MUMBAI: Non-bank finance companies are caught between a rock and a hard place with volatile markets and rising interest rates dimming prospects of fund raising even as the Reserve Bank of India has directed them to hold more capital. If the equity market does not turn favourable in the next few months, loan disbursements by more than 300 finance companies may slow, hitting the small and medium enterprises which depend on these companies for survival. Debt funding to boost capital is also an expensive option with interest rates ruling at more than a two-year high on sustained policy rate increases by the Reserve Bank of India to tame inflation. "NBFCs have only two options here; they'll have to either bring down their pace of growth or raise capital," said Chaitra Bhat, research analyst-banking & financial services, LKP Securities. "Capital raising will be wholly-dependent on the market. Uncertain equities and low liquidity in debt market will be detrimental for non-banks raising capital," she added. The central bank recently directed all deposit-taking non-banking finance companies to maintain a CAR of 15% by March next year. Previously, deposit-taking NBFCs were required to keep their capital base at 12% against 15% reserves held by non-deposit taking non-banks. Since NBFCs lack deposit insurance coverage and refinance facilities, RBI sees the need for wider capital base to weed out depositor risks. While the central bank may be doing this as a counter-cyclical policy measure to reduce risk, some even question the direction on higher capital for finance companies because of their less risky model. At some level, RBI's decision to raise risk provisioning norm to 15% doesn't make sense for NBFCs which are into secured lending business," said a chief executive of a Chennai-based finance company. "An NBFC engaged in gold loans or vehicle leasing need not keep such high reserves as they indulge in pure securitised lending," he added. Raising funds through private equity is also a long-drawn process with investors raising scores of questions and seeking rights, which the regulations may not even permit at times. "We're looking at several fund-raising options," said Oomen K Mammen, chief financial officer of Muthoot Finance. "We will come out with an IPO over the next few months. If the market is not favourable, we'll look at private equity, short-term and perpetual debt to raise capital," he said. The RBI diktat may not affect large-sized NBFCs in a big way as most of them have CAR above 15%. Non-bank lenders like Reliance Capital , Indiabulls, Manappuram General Finance, Srei Infrastructure and IDFC maintain 20- 30% as capital reserves. It is smaller NBFCs that will find it difficult to beef-up their capital base.
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Wednesday, March 9, 2011
Making fin inclusion must for new players is problematic: E&Y
Leading industry expert Ernst & Young (E&Y) today said if the financial inclusion project is to be materialised and sustained, it must be pushed directly by the government, as in the present model it is not only unviable but will also deter prospective new bank licence applicants. "The Reserve Bank is inviting trouble by insisting on a financial inclusion plan as a mandatory criterion for getting new bank licences," E&Y National Leader (Global Financial Services Ashvin Parekh told PTI. "Since the current inclusion model is not a profitable model, this will not only deter prospective licence applicants from seeking licence, but will also create problems for the entire banking industry as banking is a highly inter-related business," he said. It seems that the Reserve Bank is either not getting the right direction or not sure of its direction when it comes to the inclusion project, if the latest vibes are any indication, he said, adding, "I feel the regulator is on the back foot now." He further said, "I don't think any private business house will be in a position to make such a huge investment needed for inclusion just because it is mandated." Parekh, who did not join the RBI committee that wrote the draft paper on new bank licences, despite an invitation citing conflict of interest, further said, "if the Centre can give away Rs 6,000 crore by way of capital infusion to the weak public sector banks, why can't it start a mechanism to start the financial inclusion project." "The government is in a much better position to start this project and then incentivise banks to carry on," he said. Many of the existing banks do not have the financial wherewithal to take up a long-term projects, as the inclusion project will be a viable business proposal for banks only after a long period, he added.
RBI to review monetary policy on March 17
The Reserve Bank of India is slated to announce its mid-quarterly review of the monetary policy on March 17. Concerned over worsening political turmoil in the Middle-East and the impact of rising global crude prices on the domestic economy, the Finance Ministry has suggested the Reserve Bank to focus on steps to contain inflation.
With rising interest rates, does it pay to pre-close your term deposit?
Banks have once again begun levying a penalty on customers for pre-closure of their term deposits. In some cases, this is an anticipatory move, given that customers are closing their existing term deposits with the intention of redeploying them in higher yielding deposits. This is happening as interest rates are being hiked by banks to mop up funds before the year-end. Banks are allowed by the regulator, the Reserve Bank of India, to levy pre-closure penalty. To facilitate better asset-liability management, the RBI, in April 2010, in a review of its earlier guidelines, allowed banks to formulate their own policies in this regard. HDFC Bank has implemented this clause for all pre-closure of deposits with effect from January 24. HDFC Bank states on its Web site that the penalty on premature closure of FDs, including sweep-in and partial closure, will be 1 per cent. For instance, if you have deposited money at 8 per cent interest for one year and opted to pre-close after 10 months. If the interest for the 10-month period is 7 per cent, the bank will reduce 1 per cent and pay you interest at the rate of 6 per cent for the appropriate number of days. Similarly, the country's top bank, SBI levies a penalty at the rate of 1 per cent below the rate applicable for the period that the deposit has remained with the bank. Karur Vysya Bank levies a penalty of 1 per cent on pre-closure of all deposits. However, a branch official said that if the pre-closure proceeds are redeployed with it, waiver of the penalty may be considered. So, should you close your deposits when there is a pre-closure penalty? That depends on how long you have held the deposit and the new rates, of course. But you can think about it if there is still some time before the deposit matures. Consider this: If you have a three-year deposit of Rs 3 lakh at 8 per cent interest, and you hold the deposit till maturity, you will receive Rs 3.78 lakh. But if you pre-close the deposit after holding the deposit for seven months, your loss will be Rs 4,375 (considering an interest rate of 6.5 per cent and a penalty of 1 per cent). But by deploying the pre-closure proceeds at 10 per cent interest for the remaining two years and five months, you gain Rs 5,400. So it may be prudent to close your deposit and enjoy the extra income from higher rates.
Saldanha strike helps Gunners nail SBI
MUMBAI: Golden Gunners got the better of State Bank of India (SBI) 1-0 in a league match of the GSA veterans' football tournament for the Late Aniceto Fernandes Memorial Trophy and played at the GSA ground, Cross Maidan on Tuesday. Anton Saldanha netted the lone winning goal of the match. Earlier, Reserve Bank of India (RBI) played out a 1-1 draw with Colaba Young Stars in another league match. Mathew Verghese was on target for RBI while Abba Kadam scored for the Colaba side in the event.
Yunus loses HC appeal against sacking
Muhammad Yunus, the Bangladeshi winner of the 2006 Nobel peace prize, on Tuesday lost a high court appeal after being sacked from his own bank in a bitter clash with the country's authorities. Yunus, 70, who is celebrated worldwide for tackling poverty through his pioneering “microfinance“ cash loans to small farmers and villagers, was fired last week on the orders of Bangladesh's central bank. Backed by a high-profile international campaign amid al- legations of a political vendetta, he defied the order by re- turning to work at Grameen Bank's headquarters and lodging an appeal which he will now take to the Supreme Court. “Yunus has been continuing in his job with no legal basis. Therefore, his petition is rejected,“ judge Muhammad Mamtaj Uddin Ahmed told the court on Tuesday. It was “crystal clear“ that the order to remove Yunus from his post as managing director was legal, Ahmed said. “Also, the managing director is an officer of the bank, and the mandatory retirement age for bank officers is 60, so he has exceeded his retirement age long ago,“ he said. The central bank--which is nominally independent from the government--removed Yu- nus on the basis that he had been in his position illegally since failing to seek its approv- al when he was reappointed indefinitely in 1999. “There is no such thing as an appointment for life. Yunus should have rejected this ap- pointment when the Grameen Bank board made it,“ attorney general Mahbubey Alam told reporters.
Tuesday, March 8, 2011
Bihar to enact legislation on MFCs on lines of AP
Patna, Mar 7 (PTI) Bihar government was mulling a proposal to enact a legislation on the pattern of Andhra Pradesh to regulate and have effective control over Micro Finance Companies in the state. Replying to a short-notice question of BJP member Tar Kishore Prasad in the state Assembly, Deputy Chief Minister S K Modi said the SP in Katihar district was probing the case where a Micro Finance Company had allegedly subjected several debtors to "inhuman torture" for realisation of a piece of land under Dandkhora block in the district. To a supplementary, he said there was no guideline set by the RBI to rein in the activities of such financial institutions and added that the Centre is planning to bring a bill for regulating these institutions. He said his government was also mulling a proposal to enact a law to effectively regulate and control Micro Financing Institutions on the pattern of Andhra Pradesh. Later, replying to a starred-question of Amrendra Pratap Singh (BJP), Modi said the state''s annual credit plan for the next financial year would stand at Rs 40,500 crore which was up by almost Rs 3000 crore from the target fixed for the current fiscal. The low credit ratio has been a contentious issue for long between successive state governments and bankers, he said adding, "We are consistently trying to further improve the CDR and holding regular meeting of state level bankers committee exhorting the need for achieving their respective targets." To another question, he said the state government had decided in principle not to park its funds in any of the private banks as they were not cooperating in the task of improving the CDR, he said.
Muslims should cease depending on government grants: Economists
Mumbai: Muslims should now cease depending on government grants. They will have to become self-dependent. Minorities and Muslims have been ignored in the Union Budget 2011. These views were expressed by economists here in Mumbai on 5th March at a program called to discuss Union Budget 2011-12 and its implications on Muslims. At the program organized by Pragmatic Wealth Management Pvt Ltd, Dr M Y Khan, former senior director of Reserve Bank of India, said there is no good news in the budget for alleviation of educational and economic backwardness of Muslims. The budget has just Rs 2500 crore for minorities – none knows how much of it will go to Muslims and how much of the fund will reach those really deserved it. In the present situation, Muslim investors and industrialists who have a feeling of social and milli obligation should come forward. Dr Khan, who is chairman of Pragmatic Wealth Management Pvt Ltd, said Muslims do not want roti and kapda from the government. The government should set up quality institutions which could give higher and professional education to Muslim youth, which could help them improve their lot financially. On the economic opportunities for Muslims, he said capital market is the better option -- here one can invest in mutual fund and gold fund. He described the budget disappointing. At the occasion, Imtiaz Merchant, Managing Director of the Sharia investment and consultancy company, informed the audience about the activities of the company particularly Islami Tijara magazine and the website www.islamitijara.com through which consultancy is provided for Shariah-compliant investment.
http://www.twocircles.net/node/242109Cooperative banks penalised for violating RBI norms
AHMEDABAD: The Reserve Bank of India has penalised three cooperative banks in Gujarat with non adherence to RBI norms out of which two have also been charged for not following the anti-money laundering (AML) guidelines. The apex bank has imposed a penalty of Rs 1 lakh each on-Sulaimani Co-operative Bank of Vadodara, Shri Lodra Nagarik Sahakari Bank of Gandhinagar and Junagadh Commercial Co-operative Bank for flouting banking rules. The RBI had issued show cause notices to the banks, in response to which they submitted a written reply. "After considering the facts of the case and the banks' reply in the matter, the apex bank came to conclusion that the violations were substantiated and it warranted imposition of penalty," a RBI official said. The Sulaimani Co-operative Bank, in Vadodara was imposed penalty for not adhering to operational instructions specifically issued to the bank by RBI, besides instructions on ceiling on inter-bank deposits, inspection compliance and non adherence to AML guidelines. The Junagadh Commercial Cooperative bank has been levied penalty for violation of Know Your Customer norms and flouting AML guidelines. While, Shri Lodra Nagarik Sahakari Bank, in Gandhinagar was slapped penalty for violation of apex banks guidelines on KYC norms and not filing Cash Transaction Report (CTR) with Financial Intelligence Unit-India (FIU-IND), New Delhi.
RBI sets up panel to examine regulation of NBFC sector
Mumbai, Mar 7 (PTI) The Reserve Bank today announced setting up of a working group to examine issues pertaining to regulation of the NBFCs (Non-banking Finance Companies) sector, including their governance and supervision. The Group to be headed by former Deputy Governor Usha Thorat, who is presently Director of Centre for Advanced Financial Research and Learning (CAFRAL), will focus on the definition and classification of NBFCs, addressing regulatory gaps and regulatory arbitrage. It has also been asked to focus on maintaining standards of governance in the sector and appropriate approach to NBFC supervision, the RBI said in a statement. "The NBFC sector in India has undergone a significant transformation in the past few years and has come to be recognised as a systemically important element of the financial system," it said. The recent global financial crisis also highlighted the regulatory imperatives concerning the non-banking financial sector and the risks arising from regulatory gaps, arbitrage and systemic inter-connectedness. "A need was, therefore, felt to reflect on the broad principles that underpin the regulatory architecture for NBFCs, keeping in view the economic role and heterogeneity of this sector and the recent international experience," the apex bank said. The scope of examination by the Group will, however, be within the current legislative framework, it added. Other members of the Group include Sanjay Labroo, Director, Central Board, Reserve Bank of India, Bharat Doshi, Executive Director, Mahindra & Mahindra and Pratip Kar, Director, Globsyn Business School. Uma Subramaniam, Chief General Manager-in-Charge, Department of Non-Banking Supervision will be the Member-Secretary.
RBI pushes banking to remote areas
PALWAL, HARYANA: In a bid to deepen banking operations to remote villages and among the poor people, who so far remained outside the purview of banking operations, the Reserve Bank of India has started a special drive. The central bank along with the main bank of the area is working to expand banking operations using wireless technologies and the system of banking correspondent. At present, around half of the population in the country don’t have bank accounts. As the exercise to include poor people in the banking system is not financially viable, a part of the cost will be borne by RBI. In order to take banking to the remote villages, banks while opening an account of a person, also issue him an ATM card. At the same time, it will appoint a credible person in the area as a banking correspondent (BC), who will act as an agent of the bank. BC will be given a hand-held device, which could be connected to the bank's network through wireless connection. A person, who has an account in a bank of that area, can operate his account through the hand-held device. After swiping the ATM card in the hand-held device, he will have to type in his password to get access to his account. "After accessing to his account, he can deposit money with the banking correspondent, which can immediately credit the same in his account and give him a receipt. At the same time, if he wants to withdraw money from his account, he can take it from the banking correspondent, after debiting the money from his account on line," said RBI Regional Director Sandip Ghose. Ghose said that bank will also deploy mobile ATMs, which will go to every village in the area once a week. The mobile ATMs will function like a mobile branch of the bank. RBI deputy governor Subir Gokarn said that by 2011 every village having a population of 2000 will at least be connected once a week through mobile branch. The cost of ATM card will be Rs 112. As the bank will initially lose money in this endeavor, RBI will chip in with a subsidy of Rs 50 for each ATM card issued. RBI had organized an outreach program with Oriental Bank of Commerce in Gudhrana village in Palwal district in Haryana. This was RBI's 10th outreach programme in the current fiscal. Gokarn said that expanding banking operations among the poor people would help containing the pilferages while distributing the government-sponsored schemes among them. The wages paid under the government schemes like National Rural Employment Guarantee Scheme will directly deposited in the beneficiaries' account. Similarly, the old age pensions and scholarships to students can directly be deposited in their accounts. These efforts will reduce the role of middlemen and so the chances of pilferages. Not only this, the expansion of banking operations will also help villagers in accessing the loans from banks at reasonable rates. At present, they have to depend on money lender to secure loans at the time of needs.
RBI's outreach camp in Ukhrul
Imphal, March 07 2011: Reserved Bank of India will organize a Financial Outreach Camp at Ukhrul on March 21 as part of its Platinum Jubilee celebration. The RBI had organized such camps at various villages across the North Eastern states in 2009 and 2010. The RBI said that they have started the second phase of the financial outreach camp after the authority received a good response from the people. The first phase was successfully concluded, they added. The purpose of the scheduled camp is to bring awareness regarding banking facilities and an attempt at making available such banking facilities to every adult citizen in the targeted area, with an ultimate aim for 100% financial inclusion all over the country.The camp will be inaugurated by D.K Mohanty, Executive Director, RBI. To impart information, stalls would be set up by RBI, office of banking ombudsman, SIDBI, DRDA, Agriculture and Horticulture Departments, KVIC, DIC and some of the reputed SHGs, farmers clubs and NGOs.
http://www.e-pao.net/GP.asp?src=18..080311.mar11Islamic banking taking roots in India: Kerala launches interest free bank
The Kerala government has taken revolutionary step launching the first ever interest-free Islamic banking institution in India. The Al-Baraka came into action once the Kerala High Court dismissed a couple of writ petitions which challenged the setting up of Islamic financial institution in a secular country like India. The Islamic Bank is promoted by Kerala State Industrial Development Corporation (KSIDC) which has 11 percent stake in Al-Baraka Financial Services. The financial institution which operates on Islamic principles was held back as former union minister Subramanyam swami filed PIL challenging the move. A division bench comprising Chief Justice J Chalameswar and Justice P R Ramachandra Menon dismissed the petitions claiming that the government proposed institution can follow the financial laws of the country as well as sharia rules. The first of its like institution originally planned as government undertaking failed to get Reserve Bank clearance as well as court rulings. An internal working group of RBI whose report is yet be public held that such a form of banking is not possible given present regulations. However the system had got a shot on the arm when Prime Minister Manmohan Singh asked the Reserve Bank of India to look into the prospects of introducing an interest-free banking system in the country. "There have been demands for experimenting with Islamic banking in the country," Singh said. And now the court cleared the way for setting up the financial system as a state supported private company. Al –Baraka is proposed to work as an interest free banking system in which a sharia board will account the power to decide on the mode of investments. The company will invest the money only in Shariah compliant projects such as development and infrastructure projects, according to the promoters. The government plans to use the Al-Baraka resources for major projects like Southwest rail corridor and Coimbatore-Kochi corridor. 14 promoters of Al-Baraka have already contributed 40.2 million Indian rupees to the interest free financial institution which aims to mobilize around 400 billion rupees in total. The 17 member board of the directors is chaired by P. Mohammed Ali, veteran GCC based business man, and C.K. Menon as vice chairman. The government initiative is widely appreciated by people of the state mainly by Muslims who account for close to 24 percent of the 32 million population. It has warmly welcomed by nonresident Keralites in which Muslims play 50% role in umbers as well as in the total remittance into the state. However, a few people believe that its’ a government agenda to tap the huge amount of money from expatriate Muslims who are keeping away from interest-smitten financial systems. Political opposition has been blaming the CPI (M) led left government for their minority appeasement move. But state government is firm on its stance projecting the example of Britain having an Islamic bank with seven branches where Muslims account for only 3% of population. They also claim that there are nearly 500 Islamic finance institutions worldwide, managing $1 trillion in assets. The promoters of Al-Baraka proposed that Indian banking regulations would be changed to accommodate Islamic banking services. It would benefit the largest minority of the country as well as those who wish for interest-free banking services.
Home ministry asks states to step up drive against fake currency
The Ministry of Home Affairs has asked states to step up drives against fake Indian currency notes (FICNs) as this poses a serious threat to national security. Seizures and recoveries of FICNs are a matter of serious concern and in certain cases has indicated linkage to terrorist elements. There were about 1,850 cases detected; total value of Rs 258,272,889 of FICNs seized; and 1,265 persons arrested during the year 2010. States have been asked to share a copy of the forensic report on the seized and recovered FICNs with the Intelligence Bureau (IB) and the Reserve Bank of India (RBI). Subsequently, state police would rope in RBI to analyse the forensic report and share its findings with the IB. Besides, the states have also been asked to set up a committee headed by the director general of police with GM/DGM of RBI, officers of intelligence branch of state police, CID of state police, as members. A Home ministry official, who did not want to be quoted, told Business Standard “States have been asked to designate a police station at each district police headquarters as the nodal police station wherein the offences relating to FICNs recovered by banks can be reported. The banks will also correspondingly designate a nodal officer in each of the districts in their respective banks. These officers will be vested with the responsibility of reporting the seizures of the FICNs.” The officer said that nodal officers need to report seizures involving five or more than five pieces in one single transactions as a separate FIR. Moreover, states have been asked to evolve an efficient system of registration of cases which is crucial to enable both proper investigation and to ensure a comprehensive database for a meaningful action to get to the sources of the proliferation of FICNs. The National Investigation Agency has been empowered under the National Investigation Act to probe and prosecute cases relating to offences under various provisions of the Indian Penal Code. The officer informed that the Centre has nominated the Central Bureau of Investigation as the Nodal Agency to monitor investigation of fake currency note cases. The RBI has also strengthened the mechanism for detection of counterfeit notes by the banks.
Monday, March 7, 2011
ICICI Plans New Products for Countryside
ICICI Bank Ltd., India’s largest private sector by assets, is getting ready to roll out a variety of financial products for villagers and farmers in rural India, said managing director and chief executive, Chanda Kochhar. From basic bank accounts to subsidy transfers to basic insurance for farm produce, the bank expects to offer these products in the next six months, she said in a recent conversation with India Real Time. The bank currently offers a basic bank account—known as a no-frills account—in 18 states and has three million such account holders. These provide it with a ready market in which to sell some of these new products. The concept of a no-frills account was first suggested by the Reserve Bank of India in 2005, when it directed all banks to offer this option of a basic account to villagers. Most banks did the bare minimum on that—even today less than half of all Indians have a bank account. Last year, the RBI asked all banks to submit a plan for the inclusion of more Indians into the formal financial system that was approved by their boards. This, said RBI governor D. Subbarao, in a speech at the spring meeting of the International Institute of Finance in New Delhi earlier this week, would create a sense of ownership of the problem among banks. ICICI, which is listed in New York, says it is readying this rural push ahead of others. “Over a period of time all banks will have to look at rural business,” said Mrs. Kochhar. “We are looking at a mix of channels to reach out to farmers including basic accounts, transfer of subsidies, some lending.” Early this year the bank announced a tie-up with Vodafone Essar to eventually offer financial products in villages by mobile phone. ICICI, which had aggressively targeted retail customers during most of the past decade, cut that business back during the recession after it saw a huge number of bad loans in its portfolio of unsecured, personal and credit card loans. For the past two years, its retail loan portfolio has been rising more slowly than at other banks, but in an earnings call last month, Mrs. Kochhar, said the bank would keep pace with the industry in the fiscal year starting in April.
In India, women bankers have broken glass ceiling (March 8 is International Women's Day)
New Delhi, March 6 (IANS) As the world celebrates Women's Day Tuesday, a striking facet in the otherwise male-dominated corporate world in India has been the representation of women in the top echelons of banking and financial services. Consider this: The country's second largest commercial lending institution, ICICI Bank, is headed by a woman, Chanda Kochhar; so is the case with the third largest in the private sector, Axis Bank, which has Shikha Sharma on the top seat. One of the largest foreign banks in the country, HSBC, and the Indian arm of the global financial powerhouse JPMorgan Chase are also headed by women, with Naina Lal Kidwai and Kalpana Morparia respectively overseeing their operations. Even the Reserve Bank of India, until recently, had two women among four of its deputy governors in Usha Thorat, who has retired, and Shyamala Gopinath, who is still serving the apex industry institution. 'Women have this thing with numbers, finance and money. The banking industry gave them equal opportunities and they have excelled,' Finance Secretary Sushma Nath, who is herself the first woman to occupy the top post in North Block, told IANS. In fact, a look at the composition of the top brass of 11 top listed banks on the Indian stock markets reveals that nine of them have at least one woman on their boards and two of them have women serving as chief executives. This is backed by a recent study of 240 top Indian companies by EMA Partners, the global executive-search firm, which says more than a half of India's women chief executives are accounted for by the banking and financial services industry. 'The banking and financial services industry has seen the presence of more women on top than any other industry. In fact, women chief executives among the private sector and foreign banks would almost outnumber men in this sector,' the study said. According to Alok Khare, president of the All India Bank Officers Association, out of about one million bank employees in the country, 15-17 percent are women. 'But in metro centres and cities, 27-30 percent are women,' Khare told IANS. What are the reasons for this pleasant exception to the male bastion that the corporate world is? 'Some of the operational challenges in terms of gender aren't there in our banking and financial services industry,' said Aruna Sundararajan, who was till recently the chief executive for digital inclusion at Infrastructure Leasing and Financial Services Ltd. 'This industry also does not need the kind of networking that is otherwise required in the corporate sector. It has also provided equal, merit-based opportunities to women,' Sundararajan, now a joint secretary in the urban development ministry, told IANS. Experts say the answer to this also dates back to 50 years when then prime minister Indira Gandhi nationalised 14 top banks in the country, followed by seven more in 1980, and made them adopt a common process of recruitment through competitive tests. Besides, the working hours of banks were suited to serve the woman's domestic schedules, there was physical proximity to the place of work, the job offered an element of respectability and the profession did not require physical labour. The result: Banking became a vocation of choice for career-minded women.
JK Bank CEO seeks pay hike to Rs 1 million per month
Srinagar: Jammu and Kashmir Bank’s, recently appointed Chairman and Chief Executive Officer (CEO), Mushtaq Ahmad, is seeking a pay hike from current monthly compensation of about Rs 3.5 lakh to Rs 10 lakhs, apart from the sops and perks he is enjoying, reliable sources in the Bank told Kashmir Dispatch on Sunday. The top officials of the Bank have kept a Board meeting for revision of compensation to the CEO and two Executive Director’s (ED) on Monday, February 28 to decide on the pay hike. Sources said the both ED’s who will be retiring from their services in May and June this year are seeking a revision of their salary up to Rs 3.5 lakh per month. “The date for such a crucial meeting has been deliberately fixed, looking at the preoccupation of the state government officials with the budget 2011 preparations,” the source said. Adding, “Otherwise the same could be deferred till all the concerned officials from the state government get free from the state budget 2011.” According to the sources, there was a tussle going on between the ED’s of J&K Bank and its CEO over the compensation amount. However, it seems that both the parties have mutually agreed to double their montly compensation, the source said. “This will have a long run financial implications on the over all development of the institution. The Bank will have to pay them accordingly after their retirement,” sources mentioned. Apart from the monthly compensation, the Bank bears all the expenses of the Chairman/CEO, the source said. Adding, “If the CEO gets a hike, the Bank has to spend around 17-18 lakh a month on him.” Earlier, CEO, J&K Bank Dr. Haseeb Drabu was initially paid Rs 1.5 lakh per month and then the same was raised to about Rs 3.5 lakhs, in a similar kind of board meeting. The Reserve Bank of India (RBI) cleared the appointment of Mushtaq Ahmad as the new Chairman and CEO of Jammu and Kashmir Bank in October 2010 after Drabu was asked to resign by the state government from the Chairmanship of the Bank. The Bank was incorporated in the 1938 and is the largest bank private sector Bank in the state of Jammu & Kashmir. The state government is the major stake holder in the Bank and acted as the the sole banker and lender to the government of J&K. The source said, there is an increased interference in the official matters of the Bank from politicians of a particular political party. The Bank’s Executive President (EP) Ajit Singh who was retiring in April this year has been given a one year extension in his service due to intense lobbying by a senior political leader, the source told Kashmir Dispatch. Jammu and Kashmir government’s, Commissioner Secretary Finance, Sudhanshu Pandey might not attend the compensation meeting, the source revealed.
Two youth held for ATM theft
New Delhi, March 6 – The Delhi Police arrested two youth, including an MBA student, for allegedly withdrawing Rs.90,000 and purchasing valuables using a stolen ATM card belonging to a senior Reserve Bank official, police said Sunday. Police said the two could use the card easily because the pin number was written behind it. According to Vivek Kishore, deputy commissioner of police, Rahul Sharma (24), an MBA student, and Malkeet Singh (25) were arrested from their homes in Noida and Ghaziabad Saturday. The two were held on a complaint by Daulat Ram Pawar, General Manager of Reserve Bank of India, who lost his bag containing the ATM card and mobile phone in Karol Bagh Feb 23. It was noticed that Rs.90,000 was withdrawn from his account and Rs.35,304 worth of valuables bought through his debit card. The closed circuit TV footing at the ATM counter helped the police to nab the two men. They told police that they found the bag from Karol Bagh.
Sunday, March 6, 2011
South Indian Bank opens 30 new branches
(L to R) Shri Amithabha Guha, Non Executive Chairman of South Indian Bank, Sri.Thomas Jacob, Director of South Indian Bank, Sri. M.Damodaran Former Chairman of SEBI, Smt. Suma Varma Regional Director RBI, Thiruvanathapuram and Dr. V.A Joseph MD and CEO of South Indian Bank are seen in the picture
Thrissur, Kerala: South Indian Bank, headquartered in this district of Kerala, on Saturday opened 30 new branches at various locations in the country taking its network strength to 640. Azim Premji, chairman and MD of Wipro, inaugurated the renovated corporate office of the bank here. Acknowledging that Wipro had huge stakes in banking, Premji said banks in the country had to face the dynamism of a changing world. "They have to face increased competition and shoulder many new responsibilities, including those pertaining to the rural sector, and serve the less privileged," said Premji. He said the global economic crisis emanated due to the indiscipline in the US and European banking systems. "It did not affect the Indian banking system much due to effective steps taken by the RBI (Reserve Bank of India) and the self-discipline of banks in India," he said. "Financial inclusion in India at present compares poorly with its peers in Asia. Bank branches exist only in nine per cent of villages in India. Rural penetration can be increased only by increased use of information technology," said Premji. Suma Varma, Regional Director RBI, Thiruvananthapuram inaugurated the Bank's 30 new branches.
RBI, not competition panel, will have last say on bank M&As: Pranab
The Finance Minister, Mr Pranab Mukherjee, with the RBI Governor, Dr D. Subbarao
New Delhi, March 5: The Reserve Bank of India will have the final say on bank mergers and acquisitions (M&A), said the Finance Minister, Mr Pranab Mukherjee, on Saturday. “Banking mergers and acquisitions will not come under the purview of the Competition Act or the Companies Act. The mergers and acquisitions of banks will be under the purview of the Banking Regulation Act,” Mr Mukherjee said at the National Council Meeting of the Confederation of Indian Industry. The RBI will get the power to approve bank M&As once the Banking Laws Amendment Bill gets enacted. Following which, M&As in the sector would not require the approval of the Competition Commission of India (CCI). Earlier this week, the Cabinet gave its approval for the Banking Laws Amendment Bill, which is likely to be introduced in Parliament during the ongoing Budget session. Indications are that the Bill may not be passed during the current Parliament session, as the session might be curtailed in view of the upcoming assembly elections in five States. At the CII event, Mr Mukherjee called for support of the industry to build up political consensus for reforms in the financial sector. The proposed legislations in the financial sector, including the Banking Laws Amendment Bill, will only be possible after the support of the political parties, he said. “Even in a multi-party democracy, we can build up a consensus on certain important issues. This is where the industry can help out the Government,” said Mr Mukherjee. The RBI had earlier expressed some reservations about the move to put bank M&As under the purview of the CCI. Earlier on Friday, the Government had notified some key provisions on the Competition Act, giving the CCI the power to vet and approve big mergers and acquisitions in the country. However, this did not cover the banking sector.
Be aware of benefits of nomination facility
In June 2005, the banking regulator issued detailed instructions to banks on how to simplify and expedite claim settlement, following the death of a depositor. The Reserve Bank of India in its circular said: "Banks are advised to adopt a simplified procedure for repayment to legal heir(s) of the depositors, keeping in view the imperative need to avoid inconvenience and undue hardship to the common person." Six years hence, 'expeditious and hassle-free procedures' continue to elude claimants. The RBI circular says in the event of the death of the depositor, banks should allow premature termination of deposit accounts without any penal charges and this should be stated in the account opening form itself. It also states that where the account holder had made use of the nomination facility or where the account was opened with the survivorship clause ('either or survivor' or' anyone or survivor' or 'former or survivor' or 'latter or survivor'), insistence on production of legal representation is superfluous and unwarranted and only serves to cause avoidable inconvenience to the survivors and would invite supervisory disapproval. It also reiterates that banks should desist, in such cases, from insisting on production of succession certificate, letter of administration or probate, etc, or obtain any bond of indemnity or surety from the survivor or nominee. Even where the deceased depositor has not made any nomination, banks should adopt a simple procedure that eliminates harassment to the claimant. The circular advises banks to provide guidance to depositors on the benefits of nomination facility and also the survivorship clause. Depositors should also be made aware of the fact that in the event of the death of one of the joint account holders, the right to the deposit proceeds does not automatically devolve on the surviving joint deposit account holder unless there is a survivorship clause, the regulator says.
Here's a case showing how banks are violating these guidelines.
Anju: My father and I had two Fixed Deposits (FDs) and a savings account with a public sector bank, with instructions "as payable to former or survivor". In November 1991, my 72-year old father went missing and could not be traced despite our best efforts. When informed of it, the bank said I had to wait for seven years for liquidation of the accounts and renewed the deposits in 1994 for a further period of five years. In 1999, when I deposited the certificates and asked for transfer of the money into my account, I was told to bring the 'death certificate' and the succession certificate and till now the money has not been transferred to my account. Kindly advise.
Answer: If you see the five-page circular of the RBI (dated June 9, 2005), titled "Settlement of claims in respect of deceased depositors-simplification of procedure" from which I have quoted above, you will see that the bank has violated the regulator's instructions with impunity. Please write to the nodal officer of the bank quoting the RBI circular and demanding immediate transfer of the money to your account, along with penal interest and compensation. If there is no positive response, please file a complaint before the consumer court. Even if, on the receipt of your letter, the money is transferred to your account, I would still suggest that you lodge a complaint with the consumer court asking for punitive damages. The letters (and the response-whether positive or negative) will ensure that the case does not become time-barred in so far as consumer courts are concerned. This is a fit case for award of exemplary damages by the consumer court as the bank's action (or inaction) deserves to be condemned in the strongest of terms.
Govt borrowings won’t affect credit to pvt sector’
Finance minister Pranab Mukherjee on Saturday assured the industry that the Centre’s borrowing programme for 2011-12 would not crowd out private sector borrowings. “I can assure that our borrowing programme, in consultation with RBI, will be in such a manner that there would be no problem for the private sector,” Mukherjee said after a meeting with the Central Board of Directors of the RBI. With prospects of high tax buoyancy and healthy disinvestment proceeds, the Centre has lowered its market borrowings target to Rs. 4.17 lakh crore for 2011-12 against Rs. 4.47 lakh crore estimated in the current fiscal. But the industry is plagued by problems of a liquidity shortfall and rising interest rates following the RBI’s decision to raise key policy rates seven times since March 2010 to contain inflation. Mukherjee pointed out that in the current fiscal too the Centre has carried out market borrowings programme without disrupting the flow of capital to the private sector.
RBI saved the nation's banking system: Pranab Mukherjee
Finance Minister Pranab Mukherjee said it was due to the excellent policies of India's central bank Reserve Bank of India (RBI) that the global recession had no significant effect on the country's banking system. In response to a question asked in Parliament, the Finance Minister said that RBI, SEBI, IRDA and the interim Pension Fund Regulatory and Development Authority (PFRDA) play the role of regulators in the country's financial sector. When asked about the Reserve Bank not having taken concrete action in several cases, Pranab said the central bank carries out its work in compliance with established procedures and that the government is in favour of letting it work independently and with autonomy.
Maharashtra Gramin Bank on 100% CBS platform
The Maharashtra Gramin Bank (MGB), the Regional Rural Bank (RRB) sponsored by Bank of Maharashtra, achieved 100 per cent CBS on March 1. Dr K C Chakrabarty, Deputy Governor, RBI, and A S Bhattacharya, Chairman and Managing Director, Bank of Maharashtra, attended the function on this occasion at Thane yesterday. All 327 branches of MGB were brought under CBS with the technical assistance of Bank of Maharashtra. Bhattacharya had given top-most priority to bringing all MGB branches under CBS within three months of his assuming charge. MGB covers 16 districts; all of Marathwada is covered by it. Ashok A Magdum, Chairman, MGB, expressed confidence that the bank would be able to enhance its business growth and penetrate all villages with a population of over 2,000 in its financial inclusion drive by utilising CBS platform and ICT solutions.
Annual RBI board and finance ministry budget meeting
Indian Finance Minister Pranab Mukherjee (C) and Reserve Bank of India (RBI) governor Duvvuri Subbarao (R) and Deputy Governor Shyamala Gopinath (L) attend the annual RBI board and finance ministry budget meeting in New Delhi on March 5, 2011. India's left-leaning Congress government unveiled a budget focused on helping the poor and rural masses with pledges to hike social spending by 17 percent and fight food inflation.
Government may free diesel prices if crude touches $150/barrel
NEW DELHI: The government would be forced to deregulate diesel prices if global crude touches $150 to $160 a barrel, Kaushik Basu, chief economic adviser in the ministry of finance said on Thursday. Brent crude was at $114.82 a barrel on Thursday. Barring a price hike to that extent, he said diesel deregulation was not inevitable. Basu has repeatedly favoured a hike in diesel prices but the government has kept deregulation on hold due to its impact on inflation and anger of the voters. While presenting the Budget for 2011-12, finance minister Pranab Mukherjee had said that he was aiming to narrow down the fiscal deficit to 4.6% of gross domestic product from 5.1% estimated in the current fiscal. The government had in June last year agreed in-principle to deregulate diesel prices, as recommended by an expert panel headed by former Planning Commission member Kirit Parikh. Reserve Bank of India Deputy Governor Subir Gokarn also said the government would prefer to free diesel prices rather than risk a higher fiscal deficit. The government will also be looking at the inflation numbers before it considers deregulation of diesel prices. The wholesale price index-based inflation was at 8.23% in January. The government expects inflation to fall to 7% by the end of March and has projected an average 5% inflation in the fiscal year beginning April. In its economic review released in February, the Prime Minister's Economic Advisory Council, chaired by former RBI Governor C Rangarajan, had also suggested that diesel prices be decontrolled when inflation is in the range of 5-6%. The government's expenditure on subsidy has risen from 1,29,708 crore in 2008-09 to 1,41,351 crore in 2009-10 and 1,64,153 crore (revised estimate) in the ongoing fiscal. It has, however, projected an expenditure of 1,43,570 crore on subsidy in 2011-12. Rangarajan, who was a part of another panel at the same event, also dispelled concerns over the burgeoning current account deficit, which is projected at 3% for the current fiscal.
Saturday, March 5, 2011
Performance sops for PSU bank staff
The New Delhi: Nearly nine lakh public sector bank employees could soon be rewarded for helping their employer improve its performancde. The government is planning to announce a performance-linked incentive which will be over and above what bank employees get at present. Some bank chairmen and executive directors would also be better off with the government deciding to reward the good performers. At present, irrespective of their performance, all public sector bank chiefs and EDs get the same amount as bonus. Now, sources said, the idea is to grade the banks into three categories—State Bank of India, large public sector banks and smaller players —for the reward scheme for employees as well as chiefs. While the idea of a performance-linked pay was first discussed at the time of the last wage negotiation, it had to be shelved due to opposition from bank unions. However, the issue was revived by an expert committee headed by A K Khandelwal, a former Bank of Baroda CMD. With the unions insisting that they did not agree to variable pay, the government is of the opinion that this can be over and above the 17.5% increase that has been agreed upon, which in any case was in addition to a second pension option. So far, only IDBI Bank has a performance-linked salary plan but that is unoperational given the government’s concerns. Once the scheme is implemented for all banks, which is expected to be from the next financial year, banks will be able to earmark over 1% of their net profit for payment of incentives. At present, public sector banks can pay up to 1% of their net profit as incentive to employees. Apart from increasing this ceiling, the government is also going to increase the ceiling on welfare schemes. The scheme will entail that banks sign a Statement of Intent with the government at the start of the financial year which will prescribe certain targets such as loan and deposit growth and target for non-performing assets. If the targets are met, then the incentive will be paid. Banks will, however, be required to put in place a performance management system before rolling out the new plan.
Banking Laws Amendment Bill: RBI to supersede PSBs
This is the second time that the Banking Laws Amendment Bill is being picked up by the cabinet. It was done about four to five years ago when the Reserve Bank of India (RBI) had sought that the voting rights be made commensurate with the actual shareholding in the bank. However, this was shot down at that time by UPA government which was seriously dependent on the left. RBI’s argument has been that under the current rules RBI doesn’t allow any entity to have more than 10% shareholding in a bank. Therefore voting rights should be made commensurate with the shareholding because in any case no entity will have more than 10%. The rules currently say that no entity can have more than 10% voting rights in a private sector bank and in the public sector bank they can have a maximum of 1% voting rights. It doesn’t matter in the public sector banks because the government is always the majority shareholder. It doesn’t matter whether the other shareholding is dispersed or held in one block. It matters in the private sector bank and RBI’s main argument was that in certain cases like Kotak or the Hinduja’s in Indus Ind, when the license is given they do have the power to hold more than 50% and they enter into an agreement with the RBI to bring it down in stages, however, because the banking regulation law says that no entity can have more than 10% voting rights, the shareholding of the dominant partner is divided into several companies which are really namesake companies. RBI is uncomfortable conniving with such a practice which is really fraudulent. Hence, RBI has been asking to recognize it in the law itself. Last time it got shot down because of probable leftist pressures. It shouldn’t really change matters much; merely legalize what exists at this point in time. There is also the likely hood that this amendment will also give powers to RBI to supersede the private sector banks boards. State Bank of India chairman OP Bhatt has cheered the move saying that it will make investment in the banking sector more attractive. He says, “it is positive because you know if you have ownership and if you are not able to exercise. Therefore the benefits that come with that ownership then may be there are certain people who may be a little shy of investing in the banking sector, hence, going forward as we need more and more capital in the banking sector, this will sort of make it easy for those who are standing on the sidelines to put more capital into the banks as and when there are IPOs and FPOs.” While the jury is still out on whether business houses will be given bank licences, RBI Governor, D Subbarao says that financial inclusion will be one of the main criteria on which licences will be given. “We are planning to issue some licenses for new private sector banks and one of the criteria for evaluating the applications that we will get in due course of time, will indeed be their business plan for financial inclusion,” he says.
Sub-Committee of the Financial Stability Development Council meets today
The first meeting of the Sub-Committee of the Financial Stability Development Council (FSDC) was held on 4th Marach 2011 in the Reserve Bank of India, New Delhi. Dr. D. Subbarao, Governor, Reserve Bank of India chaired the meeting. The list of members of the Sub-Committee who participated in the meeting are :
Reserve Bank of India (RBI) : Dr. D. Subbarao, Governor, Smt. Shyamala Gopinath, Deputy Governor, Dr. K. C. Chakrabarty, Deputy Governor, Dr. Subir Gokarn, Deputy Governor, Shri Anand Sinha, Deputy Governor, Shri V. S. Das, Executive Director.
Government of India (GoI) : Smt. Sushma Nath, Finance Secretary and Secretary (Expenditure), Shri R.Gopalan, Secretary, Department of Economic Affairs (DEA), Shri Shashi Kant Sharma, Secretary, Department of Financial Services, Dr. Kaushik Basu, Chief Economic Adviser, Shri Bimal Julka, Additional Secretary & Director General (Directorate of Currency), Thomas Mathew, Joint Secretary (Capital Markets), DEA
Securities and Exchange Board of India (SEBI) : Shri U. K. Sinha, Chairman
Insurance Regulatory and Development Authority (IRDA) : Shri J. Hari Narayan, Chairman
Provident Fund Regulatory and Development Authority (PFRDA) : Shri Yogesh Agrawal, Chairman
The Sub-Committee of the FSDC has been formed to assist the FSDC. The Sub-Committee has replaced the High Level Coordination Committee on Financial Markets. The Sub-Committee reviewed the developments in the macro economy and the financial markets and deliberated on issues related to:
· The global developments in respect of policies for systemically important financial institutions (SIFIs) and their possible impact on financial institutions in India;
· The existing arrangements for supervision of financial conglomerates;
· Information sharing arrangement among regulators for systemic risk assessment;
· Regulatory issues relating to wealth management/private banking undertaken by banks; and
· Financial stability issues that are of particular relevance to emerging market economies.
Five States join AP in seeking tough regulation of MFIs
The Microfinance Institutions (MFIs) may be heading for bigger trouble in Andhra Pradesh. Many State Governments have urged the RBI Governor, Dr D. Subba Rao, to put in place stringent regulation to rein in MFIs to “protect” interests of the poor. RBI, which is currently working on regulation of MFIs following submission of recommendations of the Malegam panel, held a meeting with officials from various States last week to ascertain their views. “Along with Andhra Pradesh, other States including Tamil Nadu, Bihar, Uttar Pradesh, Karnataka and Puducherry have made presentations seeking tough regulation,'' Mr R. Subrahmanyam, Principal Secretary, Department of Rural Development, Government of Andhra Pradesh, told Business Line. On the points that came up during the discussion, he said: “There has been congruence that there is a need to encourage banks for direct Self Help Group (SHG) linkage instead of encouraging intermediaries with a profit motive like MFI to do the financial inclusion.'' The apex bank was also asked by the States to provide more clarity on the field-level regulation of MFIs. “The States have impressed upon the RBI Governor that it is not safe to regulate MFIs through Chartered Accountants who can only ensure corporate interests,'' the official added. The much-awaited meeting had witnessed a “prolonged” discussion on the issue of regulation of interest rates.The Andhra Pradesh Government had also categorically told RBI that “there is no question of withdrawing its MFI Regulation Act even after RBI announced its own regulation policy.” “The RBI Governor appeared to have been convinced by our arguments and we need to see what the final outcome is. Anyway, we are going by our Act to protect the poor,'' he added. Irrespective of the final decision of RBI, MFIs will surely be in trouble soon in other States too, say experts. “At present, we are working on increasing exposure in non-AP States to steer clear of credit risk in Andhra Pradesh. If other major States join AP, the whole business model would be in trouble,'' said the head of a large, Hyderabad-based MFI. Even SKS Microfinance Ltd, the country's only listed MFI, may have to rework its strategy as it has plans to increase exposure in States like Bihar.
Bankers trash Basel-III rules on rigidity
Governor, Reserve Bank of India, Dr. D. Subbarao with Dy. Chairman, Planning Commission, Dr. Montek Singh Ahluwalia at the 2011 Institute of International Finance (IIF) spring membership meeting, in the Capital.
Global bankers and economists on Friday slammed the Basel liquidity proposals and different approaches by regulators to modify the Basel capital requirements . At a press conference at the Institute of International Finance (IIF) meeting here, Deutsche Bank CEO Josef Ackermann said the Basel liquidity proposals could undermine banks’ ability to provide a range of basic services. He said back-up credit lines that were critical to corporations, as well as funding for businesses in international trade and retail borrowers, could be affected due to the proposals. Banks will be subject to stiffer liquidity and capital norms under the Basel-III rules, made after the global financial crisis exposed their huge lacunae. The Basel committee has come out with two standards to address the acute liquidity problems seen by banks at the start of the global financial crisis. First, it expects banks to comply with a liquidity coverage ratio from the start of 2015, requiring them to hold sufficient high-quality assets to withstand a 30-day period of acute stress. Meanwhile, a net stable funding ratio will come into force from January 2018, aimed at removing long-term structural liquidity mismatches on bank balance sheets. Ackermann also came down heavily on different regulatory approaches to modify Basel capital requirements. “It poses the risk of fragmenting the global financial system. And, it would have severe consequences on financial markets and the global economy,” he added. In many countries, all sorts of political pressure were mounting on regulators to start implementing regulatory changes, he added. “Because, if you have different capital requirements in different parts of the world, different liquidity provisions, different compensation structures, you will have arbitrage opportunities that is not in the interest of prosperity in growth on a global scale,” he said. Ackermann also criticised a move by the Financial Stability Board of G-20 countries to develop approaches to systemically important financial institutions, a highly complex area. “We believe that there should be no rush to judgement regarding capital surcharges on such companies. Rather, there should be an assessment of a full range of responses,” he said. IIF chief economist Philip Suttle said more regulations were required when economies overheat, but currently many advanced economies were still recovering. “It (over-regulation) is a good policy but at the wrong time.” ICICI Bank Non-Executive Chairman K V Kamath said Indian banks were ahead of the curve and would meet any requirement that would come up from Basel-III. Reserve Bank of India Governor D Subbarao had yesterday stated that the Indian banking system would meet the capital requirements of Basel-III at an aggregate level, though a couple of banks might not be geared up to the situation.
Banks' borrowing from RBI to soar in mid-March
Banks' woes over tight liquidity conditions will mount in the middle of March during advance tax outflows, which could push up the call rate and also borrowing from the central bank's daily repo window. Dealers expect banks to borrow more than 1.25 trillion rupees a day from the central bank compared with an average daily borrowing of 740 billion rupees daily so far this month. Borrowing from the Reserve Bank of India (RBI) could touch a peak of 1.5 trillion rupees during mid-March and the inter-bank cash rate will be around 7.5 percent, said Manish Wadhawan, director and head of rates trading at HSBC India. The call money rate, which is the overnight borrowing and lending rate of banks, may not breach 7.5 percent, which should be a comfort to the central bank given that banks can meet their funds requirement from the RBI's repo window. Cash tightness in the banking system has been acute since November following inadequate government spending after the windfall collection from telecom spectrum, and public withdrawal of money from banks. From November through January, banks borrowed an average around 850 billion rupees a day from the RBI's repo window, touching over 1 trillion rupees even in February. Dealers estimate the advance tax outflows to be around 500-600 billion rupees, which could take the average liquidity deficit to around 1.5 trillion rupees. Liquidity-driven short-term rates have been edging up with the three-month CD rates at 10.10 percent while the one-year was at 10.20 percent on Thursday. Short-end rates on certificates of deposits are expected to inch up faster compared with the long-end in March, leading to an inversion in the CD curve, a phenomenon not seen since October 2008, when the global recession was at its height. Expectations of at least a 25-basis-point rate hike at the March 17 central bank policy review, to contain inflation pressure, is also adding to upward pressure on short-term rates, bankers added. Besides the existing cash crunch, a pick-up in credit growth for banks will also keep the demand for funds high. Banks' loan growth has been a robust 23.9 percent on year to Feb 11 compared to the RBI's projection of 20 percent for 2010/11. Repo borrowings should go up also because we expect that the credit growth will pick up. There has been good incremental credit growth. So going forward if it becomes stronger as expected, the repo borrowing will also go up, an official from a state-run bank said. However, dealers expect the cash crunch to ease by March-end and liquidity deficit to come down to around 400 billion rupees on government spending. The RBI has said it aims to maintain liquidity in the range of positive 500 billion rupees to negative 500 billion rupees and therefore should be comfortable with cash conditions March-end. Post the advance tax, for a short while the call rates may go up to 7 percent but that will be only a temporary aberration for about a week's time, said R.V.S. Sridhar, president and head of markets of treasury at Axis Bank. While many banks may be genuinely borrowing from RBI to meet liquidity mismatches, some may try to make hay while the sun shines. These banks usually during such cash crunch conditions, use their excess government bond holdings, otherwise known as statutory liquidity ratio or SLR, to borrow funds from RBI at the repo rate which is 6.5 percent now, and lend in the uncollateralised call market at 7.25-7.50 percent, thereby making a plum arbitrage gain. This is nothing new and always happens with mostly public sector banks who run high SLR during advance tax payments, said a foreign bank dealer. Some dealers also expect cash rate to remain near 7.50 percent on March 31 despite improved liquidity, as typically banks prefer to stay away from lending on the last day of a quarter as they would otherwise need to set aside capital for such lending, which would reduce their capital adequacy ratio.
New MFI Bill to leave no space for state laws
The new law to regulate the microfinance sector may make similar state legislation null and void. The Bill — to centrally regulate microfinance institutions (MFIs) — may also cap the rates charged by these institutions or limit margins, that is, the difference between the rate charged from the borrower and the lender’s cost of funds. The Microfinance Bill is being drafted on the lines of the report of the Reserve Bank of India’s (RBI’s) Malegam committee. The committee was set up after a number of borrowers in Andhra Pradesh, the largest market for MFIs, committed suicide due to coercive recovery practices adopted by these lenders. This forced the state to pass a law to regulate MFIs. MFIs say their recovery rate in the state has fallen steeply in the wake of this borrower-friendly law. A finance ministry official, who did not wish to be identified, said under the proposed law, there would be a cap on rates. MFIs would also not be allowed to take deposits from the public, he said. The Malegam committee has recommended a margin cap of 10 per cent for MFIs with a loan portfolio of Rs 100 crore and above and 12 per cent for smaller MFIs. It has also suggested a 24 per cent cap on rates charged from individuals. The Centre plans to draft the Bill in such a way that microfinance is seen as an activity enabling the poor to use credit to improve their lives. If microfinance was defined as just a money lending activity, if would come in the Constitution’s State List, said the official. Finance Minister Pranab Mukherjee, in his Budget speech, had given a strong indication that the government would come up with a law for MFIs. “The committee set up by RBI to look into issues related to the microfinance sector in India has submitted its report. The government is considering putting in place an appropriate framework to protect the interests of small borrowers,” Mukherjee had told Parliament. The finance ministry was forced to review plan to introduce such a legislation after the Malegam Committee said the said Bill would cater only to a small number, as organisations not regulated by RBI accounted for only eight per cent of the microfinance loan portfolio. The finance ministry official said such microfinance institutions would be treated as non-deposit taking non-banking finance companies and the proposed Bill would be in sync with RBI regulations for NBFCs. RBI Governor D Subbrao has said it will take a view on the Malegam Committee report by April-end.
Govt will not intervene in working of financial regulators: Pranab
The Finance Minister, Mr Pranab Mukherjee, on Friday ruled out any Government intervention in the functioning of the financial sector regulators, stating that they are doing a “good job” in their respective domains. “There is no need for intervention,” Mr Mukherjee told the Lok Sabha during question hour, adding that regulators need to continue having functional autonomy so that they can discharge their functions as “vested in law.” At the same time, the Finance Minister pointed out that the respective laws governing the Reserve Bank of India, the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority, had a specific provision (Section 3) enabling the Government to issue directions on matters of policy to these three financial sector regulators. He also highlighted that the three financial sector regulators — the RBI, SEBI and the IRDA — submit their annual reports to Parliament, which in turn had the authority to check any “gross misdirection” by them. As for the Pension Fund Regulatory and Development Authority, Mr Mukherjee said this Authority was created through an executive order, and that the Government was “contemplating” introducing a Bill to provide statutory status. At present, all financial sector regulators have been mandated to look after regulation, development of the market segment under their regulatory domain and protection of the participants and consumers of the financial services.
Existing banks too have a role in financial inclusion: Kochhar
MUMBAI: ICICI Bank Managing Director and CEO Chanda Kochhar today said existing banks, not just new banks, can contribute significantly towards financial inclusion and underlined that rural market will be the future growth engine. "As far as financial inclusion is concerned, not just the new banks but the existing ones (as well) have an important role to play ... Rural India is going to be the market of tomorrow. Therefore, it is important for us to find business models for the rural population," Kochhar told reporters here. Kochhar comments came a day after RBI Governor D Subbarao said that "one of the criteria for evaluating application (for new bank licence) that we will get in due course of time, will indeed be their business plan for financial inclusion." Kochhar also welcomed the Banking Laws Amendment Bill, describing it as a "good step forward". However, one has wait for it to become a public document before commenting on its impact, she said.
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