poor;
• to advance bulk loans to MFIs with no ceilings.

The banks did not have a level playing field, but were possibly happy to outsource small credit to MFIs. This opened bank finance to the MFIs, who were largely dependent on donor money. The task force submitted its report in time for the mid-term review of the credit policy. RBI showed remarkable alacrity in acknowledging the recommendations. The review said, “The recommendations made by the Task Force are being ‘processed’ by Nabard in consultation with RBI and Government as appropriate.” The recommendations of the task force were already creeping into the policy much before “processing”, which was unlike the usual policy-making protocol of putting the report in the public domain, encouraging deliberations and incorporating feedback to convert recommendations into actions. The mid-term review reiterated the importance of MFIs and asked banks to include microcredit in their corporate strategy to be reviewed on a quarterly basis. A detailed notification of February 2000 made six significant points:

• No interest cap on loans to MFIs and their loans to clients.
• Freedom to banks to formulate their own model/conduit/intermediary for extending microcredit.
• No criteria for selecting MFIs.
• Banks to formulate their own lending norms.
• Banks to formulate a simple system, minimum procedures and documentation for augmenting flow of credit by removing all operational irritants.
• Banks to include microcredit at the branch, block, district and state credit plans with quarterly progress to be reported to RBI.

The fact is that RBI gave policy support without an appropriate regulatory framework. The notification defining microcredit is stark: “The provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Micro Credit institutions are those which provide these facilities.” We do not know if it was a deliberate attempt to keep this vague by leaving out amounts or incomes. However, the regulatory discourse was just about opening up another channel of financial services. Even as the somewhat regressive Malegam committee report is being discussed, RBI, on February 14, released a master circular on microcredit which refers to its historical circulars, with little addition: “A joint fact-finding mission looked at the issues plaguing the microcredit sector and ends with saying that findings were brought to the notice of the banks to enable them to take necessary corrective action where required.” In the current circumstances, the finance minister has made a bold and affirmative statement in the recent Budget. He has also thrown in some money for an India Microfinance Equity Fund. This augurs well for the MFI sector — showing policy continuity rather than policy turnaround based on Malegam’s recommendations. Otherwise we would only be able to say microcredit had a bright future behind it, not ahead of it.

DLCC approves action plan of Rs. 171.80 cr for district Ganderbal

Ganderbal, Feb 22: Lead District office Ganderbal convened a District Level Consultative Committee (DLCC) meeting today under the chairmanship of ADDC, Ganderbal, M. A. Hamdani. A Review of achievements was made under Annual Action Plan for the year 2010-11 as on December 2010. The Annual Action Plan of Ganderbal District for the year 2011-2012 was also approved by the house and other allied matters were deliberated and discussed in the meeting. The meeting was also attended by Raj Kumar Meena AGM (RBI), Kamaljeet Sani, AGM (NABARD), Mukhtar, CPO Ganderbal, heads of all line departments and district co-coordinators of all banks operating in the district. The ADDC stressed upon the sponsoring agencies and banks to expand their reach to the lower strata of the society by speeding up the process of flow of credit and make the loaning procedures simple and hassle free.

RBI to issue guidelines on new banking licences by March-end

New Delhi: The Reserve Bank of India (RBI) will issue guidelines for new banking licences by the end of the current fiscal. "RBI is planning to issue the guidelines for banking licences before the close of this financial year," Finance Minister Pranab Mukherjee said today during his presentation of the Budget 2011-12.  In the last Budget, it was announced that the Reserve Bank of India would consider giving traditional banking licences to private sector players, he said.  Following the announcement made by the Finance Minister, the Reserve Bank had brought out a discussion paper in August, 2010, on giving out new banking licenses to business houses and non-banking finance companies, besides regulations for the same to foster greater competition.  The RBI also sought to know "whether industrial and business houses could be allowed to promote banks." Furthermore, it sought stakeholders' views on whether NBFCs should be allowed to convert into or promote banks.  The RBI has received comments on its discussion paper from all stakeholders.  Various entities like Reliance Capital , IndiaBulls, Religare, IL&FS, IDFC, IFCI and Aditya Birla Financial Services are reported to be mulling entering the banking space.  At present, India has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, 4 local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.

Union Budget 2011: India's FY12 borrowing not a challenge: RBI

MUMBAI: The Reserve Bank of India (RBI) does not see any challenge in managing the borrowing programme for fiscal year 2011/12, a deputy governor said, after the government unveiled a lower-than-expected borrowing figure in its federal budget. "In the aggregate sense, as a reflection or as a per centage of the overall credit growth, overall deposit growth and so on, this (borrowing) does not pose too much of a challenge in our estimate in terms of managing," the Reserve Bank of India's Deputy Govenor Subir Gokarn told reporters on Monday. The government plans to borrow a gross 4.17 trillion rupees ($92 billion) in 2011/12, which would mean a net borrowing of 3.43 trillion rupees.  New Delhi's bond issuances in the next fiscal that starts April 1 had been forecast at 4.50 trillion rupees on a gross basis, and 3.77 trillion on a net basis, according to a Reuters poll, last week. The yield on the most-traded 8.13 per cent 2022 bond ended at 8.09 per cent, off the day's low of 8.05 per cent, but down 4 basis points from Friday. Gokarn added that liquidity situation should be less volatile in 2011/12 than the current year in the absence of any one-off gains in the next fiscal. The government had a windfall gain of 1.06 trillion rupees through telecom spectrum auction in first half of 2010/11, which had resulted in a sharp tightness in banking system liquidity. Banks, which had surplus funds in the first half, ended up borrowing more than 1 trillion rupees from the RBI in the second half due to the government's inability to expedite spending of its spectrum proceeds. Gokarn said the fiscal deficit target of 4.6 per cent of the gross domestic product would help provide some relief in terms of the macro-economic impact of the fiscal position. The government expects the deficit to be at 5.1 per cent in the current fiscal. "We have been saying the more expanded the fiscal position, the more pressure it puts on demand and, therefore, the more difficult it is to manage the inflation situation, the inflationary pressures coming from the demand side," Gokarn said. "This reduction in the deficit gives us some comfort that the correction is happening and it's happening significantly," he added.

RBI releases its IT Vision Document for 2011-17

The Reserve Bank of India has today, placed on its website, the Report of the High Level Committee (HLC) on the IT Vision of Reserve Bank of India 2011-2017. The HLC report includes the IT Vision document for 2011-17.

Main recommendations in the IT Vision document 2011-17

Focus for RBI

• Transforming itself into an information intensive knowledge organisation
• Harnessing human resource potential, migration to enterprise architecture for IT systems
• Adopting appropriate business process re-engineering
• Conforming to internationally accepted standards and usage of business intelligence from data warehouse for optimal Management Information Systems (MIS) with effective Decision Support Systems (DSS)
• Improving IT governance, effective project management, evolving well defined information policies as well as information security frameworks, better vendor management and outsourcing practices
• Reviewing of IT processes for better alignment between business objectives and IT.

Focus for Banks

The Vision Document sets priorities for commercial banks to move forward from their core banking solutions to enhanced use of IT in areas like MIS, regulatory reporting, overall risk management, financial inclusion and customer relationship management. It also dwells on possible operational risks arising out of adopting technology in the banking sector which could affect financial stability and emphasises the need for internal controls, risk mitigation systems, fraud detection / prevention and business continuity plans. Although banks have deployed technology for transaction processing, analytical processing by banks is still in a nascent stage. The Report urges banks to work towards reaping benefits of technology in terms of cost reduction of small value transactions, improved customer services and effective flow of information within the banks and to the regulator. The Reserve Bank will begin implementing the recommendations of the HLC shortly.

Background

The Reserve Bank has played a pivotal role in this process of transformation of the financial sector with the use of IT.  As the central bank, it has also strived to create a conducive environment for promoting technological adoption encompassing the financial sector.  Since IT has evolved over the years it is important that the financial sector too reviews the developments in this area and adapt itself to them.  Over a period of 15 years, DIT has satisfactorily fulfilled most of the objectives set to it at the time of formation. It has been instrumental in designing, developing and implementing IT-based systems, which have helped in the discharge of various functions of the Reserve Bank. As the developments in IT have a bearing on the role, functions and organisation of DIT, it is necessary to review its objectives. To steer the financial sector to achieve the desired technological goals, the Reserve Bank has brought out two vision documents encompassing the periods 2005-08 and 2008-10.  As the tenure of the previous IT vision document was 2008-10, it was incumbent upon the department to prepare the next version of the vision document for the period 2011-17. Against this background, the Governor constituted a High Level Committee (Chairman: Dr K C Chakrabarty, Deputy Governor, Reserve Bank of India) to prepare the IT Vision for 2011-17.  The terms of reference for the Committee were:

1. Review of the contribution of DIT in establishment of IT infrastructure in the Reserve Bank and banking sector over the period of fifteen years;
2. Preparation of Information Technology Vision Document for the period 2011-17, taking into account requirements and expectations of banking system in general and Reserve Bank in particular;
3. Keeping in view the IT Vision Document, redefining the role, functions and organisation of DIT;
4. Specifying the role of the department in meeting the information needs of the Reserve Bank and the society at large

The report of the Committee discusses the context in which the IT Vision Document has been prepared and gives strategy for achieving the goals set in the document. It also delineates the review of the contribution of Department of Information Technology (DIT) in establishment of IT infrastructure in the Reserve Bank and the banking sector over 15 years. Further it discusses the information needs of the Reserve Bank and the society and finally it redefines the role, responsibilities and organisation of DIT.

RBI must give its TAC more visibility - Dr.Y.V.Reddy

The Reserve Bank of India (RBI) has done well to make the minutes of its Technical Advisory Committee (TAC) on Monetary Policy public. The move, a first for the Bank, provides a small flavour of the complexities that go into framing monetary policy, even if does not dispel any of the mystery. On the contrary, the minutes are couched in such generalities that they give no inkling of the views of the members of the committee.  Take, for example, the following: ‘The committee expressed concerns about rising inflationary pressures, especially in emerging market economies (EMEs). Rising food prices in the international market, in particular, was a source of worry. Rising food and energy prices could emerge as a major problem in 2011.’ What is any reader to make of that? To be sure the TAC, quite unlike the Monetary Policy Committee (MPC) in the Bank of England, has only an advisory role. The governor is free to disregard it. As the former governor of the RBI, Dr Y V Reddy was fond of pointing out, in the Indian context, the buck stops with the governor.  That said, it is not the case that the TAC’s voice does not carry weight. All the more reason why the minutes should be more specific and better still, reveal the members’ preferences for or against a hike in interest rates, even if there is no formal system of voting as in the UK’s MPC. Since the minutes are released with a lag of a month, such disclosure is unlikely to do harm but would bring greater transparency and accountability.  It would also strengthen the RBI when it finds itself at odds with the government over monetary policy. Conflicts are inevitable in elected democracies where governments have a much shorter time-frame (usually till the next elections!) than central banks. It is, therefore, important to build institutional mechanisms to ring-fence monetary policy formulation from excessive political influence. Publication of the minutes of the meeting of experts on monetary policy is one such mechanism. The next stage would be to place a more detailed report in the public domain and finally, give the committee some teeth.

Budget offers RBI more leg-room on monetary policy front

Reserve Bank Deputy Governor Subir Gokarn welcomed the budget proposals to check fiscal deficit by keeping a tab on the subsidy bill, saying they are the right steps towards fiscal consolidation and offer the central bank more leg-room on monetary policy front. "We have been saying that the more extended the fiscal position the more pressure it puts on demand and therefore more difficult it is to manage inflation...these measures give us some comfort," he told newsmen at an official briefing on budget. The Budget today proposed to bring down fiscal deficit to 4.6% next fiscal from this year's 5.1%. The Budget also proposed to bring down net market borrowing of the Government by Rs 40,000 crore to Rs 3.43-lakh crore in FY12. The measures to tackle fiscal deficit would help as the monetary measures taken by the rbi tend to get nullified by the high fiscal deficit, he observed adding, "the more there is reigning-in, the more room there is for monetary policy to act." Liquidity would not be volatile next fiscal as there would be lesser government borrowing which coupled with no major cash outflow from the system, as had happened earlier this fiscal due to the spectrum auctions. Gokarn also called the Government''s articulation about the change in food consumption patterns to fruits and protein- rich food as a step in the right direction, as such items have been fuelling food inflation

FM offers Rs 100-crore fund for microlenders

Faced with an acute liquidity crunch, the Union Budget has brought little cheer to microfinance institutions (MFIs). However, MFIs have welcomed the recognition of their role in financial inclusion by Finance Minister Pranab Mukherjee. While announcing the creation of a Rs 100-crore “India Microfinance Equity Fund”, the finance minister hinted at a framework to protect the interest of small borrowers.  “The committee set up by the Reserve Bank of India to look into issues relating to the microfinance sector in India has submitted its report. The Government is considering putting in place appropriate framework to protect the interests of small borrowers,” said Mukherjee.  The Malegam committee has enhanced provision requirements for MFIs, entailing that Rs 5,000 crore to Rs 6,000 crore has to be provided by June or July for bad loans in Andhra Pradesh. “It is quite disappointing because the Rs 100-crore equity fund is nothing compared to what the sector has lost in Andhra Pradesh. The MFIs need to raise Rs 5,000 crore in the next six months (to meet the recommendation of the Malegam committee report,” said Vijay Mahajan, founder of Basix and chairman of MFIs’ representative body Microfinance Institutions Network. The MFI sector is reeling under the Andhra Pradesh MFI (Regulation of Money Lending) Act, which severely curbed operations of microfinance institutions in the state, putting restrictions on recovery. The state has the largest concentration of MFIs in the country. The Malegam panel had earlier suggested putting a cap on lending rates at 24 per cent and a loan amount of not more than Rs 25,000 crore to single borrower by MFIs. Mahajan said there was a need for proper legislation to stop state governments from enacting own laws on MFIs.

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