NEW DELHI: The finance ministry has opposed the Reserve Bank of India's suggestion to restrict foreign direct investment in new banks to 49%, saying the change in norms will hurt investor sentiment. It has also asked the central bank to bar real estate firms from seeking banking licences and alter conditions relating to financial inclusion and stake dilution by promoters. "The rollback of the current FDI norm from 74% to 49% will not send a good signal to investors and is avoidable," a senior finance ministry official said. "We have asked the RBI to reconsider this." The central bank's suggestion was part of its comments on the draft guidelines for new bank licences, which it submitted to the finance ministry earlier this month. The RBI was expected to issue the draft guidelines for new bank licences before the end of this month, but the differences of opinion with the finance ministry could delay the process. The ministry has asked the RBI to ensure the guidelines clearly say that the new banks will be exempted from Press Notes 2, 3 and 4, which revamped the country's foreign investment policy and procedures. Without the exemption, these banks would become foreign banks if overseas investment in them crosses 50%. This would lead to imposition of the same restrictions on them that apply on foreign companies. The government is already struggling with policy issues in respect of private lenders, such as ICICI Bank and HDFC Bank , where foreign holding is more than 50%. The ministry has also suggested that the RBI should disqualify any group that has exposure to real estate from seeking a banking licence. "A lot of issues have risen with real estate companies who got 2G licences," said the official. "We would like to avoid such a situation." The central bank had suggested that companies that derive 10% or more of their income or assets from real estate, construction or broking activities should not be eligible. The finance ministry has also opposed the RBI's suggestions on financial inclusion and stake dilution by promoters of new banks. The central bank had proposed to make it mandatory for new entrants to have at least 25% of their branches in rural areas with population of less than 10,000. The ministry, however, wants it to allow new banks to open one-fourth of their branches in tier-III to tier-VI cities, having a population of up to 50,000. The ministry has also differed with the central bank on the schedule and the extent of dilution by promoters. The RBI had suggested that the promoter holding in the new banks should be brought down to 15% over a period of 10 years. But the ministry wants promoter holding to be brought down to 20% after a period of five years and other shareholders should not hold more than 10% stake. "This will help in maintaining a balance between promoters' interest and good corporate governance norms," the official said. The finance ministry has also said that promoters should have an initial minimum shareholding of 40%, which should be locked for five years. The ministry has supported the RBI's draft guidelines on initial minimum capital of Rs 500 crore, but has suggested that this should be raised to Rs 1,000 crore over a period of five years. "This will ensure that there are sufficient funds for initial smooth operations and also bank licence aspirants will have to be committed towards expansion," the official said.
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Thursday, March 24, 2011
Bid to arm RBI with sweeping powers
New Delhi: The government has sought Parliamentary nod to give sweeping powers to the Reserve Bank of India to inspect books of all associate enterprises of a bank, including its holding company. The regulator is poised to get more powers to not just confine itself to holding companies but even a subsidiary company or a joint venture of the holding company. This means that if the holding company of a bank has a subsidiary which is in education or fertilizer business, RBI will have powers to inspect their books as well. At present, RBI has to seek assistance from sectoral regulators and the Registrar of Companies (RoC) to inspect the books of entities that are not regulated by it. The proposal may also expose RBI to criticism of stepping into the domain of other regulators such as those for insurance, capital markets, pensions and Forward Markets Commission which oversees futures trading in commodities. The banking regulator, which acts as the central bank and also oversees the functioning of the bond, currency and money markets, has generated considerable controversy in recent years by protesting against any move to dilute its role. RBI regulates the functioning of banks and NBFCs, which in recent years have tried to become one-stop financial stores by setting up subsidiaries to manufacture and sell insurance policies, mutual funds and pension plans. Besides, several players have investment banks and brokerages. Some of them have also set up private equity funds, which RBI is keen to regulate given the global debate on these investment vehicles. After a lengthy turf battle with RBI, the finance ministry seems to have turned the corner and tilted the regulatory scales in RBI’s favour. While defining bank associates, the Banking Laws (Amendment) Bill 2011 that was introduced in Parliament on Tuesday has proposed that RBI be given powers to look at entities that control the composition of the board or other bodies governing the company. Similarly, any entity —which in RBI’s opinion exercises significant influence on a bank in taking financial decisions—can be probed by the regulator. The bill has proposed to allow RBI officials to inspect the financial statement of any shareholder as it provides for inspection of accounts of those “able to obtain economic benefit from the activities of a banking company”. The move comes at a time when the government is egging RBI to issue new banking licences. The regulator had sought more teeth before issuing the draft guidelines. The list of new powers includes ability to supersede bank boards for up to 12 months and appoint an administrator to manage affairs. The administrator would be required to seek shareholders’ nod to appoint new directors within two months of taking charge. The regulator is also proposed to be given powers to define “fit and proper persons” who can acquire 5% or more stake in a bank. In any case, a stake acquisition beyond 5% will need prior approval of RBI.
Yields hold near 3-week high before bond sales
Eleven-year bond yields held near a three-week high on speculation demand for the notes will wane as the government starts debt sales for the new fiscal year in April. The yield on the 8.08% note due August 2022 was at 8.12% after Tuesday's trade, compared with 8.13% on Monday, according to RBI's trading system. Monday's closing level was the highest since February 25. The government plans to borrow . 4.17 lakh crore ($92.7 billion) in the next fiscal year beginning April 1. The government and Reserve Bank of India representatives will meet on March 25 to fix the bond auction schedule for the next six months, a finance ministry official said March 19, declining to be identified as the budget information was confidential.
Wednesday, March 23, 2011
Teaser loans deny old customers benefit of lower rates
Click here to continue reading.........
Emmett J. Rice, Former Fed Governor, Is Dead at 91
Emmett J. Rice, a former Federal Reserve governor, World Bank executive and adviser on economic development who helped Nigeria set up its banking system in the 1960s, died on March 10 at his home in Camas, Wash. He was 91. In the early 1950s, while an assistant in the economics department at the University of California, Berkeley, Dr. Rice received a Fulbright fellowship that took him to India, where he became a research associate at the Reserve Bank of India. His studies of economic development there became the basis for his doctoral dissertation.
Meet of Supreme Audit Institutions begins
KOCHI: The Global Working Group of Supreme Audit Institutions (SAIs)from 19 countries is meeting at Kumarakom from March 21 to March 23. Organised by the Office of the Comptroller and Auditor-General of India, the global group meets annually in different member-countries, with the last meeting held in Sydney in March 2010. The conference addresses issues of contemporary relevance and include topics such as ‘Improving communication between SAIs and their stakeholders, capacity-building of SAIs, auditing third-party service providers and fallout of the global financial crisis. The RBI Governor will speak on ‘India and the Global financial crisis- collateral damage and response’.
Beware that tax refund is scam!
NEW DELHI: Cyber crooks are on the prowl this financial year closing and are using phishing attacks and hoax-alerts to gain access to account details of individuals who have filed their Income Tax returns online, warn experts. "It is the season of income tax returns. Many people file them online. Cyber criminals use this time to launch phishing attacks through emails as many people are not aware of these things," says Vinoo Thomas, Technical Product Manager, McAfee Labs. "An email is sent to a number of people, saying IT refund is available. Once it is clicked, the user is directed to a website that looks like that of IT dept. And there, they ask you to disclose your personal financial details in a form. That information will end up with a scammer who can empty your credit card or bank account in no time ," he adds. For the financial year 2010-11, the Income Tax department has processed over 38 lakh e-filed returns. According to cyberlaw expert, Pavan Duggal, unawareness among public and technical sophistication of the cybercrooks has led to increase in phishing attacks in recent years in India. "People do not know that their financial details can be targeted and misused through Internet. Also, they seem unaware of the policies of financial institutions and government departments to contact their customers," says Duggal. What further complicates the matter, according to him is the technical sophistication of such crooks. "If users are becoming aware of such frauds, these criminals are developing techniques to counter this awareness. The phishing emails and web sites are made to appear exactly same as that of the original one which confuses the users," says Duggal. The recent examples of phishing attacks include RBI phishing scam, ICC World Cup 2011 scam and Valentine Day scams. "Collecting e-mail addresses from spam mail vendors is not a big deal. People still mention their e-mail address openly on forums and social media networks that makes life easier for online fraudsters. People still don't use spam filters," says Thomas.
Primary aim is price stability: RBI Governor
KOCHI: Reserve Bank of India primary concern is to maintain price stability, Governor Duvvuri Subbarao said on Tuesday. RBI raised interest rates last week for the eighth time in 12 months, in line with expectations, and warned both of inflationary pressures and emerging risks to growth. The fight to contain the relentless march of inflation, especially in food prices, has become the focus of RBI and the central government in past few months. India's wholesale price index rose an annual 8.31 per cent in February on higher fuel and manufactured product prices, well above Reuters forecast of 7.79 per cent and higher than January reading of 8.23 per cent.
K. R. Ananda, Regional Director, RBI addressing presspersons
K. R. Ananda, Regional Director, RBI (Tamil Nadu and Puducherry), addressing presspersons in Chennai on Monday. Sumam Jyothi (left), DGM, RBI and G. P. Borah, General Manager, Issue Department
Click here to continue reading...............
Banks never sleep, but RBI does - Monika Halan
I wonder why the Reserve Bank of India (RBI) has got its head buried in sand over the extent of lies that bankers tell their customers in their attempt to hit them with inappropriate financial products to earn their bonuses and meet their targets. And I wonder how banks can calmly tell angry customers who protest that the products recommended and promises made by their staff (relationship managers) are not the responsibility of the bank. “The person who sold this to you has moved from our bank, what can we do?” is the most commonly heard excuse to the customer. I recently met an artist at a do. As I tanked up about art, a subject I know nothing about, she reciprocated by asking me questions about financial products. Her story turned out to be the story that I hear over and over again. The average story goes like this: The trusted bank sends its “relationship manager” who knows how much money there is in the account. He usually comes with an insurance company guy. They both sell inappropriate products by lying about product features and what they will return. And when the customer complains some years later, the bank coolly talks about that person having moved on. “And can we sell what you bought and put you in something new now?” And hit the customer with another harmful product. The artist’s story goes like this: She tells the relationship manager that she is an artist (a pretty famous one at that) and does not have regular income flows. Has a son she is funding through college. Needs cash in two years’ time. She wants a one-time bullet investment as she cannot make regular annual contributions. This was last year. Guess what is sold? Yup. A 20-year premium paying unit-linked insurance policy. He sold it saying it is a three-year product. That the Rs3 lakh put in over three years will become Rs5 lakh. When the policy reaches her and she sees it (yes finally found a person who looks at documents, she had actually orange-highlighted the premium paying term till 2029) and calls up the “relationship manager” to ask how he could sell her something that was so long-term, he says: “I am there. Don’t worry, you will not have to pay after three years.” Now, after the new rules post September 2010, he comes back and tells her that it is actually five years premium-paying term. And that he is there. Don’t worry. This is where she calls me and says “I’ve been cheated”. When I looked at the policy document, I see worse signs of the crime. He has put her in a conservative fund and had circled the 10% growth fund value to show what her return will be. Cheating at every step. She now recalls that he would carry away every bit of paper he wrote on to explain the product to her. She only has the notes she made. The problem with this story is that it is not a story in isolation and rampant cheating by the banks continues. Why it is taking RBI so long to put in basic suitability guidelines is something that is beyond reason. What can you do till some rules come into the country? Do not trust what your bank relationship manager tells you. Do not buy products they recommend. The only recourse you have is to search for information and ask the right questions. Don’t have any other place to buy from? OK, do this: For every product that the banker suggests, get him to write the key features on a piece of paper and sign it. That should have details of: How long do I need to invest in this product for it to work for me? If I invest Rs100, how much of this will be invested? Each year, how much is taken out as costs? Am I investing in equity, debt or a balanced fund? If the banker refuses to do this, you know that he is lying about the product he wants to sell. Keep the money in a fixed deposit. Don’t buy the product he recommends. End note: Another investor alert (if I blow any more whistles, my cheeks will explode, I think): Don’t buy medical insurance to soak up the Rs15,000 deduction. They’re selling it saying that there is a new tax break. There isn’t. We already get a Rs15,000 deduction on the premium paid on medical insurance, but we don’t use the entire limit because we don’t need to. A basic cover does not cost that much and a budget of about Rs10,000 a year is usually enough for a good medical cover. For a family of four (with dad at about age 40), a total cover of Rs5 lakh should cost you between Rs8,000 and Rs12,000. Don’t discontinue your old policies to buy new ones.
Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money and can be reached at expenseaccount@livemint.com
Call for financial inclusion in State
KOCHI: Reserve Bank of India (RBI) Governor D. Subbarao has urged people to strive to convert Kerala into a model State in terms of banking and financial services. He was addressing a meeting of villagers and representatives of various non-government organisations at a function organised at the government school at Vengoor west village, near Perumbavoor, in Ernakulam district, on Tuesday. The visit was part of the financial inclusion initiative of the RBI. The village had been identified as unbanked as per RBI norms. Mr. Subbarao visited the Financial Literacy and Credit Counselling Centre and the Rural Development and Self-Employment Training Centre, set up by the lead district bank, Union Bank of India, at Perumbavoor. He addressed a meeting there. Earlier, he visited Sree Sankaracharya University of Sanskrit, Kalady, and addressed students and teachers there. Vice-Chancellor J. Prasad, Pro-Vice-Chancellor S. Rajasekharan, Registrar K. Ramachandran and others received him. He gave away prizes to winners in quiz programme. The RBI Governor will address the Global Working Group of Supreme Audit Institutions, a forum of Auditors General of 19 countries, at Kumarakom on Wednesday.
DSC needs Rs 4cr in coins for April
GURGAON: With the revised toll rates for the Delhi-Gurgaon Expressway set be executed from April 1 midnight, the concessionaire, DSC Ltd, is literally gearing up for change. It has requested the National Highways Authority of India (NHAI) to communicate to the Reserve Bank of India to provide Rs 4 crore in coin denominations for the first month.
Banking Bill could draw investors to old private banks
The proposed Banking Amendment Bill, if approved by in the Parliament, could trigger investor interest in some of the old private sector banks, say market participants. Among other things, the Amendment Bill seeks to remove the restriction on voting rights. Currently, voting rights for a single investor are restricted to 10% of the total, even if that investor owns more than 10% in the bank. “Old private sector banks stand to benefit from the amendment bill,” said Chokkalingam G, ED—CIO, Centrum Wealth Managers. “If the existing cap on voting rights goes, many foreign investors will be keen to buy sizeable stakes in banks,” he said. The Reserve Bank of India is finalising guidelines for allowing corporates to enter the banking sector. Analysts feel non-banking finance companies (NBFCs) too would be interested in picking up stakes in existing banks to foray into banking business. Removal of 10% voting rights would encourage higher shareholding in a bank, by a single investor. The intention is to increase voting rights limit in proportion to shareholding. It is some kind of prelude to the new banking license,” said Bipin Karba, chief financial officer, at Dhanlaxmi Bank. However, Reserve Bank nod is needed for acquiring 5% or more share in banks.. “This move will certainly increase interest of NBFCs to get into banking business. They will try to acquire old private sector banks to kick-start banking business with an existing set-up,” said a head of an old generation private sector bank adding that his bank is ready to be acquired if the acquirer has a sound management background. Old generation private sector banks are currently run by individuals, not by any anchor investors with majority stake holding. For example, Kotak Bank and IndusInd bank (new generation private sector banks) are promoted by Kotak group and Hinduja group respectively. However, there is no single promoter for banks like Karur Vysya or Lakshmi Vilas or Dhanlaxmi. The amendment bill also proposes to allow banks to issue preference shares subject to RBI’s regulatory guidelines. “This is another avenue to raise capital other than plain equity or debt options. It is helpful to maintain higher capital adequacy ratio in times of rapid expansion in the loan book,” said Dhanlaxmi’s Karba. Meanwhile, analysts look for further cues from the Amendment Bill once it is fully passed by the parliament.
Mobile banking vans to speed up financial inclusion: BoB
Under the financial inclusion plan, Bank of Baroda (BOB) has decided to harness the mobile banking van (MBV) route to provide banking services in remote areas of the country. In the next one year, BOB plans to launch 25 new MBV units all over the country. The model has already been successfully tested by the bank in Gujarat and Bihar, while two such units were today launched in Uttar Pradesh by BOB Chairman and Managing Director M D Mallya. He was in town to chair the UP State Level Bankers’ Committee (SLBC) meeting to review the progress of financial inclusion programme as mandated by the Reserve Bank of India (RBI). BOB is the Uttar Pradesh convenor of SLBC and has 17 lead districts here, including two in Uttarakhand.
RBI Sets Holding Co Rider for Bank Licence
The Reserve Bank of India will allow a promoter or a promoter group to establish new banks if they set up a holding company, which will own the bank and all other financial services companies regulated by the central bank or other financial sector regulators. The holding company structure is described in the draft guidelines that the central bank has sent to the finance ministry last week. The guidelines are not final but provide a clue to its thinking. The norms governing new banks will be made public once the finance ministry responds. Such a structure is aimed to ring fence the regulated financial services activities of an industrial house, including the new bank, from other activities such as manufacturing and trading that are not regulated by financial sector regulators. In his Budget speech, the finance minister had said the Reserve Bank of India would release a set of rules governing new banks before March 31. The rules will come into force only after a public discussion.
Tuesday, March 22, 2011
Financial Outreach Camp of RBI to be held at Chumukedima
The Reserve Bank of India (RBI) would organise second phase of the Financial Outreach in Nagaland at Chumukedima Village, Dimapur, on March 23. Official sources here today said as part of its Platinum Jubilee celebrations, the apex bank had organised Financial Outreach Camps in various villages of the NE States in the year 2009-10. The main objective of the camp was to bring awareness among people in remote villages about RBI in general and banking in particular and bring them under the fold of main-stream banking system. Encouraged by the response and the success of the Financial Outreach Camps, the RBI has now decided to launch the second phase of the financial outreach programme in the NE Region. Its Executive Director, D K Mohanty would be the Guest of Honour. The programme would include quiz competetion for school children, banks and other participants opening the stalls.
RBI to relax norms for bank license - Deepak Mohanty
UKHRUL, MAR 21: Reserve Bank of India (RBI) will be relaxing certain norms in licensing bank authorities to open their branches in North Eastern states. Deepak Mohanty, Executive Director of RBI, Mumbai, speaking to reporters on the sidelines of a day-long financial outreach (FO) camp held in Manipur's hill station Ukhrul district headquarters, 84 km north of Imphal on Monday, said, ”We’ll be relaxing certain norms”. In a move to expand its banking facilities in north eastern region, Reserve Bank of India (RBI) is opening a new office at Tripura’s capital within May next. Deepak Mohanty, Executive Director of RBI, Mumbai, speaking to reporters on the side light of a day-long financial outreach (FO) camp held in Manipur's hill station Ukhrul district headquarters, 84 km north of Imphal on Monday, said, “We’ll be opening our next office in Agartala”. RBI’s central board meeting will also be held in Agartala in May next, he added. Entire north eastern states have only RBI Guwahati office. RBI is making all out effort to solve the unavailability of smaller denomination currency notes or coins in Manipur. “We have noted down the grievances,” Deepak Mohanty, Executive Director of RBI said.” We’re looking for an alternative arrangement as coins can be transported by air only.” Recalling the opening of an ATM booth for the first time in Ukhrul district recently, State Bank of India(SBI)’s Chief General Manager RK Garg who is the in charge of north eastern states said 3(three) more ATMs will be opened in Imphal soon. Presently SBI has around 12 ATM booths in Imphal area, Axis bank has 5, United Bank of India (UBI) has only one. “But we are planning to open two more within March end”, UBI’s Chairman and Managing Director Bhaskar Sen said. The two booths will be installed at Mao gate (Senapati district) and INA complex Moirang (Bishnupur district).With this Manipur will be having a total of around 7 ATM booths by the end of this year. Earlier, UBI chief also inaugurated its 1583rd branch at mini secretariat building of the hill town in presence of RBI’s Executive Director Deepak Mohanty, Regional Director Surekha Marandi,Manipur’s Principal secretary(works) Ramnganing Muivah, Deputy Commissioner N Ashokumar of the district, PK Roy, UBI’s General Manager(FIPS) and others.
RBI has a new Regional Director
PATNA: Mohit Kumar Singh has taken over the charge of Regional Director, RBI, Bihar and Jharkhand. Singh replaces G Mahalingam who has been transferred to financial markets department, central office, RBI, Mumbai. Singh, who joined RBI in 1981 as an officer, had also served at the bank's Chennai office as general manager, department of banking supervision. He was earlier officer-in-charge of urban banks department, department of banking operations and development and banking department at the bank's Bhopal and Kanpur offices. Singh had also served on deputation as chief vigilance officer with an associate bank in the SBI group.
India Inc profit margins eroding: RBI
Mumbai: Increasing raw material cost and rising salary bill eroded the profitability of India Inc during April-September period of the current financial year, says an RBI analysis. According to a Reserve Bank of India (RBI) study which analyses the performance of the Indian private corporate sector during the first half of the current fiscal, sales growth was robust on the back of pickup in demand. "However, despite robust revenue growth, companies in aggregate could not generate higher profit margin primarily on account of higher input prices and rise in interest outflow," the RBI study said. It said even as the sales growth in both manufacturing and the services sector was robust during the period under review, profit growth in both the sectors was comparatively lower during the period. During the first half of the current fiscal, India Inc's staff cost rose by 17 per cent to Rs 71,133 crore, the RBI study said. The staff cost grew by 7 per cent in the same period of previous fiscal. "Generally it is observed that staff costs is higher for IT companies compared to manufacturing and services sector companies," it said. In the April-September period, the expenditure on consumption of raw materials shot up by 27.7 per cent YoY to Rs 4.36 lakh crore. "Higher input cost, that led to noticeable rise in total expenditure, vis-a-vis relatively lower revenue for companies resulted in a contraction in profit growth at the operating level," the study said.
25-paise coins invalid from June 30
CHENNAI: Coins in the denomination of 25 paise and below will be legally invalid for circulation from June 30. Addressing presspersons here on Monday, K. R. Ananda, Regional Director, Reserve Bank of India (Tamil Nadu and Puducherry), said the Union Government, which has the responsibility of minting coins, has decided to withdraw smaller denomination coins of and under 25 paise. The value of such coins has eroded and they are no longer in use. People can exchange coins in denominations of 25, 20, 10 and 5 paise in the issue offices of the RBI and branches of 45 banks for their face value till June 29. A special counter has been opened for accepting such coins in the RBI office between 10 a.m. and 2.30 p.m., he said. People have started exchanging from this month and the coins totalling Rs.3,000 are being exchanged daily. “We expect this number to go up,” Mr.Ananda said. On whether the 50 paise coin would also be withdrawn, he said “We only act as agents for distributing coins minted by the government.” Officials of the RBI said there was no dearth of 50 paise coins and they are available with RBI counters. Only a few Metropolitan Transport Corporation personnel bought the coins in bulk. However, coins of the value of Rs.10 were in short supply. About the Rs.150 coin released recently on the occasion of Income Tax Department completing 150 years, he said it is yet to reach the regional office. G. P. Borah, General Manager, Issue Department, RBI, told The Hindu that the Rs.150 coin is only a commemorative coin and not for circulation. Similarly, a coin of Rs.75 value was released during the platinum jubilee year celebration of the RBI. However, it is not meant for circulation. The RBI, however, has issued a new one-rupee coin to mark its platinum jubilee. As of now, commemorative coins of denominations under Rs.10 are available for circulation. The RBI also plans to issue coins in denominations of Rs.2, Rs.5 and Rs.10 soon as part of its platinum jubilee celebrations. People may book such commemorative coins on the website of India Government Mint. Mr.Bohra said the RBI has recently launched an initiative of issuing coins in select bank branches located near nine market areas in the city. The areas include T.Nagar, Koyambedu, Washermenpet, Selaiyur, Thiruvanmiyur and George Town. In the past two months, traders have taken coins worth nearly Rs.2 crore.
Longer wait for bank licence
New Delhi, March 21: New banking licences will be given only after the government vests more powers with the Reserve Bank of India to control the new entities — a process that is unlikely to be over in the next fiscal. Amendments to the Banking Regulation Act that will give more powers to the RBI are likely to be tabled in the monsoon session of Parliament. The act will in all probability be referred to a standing committee, effectively puncturing all hopes of industrial houses bagging a licence in fiscal 2011-12. “Empowering the RBI is essential for obtaining information about the other businesses of the corporate houses seeking banking licences in order to protect depositors’ interests,” said officials. The government is also likely to set up a panel to vet the draft entry rules framed by the RBI. “Effectively, new licences will be given by the end of 2012,” said the officials. The apex bank had brought out a discussion paper in August on licences to business houses and non-banking finance companies, and regulations to foster competition. Finance minister Pranab Mukherjee had said in his budget speech that the RBI was planning to issue the guidelines before the close of the current financial year. The Economic Survey 2010-11 had suggested two types of licences, one for providing basic banking to fulfil the obligation of financial inclusion and the other for full banking encompassing all the activities of a commercial bank. Meanwhile, the RBI has said it will look at the business plan for financial inclusion before granting a licence. “One of the criteria for evaluating an application (for new bank licence) that we will get in the due course of time will indeed be the business plan for financial inclusion,” RBI governor D. Subbarao had said earlier this month. The 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. Of the 600,000 habitations in the country, only about 5 per cent have a bank branch. Only 40 per cent of the population have bank accounts. India has 27 public banks, seven new private banks, 15 old private banks and 31 foreign banks.
New analysis questions RBI's understanding of inflation
Days after the Reserve Bank of India (RBI) raised its key policy rates to tame an unexpected rise in inflation in February, a new analysis claims that none of the factors considered relevant by the central bank, are crucial for understanding inflation in India. A newsletter, Developing Trends, brought out by Surjit Bhalla of Oxus Investments, and others, also projected inflation to fall to five per cent in six months, if not sooner, from the current level of 8.31 per cent, saying the rate of price rise was close to or has peaked in India. The analysis says traditional factors like money supply, fiscal deficits and new theories about the changing pattern of consumption by Indians that lead to a mismatch between supply and demand of protein-based products are not very important. “None of the traditional or new factors, held important by many analysts, and RBI, are relevant for explaining Indian inflation,” the newsletter says. It says growth in money supply was able to partly explain inflation trends during 1980 to 1995, but nothing later. “A flatter line than that between money supply growth and inflation post-1995 cannot be found.” Also, fiscal deficit, says the analysis, is able to partly explain inflation, but has the wrong sign that is, higher the fiscal deficits lower the inflation. “Obviously, this is an example of lies and statistics and all that, but nevertheless it points to the rejection of the notion (or rather the unfounded belief) that fiscal deficits have led to higher inflation in India.” However, the newsletter clarifies that it is not asserting that fiscal deficits do not matter or they do not matter in India. Such deficits are relevant for interest rates and therefore growth, which in turn can have an effect on dampening inflation. “The simple point is that fiscal deficits are not useful for explaining inflation in post-reform India at all,” it says. Then, there are new theories that say that new determinants include dietary patterns to protein and supply shortages of protein. However, the study says protein demand has been going on for the last 30 years and not just in 2009, which was the real anomaly year of Indian inflation. Then there are theories that link inflation to convergence with developed country price levels in a hurry—the convergence that was to take place over a 50 to 100 years is now compressed into a few short years due to globalisation and recent high economic growth. The analysis says covergence to developed country theory is okay, but not in such a great hurry and truly depends on several other factors—higher productivity growth in fact leads to lower inflation and undervaluation of the real exchange rate through policy intervention most likely dampens the inflation rate. Developing Trends linked Indian inflation since 1996, even since 1980s, to intational inflation. “If this is measured by the inflation of the median country in a particular year, then 71 per cent in Indian inflation since 1982 is explained. This is the highest explanation for any G20 country, with Korea, Japan and the US close behind. The analysis furhter says there is a strong sustained relatoinship between world inflation and the price of crude. “For non-OECD countries, including India, the relationship between inflation and crude is extremely robust—each $10 increase in the price of oil leads to approximately 0.5% increase in inflation. The impact is a lot less for OECD countries—a negligible and insignificant increaes of 0.03 per cent.” An increase in the price of crude, however, caused sets in motion a sequence of price events in this hyper price sensitive world, says the newsletter. “Somewhat peculiarly, but not entirely unexpectedly, world food prices increase by 3.3 percentage points for each $ increase in the price of crude.” Expectedly, copper prices rise by $0.4/lb for each $10 rise in crude.
Ineffective policy - ''Persistent tinkering has not impacted inflation.''
The Reserve Bank of India has stuck to its tight monetary policy by raising the short-term policy rates by 25 basis points. It has, in its latest review, raised the repo and reverse repo rates to 6.75 per cent and 5.75 per cent respectively and there was no surprise as the apex bank had given indications of its hawkish thinking many times in the past. The hikes, which have been resorted to eight times in the past one year, underline the concern over inflation which the RBI considers as the major challenge. In spite of all RBI and government actions inflation rose to 8.3 per cent in February. What is worrying is that persistent tinkering with policy has no impact on the inflation curve. Food prices, which drove overall price index to high levels, have cooled off now. But other factors and the inflationary environment have remained largely insensitive to policy action. There is a recognition of this in the RBI’s position. The apex bank has noted the volatility in industrial production and the weak performance of the capital goods sector. The limits to the impact of monetary policy prescriptions are being tested now. Government policies have not helped much and an adverse international climate has added to the problem. Global oil prices are ruling above $115 per barrel, with chances of further escalation. The union budget has not earmarked adequate amounts for the oil subsidy. In fact the allocation for other subsidies and social sector commitments are also inadequate and the so the government will have to go beyond its budgeted expenditure. This will create additional pressures on the fiscal situation. Though there is no revision of GDP growth figures, the rate hikes can create worries on that score. An increase in interest rates will make capital costlier and hurt consumer demand and the competitiveness of the industry. Slower growth can also lead to a fall in tax revenues and result in higher fiscal deficit. The mishap in Japan may affect economic recovery in the US and elsewhere. Exports and foreign investment prospects may be hit because of this. The erosion in the government’s credibility and standing will be another negative factor. Therefore the situation on the price front and the larger economic scenario are not the best, in spite of the RBI’s best efforts.
Govt to unveil borrowing calendar on Friday
Officials of the finance ministry and Reserve Bank of India (RBI) would decide on the borrowing calendar for April-September on Friday, March 25. The Centre would conduct borrowing for the coming fiscal year in a “non-disruptive manner,” leaving enough space for private sector's investment needs.
RBI's misplaced concern
This refers to the report "RBI slams banks for LAF misuse&" by Manojit Saha (March 21). It is surprising to read that the Reserve Bank of India (RBI) has now expressed displeasure at the fact that some banks are borrowing under the Liquidity Adjustment Facility (LAF), on-lending the funds to other banks and earning a spread as a result. LAF, as has been rightly observed, is a secured facility available to banks for borrowing against surplus government securities in their portfolio and is not unsecured call money. Since there may be banks with inadequate surplus government securities to pledge with RBI and borrow directly, there was nothing sinister in surplus banks lending to them from LAF-borrowed funds. This way liquidity is managed in the system without much volatility in the call rates. This has been discussed with senior RBI officials in the past and the banks treasury officials have been clearly given to understand that it was perfectly in order for banks to lend to other entities from LAF-borrowed funds. RBI should not keep changing its stand, since it may aggravate volatility in the overnight money market. - S Ravindranath, Coimbatore
Get Real on Bank Licences - MYTHILI BHUSNURMATH
The suspense over new banking licences will soon be over. With finance minister Pranab Mukherjee announcing that the RBI is planning to issue the guidelines for new banking licences before the close of this financial year, presumably, it is only a matter of days before the RBI comes out with its final guidelines. It has already issued two draft papers inviting comments; so, the motions have been gone through and according to news reports, the final version has gone to the finance ministry for vetting. Ostensibly, new bank licences are needed to ensure competition and promote financial inclusion. The FM, in his Budget speech last year, was emphatic on that score. “We need to ensure that the banking system grows in size and sophistication to meet the needs of a modern economy. Besides, there is a need to extend the geographic coverage of banks and improve access to banking services.” RBI’s discussion paper on entry of new banks echoes this view. “It is generally accepted that greater financial system depth, stability and soundness contribute to economic growth. But beyond that, for growth to be inclusive requires broadening and deepening the reach of banking. A wider distribution and access of financial services helps consumers and producers raise their welfare and productivity.” The only difference between the FM and the RBI’s position seems to be one of emphasis. While the FM seems to regard the need for new bank licences as driven equally by the need for more sophisticated (?) banking services and financial inclusion, the RBI seems inclined to view it more as a means of ensuring greater financial inclusion. RBI governor D Subbarao is on record that financial inclusion will be one of the main criteria on which licences will be given. Either way, access to sophisticated banking and financial inclusion are the main drivers for issue of new bank licences. Take them one by one. First, the FM’s concern that we need to have banking services that ‘meet the needs of a modern economy’. As on March 31, 2009, we had 27 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks (RRBs), four local area banks (LABs), 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks. So, we certainly don’t lack numbers! And nor, it would seem, do we lack modern banking services, given that virtually every major foreign bank in the world has a presence in India. Hence, access to sophisticated banking products is not for want of sophisticated players. They are already here. What about financial inclusion? Here the position is less encouraging. Less than 50% of Indians have access to formal banking. Today more Indians have a mobile telephone than a bank account! If you allow for the fact that many Indians in metropolitan and urban areas have more than one bank account, the picture becomes even more disturbing with rural and semi-urban areas vastly under-banked. The far more pressing case for issuing more bank licences, therefore, is to remedy this imbalance and promote financial inclusion. Will new banks do that? If yes, the case rests and there is nothing more to be said. We must licence more banks. If not, there is no case for new bank licences; at least, not on the grounds of financial inclusion. So, let’s go back to the mid-1990s when 10 new banks were set up in the private sector (two more came up after the revised guidelines of 2001), ostensibly for the same reasons bandied about today — to promote competition and increase coverage. However, not all survived, leaving a total of seven new private sector banks on date. Seven out of 12 is not bad but it is not a score card that bolsters the case for new bank licences, especially in the light of what the 2008 crisis has taught us of the serious systemic consequences of bank failure. But we could still overlook that if the larger cause of greater coverage were served. Has it? No. Data shows new private sector banks had only 6.5% of their branches in rural areas as on March 2010. In contrast, nationalised banks had 31.6% of their branches in rural areas while State Bank of India had 32.7%. Meanwhile, the share of rural deposits and advances has come down from 10.8% in March 2006 to 9.2% in March 2010 and 8.4% to 7.5% over the same period. Therefore, whatever else the reason for issuing new bank licences, financial inclusion cannot be one. Neither can access to state-of-art banking products. So, what can? Corporate lobbying? Perhaps! But that does not mean the sector should be closed to entry. Rather that the fit-andproper test must remain the only yardstick and the RBI the only arbiter of that.
RBI accommodates IMC's recommendation on NBFCs
The Reserve Bank of India has accommodated the Indian Merchants’ Chamber’s (IMC) plea for including telecom towers in infrastructure finance definition for Non-Banking Financial Companies (NBFCs). The Chamber had recently brought to the notice of Deputy Governor Ms Shyamala Gopinath during a seminar on NBFC held in IMC on anomaly that in the same definition for banks for infrastructure loans, telecom towers were included, but not for NBFCs, a release issued by IMC said here today. The Reserve Bank has now issued a notification amending the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 to include 'Telecom Towers' also as an infrastructure facility for availing credit facility from NBFCs, the release added.
Monday, March 21, 2011
Financial inclusion to be Syndicate Bank's priority
Udupi: Chairman and Managing Director of Syndicate Bank Basant Seth inaugurated the Financial Inclusion Resource Centre at the founder's branch premises of the bank, here on Saturday. The Financial Inclusion Resource Centre gives the public all the necessary information about the importance of financial inclusion. It tells them why they should open bank accounts, various types of banks accounts, loan provisions and details of other banking services. The resource centre is like a museum. All the information is available in a pictorial format in three rooms of the centre. It is manned by a counsellor, who will answer any question people might have about the banking services. He said that financial inclusion was of utmost importance. The Centre and the Reserve Bank of India (RBI) were giving priority to financial inclusion. “We would like children to visit this place so that competitions could later be held on the topics depicted here,” he said. Executive Director of Syndicate Bank Ravi Chatterjee said that besides the Centre, a van would be pressed into service to propagate the importance of financial inclusion in villages. The bank would open two more Financial Inclusion Resource Centre at Kumta in Uttara Kannada and Mangalore. The Financial Inclusion Resource Centre in Mangalore would be opened by the end of this month, he said. A.S. Rao, Regional Director of RBI, Hyderabad and D.T. Pai, former Chairman and Managing Director of Syndicate Bank, were present.
How do you like this?
The Reserve Bank of India insiders have come up with new names for the Department of Banking Operations and Development and Nabard. Thus DBOD stands for Department of Banking Obstruction and Destruction and Nabard for Not at All Bothered About Rural Development.
The fine art of doing nothing
Most commentators and analysts have tended to view the Reserve Bank of India's mid-quarter monetary policy review of March 17 as a statement of the central bank's intentions and views on the economy. But the review, like many previous such reviews, can also be read as an indictment of public policy's failure to do anything meaningful to combat the problems faced by the nation — be it inflation, the lacklustre growth of capital goods and, of course, the pitiful state of our infrastructure and agriculture. One way of ‘reading' the abysmal passivity of New Delhi policy planners is to cast an eye over the string of endorsements of the RBI's actions from the chairman of the Prime Minister's Economic Advisory Council to the ever-articulate Deputy Chief of Planning Commission and, of course, Finance Minister, Mr Pranab Mukherjee himself. According to the latter, the RBI's repo rate hikes of 25 basis points would moderate prices, though inflation could be “marginally” higher than earlier projections for the end of the fiscal. What the Finance Minister meant by this mind-bending logic is unclear, but what is not is the sorry state of the projections themselves that have emanated from New Delhi with unceasing regularity since last June.
WRONG LIMITS
There are signs that the Reserve Bank of India has decided to ignore the criticism of its Malegam report and enforce its recommendations. It is expected to introduce price control on interest that microfinance institutions may charge rural borrowers. Price control gives those subjected to it an incentive to increase costs. To prevent it, the RBI will also introduce a cap on their profit margins. That will also control what they can pay for the funds they borrow. Here, the RBI is principally thinking of banks, of which it is the prime regulator. In essence, it is going to tell the banks that they cannot earn more than a certain limit on small loans to villagers. The rate being bandied about is 12 per cent. Since the average interest earned by public sector banks on their bills and advances in 2009-10 was only 8.3 per cent, the RBI must feel that it is doing banks a favour if it lets them earn 12 per cent on rural loans. But a high proportion of government banks’ loans goes to politically favoured borrowers such as farmers, small industrialists and government enterprises; if they are excluded, the interest rate earned is considerably higher. So the RBI is likely to make banks’ rural credit no more paying than their urban commercial loans. It will thus deprive banks of all incentive to lend to villagers, who are dispersed and more expensive to service. That will perpetuate the malaise that has pervaded till now: villagers will continue to be under-served by banks. Those banks that still try out the rural market will have their costs further increased by maximum limits on the size of loans. They will also be forbidden to lend to villagers whose income exceeds a minimum; in other words, they will not be allowed to reduce their average risk by lending to more substantial farmers and traders. The net effect of these well-intentioned and ill-thought-out measures would be to leave the rural credit market to moneylenders at whose mercy villagers have been all these centuries. The RBI prides itself on being a conservative institution, but this is surely taking conservatism too far. More importantly, the RBI is a nervous regulator which puts protection of its reputation above development; it therefore prefers oligopolistic markets in which a few banks make comfortable profits. That is the market structure it has created in cities; it is determined to replicate it in villages. Viewed in this fashion, it is not just its approach to rural credit that is inimical to development; it is its stranglehold on the banks that is harmful. The country would benefit, whether in towns or in villages, from vigorous competition among a larger number of banks. If that makes the bank regulator’s job more difficult, that is an argument for redesigning the regulator.
People suffer, banks get richer- Rakesh Bhatnagar
For a self-proclaimed welfare state such as India, enrichment at the cost of the tax-payer and the millions of ordinary people who have parked their savings in banks and other financial institutions is anathema. Yet, there were unclaimed deposits to the tune of Rs13,603,159,647 in a variety of banks — Rs4,731,67,698 in foreign, Rs1,503,23,106 in other private and the remaining in public sector — for more than 10 years till December 2009. Moreover, Reserve Bank of India (RBI) says at the end of March 2010, there were 54,738 million small coins (which, by definition, include the 50 paisa), adding up to Rs1, 455 crore. Ironically, neither the government nor any bank has shown concern for welfare of the depositors. Whatever the case, the cash-rich, top-heavy banks, which have been using public money the way they want to, can’t be allowed to swallow the deposits. Isn’t it RBI’s sovereign duty to protect the interests of unidentified depositors by putting up notices across the country inviting attention of the unknown and unheard of millions who might have found it hard to get their money back for a variety of reasons. Owners of the assets must be identified and paid with interest.They should not be made to suffer for no fault for theirs as a friend of mine suffered. His wife had Rs50,000 in her bank account when she died over a decade ago. He approached the nationalised bank with her death certificate and other relevant papers to prove that she was his legally-wedded wife and claim the money, but was denied. The bank wouldn’t verify the facts, either, and instead asked him to move court. The friend calculated the legal exercise would cost him Rs30,000, apart from the hassles and man hours, and decided against it. The money that belonged to his wife and her child must have doubled by now and the bank enriched.For whose welfare the state is working? Not the people, at least.
RBI SLAMS BANKS FOR LAF MISUSE
Banks have come under fire from the Reserve Bank of India (RBI) for lending funds borrowed under the liquidity adjustment facility (LAF) in the overnight money market. LAF funds are meant to meet banks’ reserve requirement. At least twice last week, RBI officials told bank managements about their discomfort with lending of LAF funds in the overnight money market. “The liquidity deficit, which shot up last week, made the regulator enquire about the reason. When it came to know that banks were doing arbitrage by lending the borrowed funds in the call money market, it reminded us that LAF funds should not be used for lending,” said a top executive of a public sector bank. Last week, call rates went past 7 per cent on most days, while the repo rate — the rate at which banks borrow funds from RBI — was 6.5 per cent till Thursday’s first LAF. On Thursday, RBI raised the reverse repo and the repo rate by 25 basis points each to 5.75 per cent and 6.75 per cent, respectively. According to banking industry officials, some foreign banks and small private sector banks did not have excess government paper to get LAF funds and so they were dependent on the overnight market. Banks that had government bonds in excess of the regulatory requirement of 24 per cent seized the opportunity to make a 5075-basis-points margin in the call money market. “RBI was unable to accept the fact that the liquidity deficit was so high even when the government had started spending, despite advance tax outflows,” said another executive of a government-owned bank. During the November-January period, when a liquidity shortage was acute, banks were borrowing around `1lakh crore from RBI on a daily basis. However, from February, the quantum of deficit came down to the central bank’s comfort level of +/- 1 per cent of banks’ net demand and time liabilities, or `50,000 crore. The deficit has come down since because the government has started spending, reflected in the fact that government balances with RBI fell from a high of `1lakh crore in the middle of December to `100 crore — the minimum level the government should keep with RBI — in March. Bankers said the liquidity strain last week was due to corporate advance tax outflow, estimated in the region of `50,000 crore.
Dena Bank CMD at RBI Outreach Program
Sunday, March 20, 2011
Experts complain of deprivation of consumer rights in finance sector
Financial experts and bankers who assessed the status of consumer protection in the financial sector have termed access and affordability of financial services as still a dream in the country. In this modern era, when the global economy adds around 1.5 crore new consumers of financial services every year, awareness of their rights was awfully low, it was pointed out. Speaking on the occasion of World Consumer Rights Day, Jaipur circle Reserve Bank of India General Manager S.N. Panda conceded that the problem of poor awareness and lack of accessibility exists among consumers of the banking sector. “There is need for better terms and conditions in services for customers in the financial sector,” Mr. Panda said. The RBI has been taking various initiatives in creating financial literacy and better accessibility for consumers, he added. The event, “Consumers for Fair Financial Service”, was organised by consumer advocacy group CUTS. Calling for financial inclusion of poor, the migrants, disadvantaged and marginalised people, CUTS International director George Cheriyan said these segments often struggle even to open a bank account in the absence of proper identification or address proof. Mr. Cheriyan added that a study in 2009 had found that only 13 per cent people used ATM and debit cards in the country, and only 10 per cent possessed life insurance. Jaipur Office of Banking Ombudsman (BO) Deputy General Manager K. Sundari sought RBI intervention in cases of serious financial abuses. Talking about fairness in financial services, Ms. Sundari presented an overview of the BO and the mechanism of seeking redressal through it. The former Rajasthan State Consumer Dispute Redressal Commission chairman, Justice Vinod Shankar Dave, shared his personal and professional experience in the legal field and emphasised behavioural aspect of consumer and service-provider relationships and constraints due to ignorance. The banking sector needs to show more responsibility towards consumers, and digitalisation was taking away the personal touch from banking services, he noted. BO AGM S.N. Senapati said consumers should take advantage of the existence of many regulatory bodies like the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the RBI existed. On the part of the banks and financial companies, they should ensure fairness and transparency in contracts, he felt. CUTS programme officer Deepak Saxena and project coordinator Amarjeet Singh threw light on consumer protection in the newly emerging financial areas.
SBI arms merger bill cleared
New Delhi: The government on Thursday cleared a bill to empower itself to effectively manage the affairs of subsidiary banks of State Bank of India. The move will also help facilitate the merger of the five subsidiaries with SBI, for which the government has indicate a timeframe of 12-18 months. While SBI executives said they were in favour of merging the remaining associate banks-State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore-the timing would depend on clearance from the government. SBI, the country's largest lender, has already merged two of its associate banks-State Bank of Saurashtra and State Bank of Indore-with itself to improve overall functioning and is ready with the template to merge the remaining five subsidiaries. Among other things, the bill that was supported by the parliamentary standing committee on finance seeks to empower the government to fix the authorised capital of associate banks and appoint managing directors. These amendments were necessitated as these powers were vested with the Reserve Bank of India from whom the ownership of these banks was transferred to the Centre a few years ago. The bill is among the six financial sector legislations being pushed by the government.
Pay tax dues early, says RBI
The Reserve Bank of India (RBI) has appealed to the income-tax assesses to remit the tax dues sufficiently in advance of the due date for avoiding last minute rush. In a release, the bank said that the remitting income tax dues at the RBI would be too heavy towards the due date and it would be difficult for the bank to cope with the pressure of receipts although additional counters to the maximum extent possible are provided. Further, the RBI also appealed to the assesses to take advantage of the facility available for payment of tax at the branches of public sector banks and designated private sector banks.
Macroeconomic indicators - RBI rate hike may hit factory output
Apex chamber ASSOCHAM said the Reserve Bank of India's calibrated approach with minimal risk to growth momentum by increasing its repurchase rate by a quarter point appears to be a fire fighting exercise with limited options. The Associated Chambers of Commerce and Industry of India The 25 basis points increase in short term lending and borrowing (reverse repo rate) in RBI's mid term policy review will hit the manufacturing sector which is already witnessing a slowdown due to rising input costs and wages. Mr Dilip Modi president of ASSOCHAM said that "This is the eighth time in 2010-11 that the central bank has raised key policy rates to cool prices. The demand-side inflationary pressures are a larger concern than risk to overall economic growth." He said Indian industry is already facing fluctuating crude oil prices due to Middle East crisis, threats of disruption in global supply chain because of the devastating earthquake and tsunami in Japan, besides uncertain recovery in the European Union and the United States after the economic meltdown. With inflation hovering at 8.31% in February and profit margins under squeeze, capacity expansion plans are being curbed, thereby restricting fresh investments. Mr Modi said the RBI should have waited till the new agriculture crop which is expected next month. He said that "The performance of capital goods sector is also a matter of concern as it has shown negative growth for the second consecutive month." Meanwhile, ASSOCHAM is advocating a single policy rate to improve monetary policy transmission. This will align the Indian monetary system with international best practices and swifter transmission of monetary policy instances. Mr Modi said that “We agree with the RBI panel recommendation that repo rate should be a single policy rate to unambiguously signal monetary policy stance to achieve macro-economic objectives of growth with price stability. This will also bring in more effectiveness and transparency in the banking system.”
RBI slams banks for arbitrage
Banks have come under fire from the Reserve Bank of India (RBI) for lending funds borrowed under the liquidity adjustment facility (LAF) in the overnight money market. The central bank has asked the banks not to engage in such a practice, as the purpose of LAF funds is to meet the reserve requirement only. At least twice last week, RBI officials communicated to banks’ top managements about their discomfort about lending liquidity adjustment facility funds to overnight money market. “Liquidity deficit, which had shot up last week had made the regulator start enquiring about the reason. When they came to know that banks were taking arbitrage opportunity by on-lending the borrowed funds in the call money market, they reminded us that LAF funds should be used for lending purposes,” said a top executive of a public sector bank. Last week, call rates went past 7 per cent on most days, while the repo rate — the rate at which banks borrow funds from RBI — was 6.5 per cent till the first liquidity adjustment facility of Thursday. On Thursday, RBI raised the reverse repo and the repo rate by 25 basis points each to 5.75 per cent and 6.75 per cent. According to banking industry officials, some of the foreign banks and small private sector banks were not having excess government paper to pledge funds from liquidity adjustment facility; so they were heavily dependent on the overnight market. Banks, which had excess government bonds, that was above the regulatory requirement of 24 per cent, seized the opportunity for making 50-75 bps margin in the call money market.“RBI was unable to accept the fact as to why the liquidity deficit should be so high when the government had started spending, despite advance tax outflows,” said another executive from a government-owned bank. During the November-January period when liquidity shortage was acute, banks were borrowing around Rs 1 lakh crore from RBI on a daily basis. However, from February the quantum of deficit came down to the central bank’s comfort level, which was +/- 1 per cent of banks’ net demand and time liabilities, or Rs 50,000 crore. The deficit, since, has come down because the government has stared spending which was reflected in the fact that government balances with RBI fell from a high of Rs 1 lakh crore in the middle of December to Rs 100 crore in the beginning of March — the minimum level that the government should keep with RBI. Bankers also said the strain in liquidity in the last week was moreover due to corporate advance tax outflow which was estimated in the region of Rs 50,000 crore.
Saturday, March 19, 2011
Bank holds soiled notes, coins exchange mela
BHUBANESWAR: The Indian Bank organised a Mela for the exchange of soiled, cut, mutilated notes and also coins in collaboration with the RBI here in the premises of Saheed Nagar Branch on Friday. RBI Deputy General Manager K.R.Padmanabha Rao inaugurated the Mela with distribution of coins to the public. It was conducted in the presence of DGM and Zonal Manager OP Ambasht, Assistant General Manager of Zonal Office HS Patro and Assistant General Manager of Bhubaneswar branch A Bhimeswar Rao with participation of staff members from different branches of the city here. All arrangements were made for the smooth conduct of the Mela that continued from 11 am to 3 pm.
Subscribe to:
Posts (Atom)