Global automobile major Volkswagen's Indian finance subsidiary Monday said that it has been granted non-banking finance company (NBFC) licence by the Reserve Bank of India (RBI). "The RBI license enables the company to offer customers of Volkswagen, Skoda and Audi cars the opportunity of a wide range of financial services,” Volkswagen Finance Private Limited said in a statement. The company said the licence would enable it to offer three product lines, including VW Finance, Skoda Finance and Audi Finance. “VWF India wants to present itself in the Indian market as a mobility provider with products which fully respect the needs of customers,” said Joern Achim Kurzrock, chairman of the board of Volkswagen Financial Services India. According to Kurzrock, the company would focus on specific needs of each customer segment by offering financing options including 3-in-1 bundled packages consisting of financing, insurance and maintenance. The Mumbai-based company would be making an initial investment of over $24 million (Rs.120 crore) in the country. The statement added that the company's customers can avail of financing options at any of the 164 dealer outlets of its brands.
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Tuesday, March 29, 2011
Looking for a locker? Banks aren't only option
Though private players have fewer branches, their costs are competitive. With rising break-ins in their neighbourhood, Brendan and Alexia are looking at locking away their valuables in a safe deposit locker. Earlier, their options were limited to only banks, both public and private sector, but now there are private players that offer this specialised service. Some of these companies include Kothari Safe Vaults, Sakthi Safe Vaults, India Safety Vaults and Asmita Safe Deposit Lockers. To target the customer, there are innovative techniques as well. Sakthi Safe Vaults, for instance, allows operation of the locker even on a Sunday. Salil Datar, head, branch banking and NRI Business at Dhanalaxmi Bank, explains, “Unlike banks, these companies are not regulated by the Reserve Bank of India (RBI). So, they can stay open longer and for more number of days,” he said. What limits private players is the reach. Banks do have an edge when it comes to the number of branches that offer the locker facility. Bank branches that offer this facility are located in many more cities compared to the private companies. As far as charges go, these are reasonable for both players. The annual rental is around Rs 1,000-5,550. However, they will also ask you to maintain a security deposit. And, if you do not pay your annual rent, it gets adjusted with the safe deposit. Once that security deposit is crossed and you still do not pay your rent, the bank can break the locker, record the contents of the locker and may be, file a police complaint. Banks could also ask the customer to maintain a fixed deposit with them, so that they can use the interest income towards annual payment. R U Trivedi, chief manager at Kothari Safe Vaults, says his company takes three years rental as deposit money, unlike in a bank where one has to pay a monthly rental as deposit. “In a bank locker, the interest earned is adjusted with the monthly rental. We charge between Rs 600 and Rs 4,000 a year, depending on the size of the locker.” As for the security of the private company lockers versus the banks, some claim that they have even bettered the safety standards set by RBI’S currency ‘A’ chest specifications. Both banks and private players do insure vaults, though the contents in it are not insured. This is because the contents in the vaults are only known to the owner of the locker. You will have to take an insurance policy yourself to safeguard the contents in the locker.
Banks in state lag in financial inclusion
The banking sector in Karnataka is lagging in implementing the Reserve Bank of India’s (RBI) ambitious programme of achieving financial inclusion in all villages with a population of 2,000 and above. The banks in Karnataka, which are in the forefront of implementing the programme, have barely achieved 50 per cent of the target by the end of February, 2011, a top banker said today. “As against the target of 2,253 villages to be covered by March 2011, the banks in Karnataka have covered only 1,121 villages with a population of over 2,000 so far. The shortfall in target relates mostly to regional rural banks (RRBs), which are presently in the midst of migrating to core banking solution (CBS),” Basanth Seth, chairman, state level bankers’ committee (SLBC) said. Delivering a keynote address at the 116th meeting of SLBC, here, he urged the RRBs to take suitable steps and speed up the process so as to cover the maximum number of villages by March 31, 2011. “Issues like connectivity, inadequacy of training and manpower at the field level, delay in issue and activation of smart cards among others were the chief reasons for the slow progress in achieving financial inclusion,” Seth said adding these issues require urgent attention. Further, products like the savings bank accounts, remittances, entrepreneurial credit, micro insurance and others, should be made available to each account holder under financial inclusion, Seth, who is also chairman and managing director of Syndicate Bank, said. The RBI has identified 3,395 unbanked villages in Karnataka to be brought under business correspondent (BC) model to achieve financial inclusion. So far, Kolar and Chikkaballapur villages have been fully covered under the BC model. RBI governor D Subbarao, who was in Bangalore recently to review the progress of financial inclusion by banks in Karnataka, has directed all the banks to submit a concept paper on ‘meaningful financial inclusion’. All bankers need to deliberate on this crucial aspect and come out with their suggestions, Seth said. While reviewing the performance of banks in the state as on December 2010, the SLBC chairman informed that the aggregate deposits stood at Rs 3,04,413 crore while aggregate advances were Rs 2,37,977 crore with a credit deposit ratio of 78.12 per cent. The advances to priority sector stood at Rs 1,03,302 crore, constituting 46.83 per cent of credit, surpassing RBI stipulation of 40 per cent. Similarly, the advances to agriculture sector were Rs 45,843 crore comprising 19.26 per cent of the total credit, which is above the stipulated level of 18 per cent. Advances to MSME sector stood at Rs 37,545 crore as at December 2010. Vijay Bhaskar, Regional Director, RBI, said the regulator has identified nine villages in Karnataka for adoption as model villages for financial inclusion and they will be showcased across the country to promote the novel concept. He also urged the banks in the state to spread more awareness about the financial literacy. During the meeting, a Kannada version of the book on “Inclusive growth through Business Correspondent”, brought out by Indian Institute of Banking and Finance, southern zonal office, was released by S V Ranganath, chief secretary, government of Karnataka. M N Krishnamurthy, vice president, Indian Banks Association, briefed the house on “Swabhimaan”, the national level awareness campaign on financial inclusion.
An ATM at your kirana shop
The next time you fall short of cash while on a shopping spree, you may not have to rush to the nearest automated teller machine (ATM). The Reserve Bank of India (RBI) has allowed banks to set up electronic retail machines at the merchant’s establishment, popularly called point of sales (POS). This will allow you to withdraw cash — up to Rs 1,000 at one time — with your debit card at the shop itself. At least five banks — Union Bank of India, ICICI, HDFC Bank, IDBI and Axis bank — have started installing these electronic retail machines or cash at POS machines at merchant establishments across select cities. This should soon be a pan-Indian service, as the network expands and other banks follow suit. Importantly, it can be done with or without purchasing anything from the enabled merchant establishment with POS terminals. If you withdraw cash at merchant establishments along with the purchase of merchandise, the receipt generated should separately show the amount withdrawn. This move will particularly benefit those who do not like to carry cash. One can use this to make small purchases or to pay cab fare. But for bigger purchases, this facility does not work so well. Moreover, although the merchant establishment will not charge a fee for dispensing cash, your bank could. While this service is free for IDBI and HDFC Bank’s debit cardholders, both ICICI and Axis Bank are currently levying a service fee of Rs 10. At this cost, paying through your debit card rather than cash will be cheaper. Also, don’t use to withdraw very small amounts because the cost, as applicable in some cases, is not worth it.
SBI's self service banking centre
State Bank of India (SBI) has opened a self-service banking centre in Hyderabad to increase customer convenience and provide 24/7 access to banking. The centre, a branch-less and staff-less technology-based banking outfit, has a multifunction kiosk for internet banking and to print statements. It also provides multiple banking facilities such as ATM, internet and mobile banking, chequebook request, mobile top-up, train ticketing and income tax payments using debit or credit cards. It has three ATMs, including one for the visually-challenged with braille keypad. One BNA (bunch note acceptor) would be installed shortly where customers can deposit money through the machine, a release said.
Wanted - A dream team
Montek Singh Ahluwalia, Shankar N Acharya, Ashok V Desai (though for a short period), K P Geethakrishnan and M R Sivaraman were there to give shape to the idea of early economic reforms initiated by Manmohan Singh. At a step or two below, there were R Venugopal Reddy, N K Singh and Duvvuri Subbarao. Reddy later moved to the commerce ministry before joining the Reserve Bank of India (RBI) as deputy governor and then, after a short stint at the International Monetary Fund, became the head of the central bank. Singh later became the revenue secretary. Subbarao became the finance secretary and is now the RBI governor.
'Ill-conceived financial inclusion strategy may have negative social impact'
The Reserve Bank of India (RBI) wants commercial banks to view financial inclusion as a business opportunity and not a social obligation. “The social costs and consequences of badly conceived and executed inclusion strategy could be enormous. Understanding what the potential consumer needs and why he needs it is one such knowledge input that is critically important,” said Subir Gokarn, Deputy Governor of RBI at a recent event. He said that every aspect of a financial inclusion strategy – whether it is the design of products and services or the delivery mechanism – needs to be viewed in terms of the business opportunity that it offers and not as a deliverable that has been imposed on the service provider. He also said commercial viability need not necessarily be viewed in terms of immediate cost and profitability calculations. Establishing a relationship with first-time consumers of financial products and services offers the opportunity to leverage this relationship into a wider set of financial transactions as at least some of these consumers move steadily up the income ladder, said Gokarn. “In fact, in a high growth scenario, a high proportion of such households are likely to move quite quickly from very basic financial services to more and more sophisticated ones.” Financial inclusion had taken centre stage since the RBI had mandated all commercial banks to cover all villages with a population of 2,000 and above by the end of FY 2012. Banks were also asked to prepare and submit their financial inclusion plans to RBI last year. Banks are currently in the process of implementing the plans. To bring the unbanked population under the ambit of financial services, banks are offering no frills accounts and overdraft facilities on such accounts to make them more attractive. One need not maintain a minimum balance in these accounts.
Bank guidelines soon
New Delhi, March 28: Draft norms on new banking licences will be announced in the next few days, the finance ministry said. “The RBI will come up with the guidelines by the end of this month,” R. Gopalan, secretary in the department of economic affairs, said. The finance ministry will review the guidelines and comments will be invited from the public before the final guidelines were notified, he said.
Monday, March 28, 2011
RBI distributes assets under financial inclusion scheme
RAMPACHODAVARAM: Reserve Bank of India Regional Director A.S. Rao has said that Financial Inclusion is the only method to reach out to interior villages and clear the disparities in the society. He said that with the help of lead banks in the districts, RBI wants to bridge the gap between banker and villager and see that all the banking services will reach to all villages. Participating in assets distribution camp under Financial Inclusion Literacy programme in Devarapalli in the Agency on Saturday along with ITDA project officer Ronald Rose Mr. Rao said that in East Godavari with the support of Andhra Bank they could reach out to interior villages in extending banking services to tribal people. He said that the concept of Financial Inclusion includes opening of bank accounts to all villagers in a selected village and explain about the operations to the youth in that particular village through literacy programme. Mr. Rao said that they would avail the services of unemployed youth . He explained the concept that there are 2,700 villages in the State where there are no banks in which by March 2012 they want to start these correspondence services. Mr. Ronald Rose, Project Officer ITDA said that tribal women should make use of the loans offered by the banks and repay them on time. The villagers asked the Project Officer to open Andhra Bank branch in Maredumilli for which he said that he would forward the representation to the CMD of the bank. The Project Officer asked the RBI officials to arrange loans to tribal people in Agency area. Mr. Rao distributed Bolero vehicle worth Rs.7 lakhs, to a tribal man, Rs.14 lakh bank linkage, and Rs.13 lakh to small scale industries . Andhra Bank DGM Mr. Doraiswami, Lead Bank Manager Mr. Jagannatha Raju, RBI AGM Mr. Kiran Kumar and others participated.
No differences with RBI on new bank licence norms: Pranab
MUMBAI: Finance Minister Pranab Mukherjee today termed as "conjectures and media speculations" the reported differences between him and the Reserve Bank of India on capping FDI at 49 per cent in new commercial banks, the licences for which are likely to be issued soon. "These are all conjectures. There is no question of happiness or unhappiness. We have just received the draft guidelines from the RBI and it is being examined. These are the two wings of the government; we work together and do not indulge in these kinds of speculations," Mukherjee said as he rubbished his reported differences with the central bank on the draft proposals. The Finance Minister was interacting with the media after addressing a post-budget meet organised by the Assocham. The norms seek a cap on foreign direct investment in new private sector banks at 49 per cent. Earlier in the day, Mukherjee said: "We are studying the Reserve Bank's final draft proposals (on new private bank licences). We would take a call on it soon." He was said on the sidelines of Sir Sorabji Pochkhanawala (founder of Central Bank of India) Memorial Lecture 2011 as part of the bank's centenary year celebrations here. There were reports in a section of the media that the Finance Ministry was opposed to the RBI suggestion to restrict FDI in new banks to 49 per cent as the change in norms would hurt investor sentiment. The Ministry reportedly asked RBI to reconsider the same. The move will help the government and the RBI to discourage flow of hot money, which has crossed over USD 60 billion this fiscal, in the country. The ministry has also reportedly asked the RBI to ensure the guidelines clearly say that the new banks would be exempted from Press Notes 2, 3 and 4. Without such exemptions, these banks would become foreign banks if overseas investment in them crosses 50 per cent, which in turn would lead to imposition of the same restrictions on them that apply on foreign companies. Already the country's largest two private sector banks -- ICICI and HDFC's nationality is under cloud as over 50 per cent of their stake are owned by FIIs. Earlier this month, the RBI had submitted its final draft proposal on new private bank licences to the finance ministry in which it called for a holding company structure for promoters of new banks besides capping the FDI at 49 percent.
Udhna Bank case may be handed over to CID
SURAT: Police commissioner Shivanand Jha has suggested to the director general of police of Gujarat that the investigation into the Udhana Citizens’ Cooperative Bank case may be handed over to the economic cell of the CID. The first criminal complaint in the case was registered against the bank's chairman and general manager 10 days ago. Primary investigation into the case has revealed that ad hoc withdrawal of about Rs 13.60 lakh had been made and the public money was misused. The Reserve Bank of India (RBI) had about four and half months ago imposed restrictions on the functioning of Udhna Citizens Cooperative Bank under Section 35 (A) of the Banking Regulation Act. An administrator for the bank, which has about 51,339 account holders and depositors, was also appointed later. The bank has on paper assets and deposits worth Rs 93 crore and made advances to the tune of Rs 68 crore. A large portion of the industrial lending, housing loan and mortgage loans recoveries have not been realized putting the bank to the risk of liquidation.
India May Get its 1st Foreign Islamic Bank in Bank Asya
India may soon get its first foreign Islamic bank with the Reserve Bank of India (RBI) seeking government approval to allow Turkey’s Bank Asya to offer Shariah-compliant lending in the country. Shariah, or the Islamic law, bans interest on financing. Bank Asya is keen to start its Indian operations through a representative office in Mumbai. “So far the bank has only sought permission to open a representative office,” a finance ministry official said. “We are considering their application.” RBI has requested the government to consider the Turkish bank’s application within 45 days. Launched in 1996, Bank Asya aims to develop interest-free banking products, according to its charter. It has 179 branches in Turkey. The current statutory and regulatory framework in India does not allow banks to undertake Islamic banking activities. But the Committee on Financial Sector Reforms, constituted by the Planning Commission, had in a report in 2008 recommended delivery of interest-free finance on a larger scale, including through the banking system. Last year during a visit to Indonesia, the country with the world’s largest Muslim population, Prime Minister Manmohan Singh had said that he would ask RBI to look into the demand for establishing Islamic banking in India. Bank Asya had in 2009 received clearance from Turkey’s banking regulator to open a representative office in India. Its proposal has been pending with RBI for over a year. “After the global economic crisis, RBI has been stringent with allowing foreign banks in the country,” the finance ministry official said. “As a part of its liberalised policy for foreign banks, it has now granted permission to Bank Asya.” Global financial centers, such as Singapore, Hong Kong, Geneva, Zurich and London, have made changes in their regulations to accommodate Islamic finance industry that is now worth about $1 trillion. The case for Islamic banking got a boost in India last month when the Kerala high court dismissed writ petitions challenging the government sanction for starting a nonbanking finance company by the Kerala State Industrial Development Corporation, based on the Shariah. The petitioners had argued that the government sanction amounted to favouring Islam, and that setting up such a company with co-ownership of the state was antithetical to equal treatment for all religions. But the court said the petitioners could not demonstrate how the sanction had the effect of directly promoting a particular religion. India had committed to the World Trade Organization in 1997 to issue 12 new branch licenses to foreign banks every year, a number it has exceeded almost every year since. The finance ministry has said that there are 18 foreign banks, which are looking to set up their branches or representative offices in the country and their applications are at various stages of progress. At present, there are 32 foreign banks in the country.
Govt, RBI working to lower banking costs, expand reach: Pranab
Expressing concern over high costs and limited reach of banking services, Finance Minister Pranab Mukherjee today said that the government was working in collaboration with RBI to address these concerns. “The cost of banking intermediaries in India is high and bank penetration is limited to only a few customer segments and geographies,” Mr. Mukherjee said here today. “We are trying to address this in collaboration with the Reserve Bank of India, and with the active participation of the banking and non—banking financial entities,” he added. Mr. Mukherjee also said that there was a need to “reflect upon possible flaws in our system and address them to withstand adversities. We need to make our financial sector more competitive by enhancing efficiency and transparency.” “While greater competition is welcome, we have to guard against the competitive race to the bottom,” he said, while expressing hope that this perspective would guide the growth of Indian banking system in the coming years. Mr. Mukherjee was speaking at Sir Sorabji Pochkhanawala Memorial Lecture 2011 as part of the centenary celebrations of Central Bank of India. The PSU bank was set up by Sir Sorabji Pochkhanawala. The Finance Minister said that PSU banks were playing a very important role in India’s economic growth and they constitute over 72 per cent of the banking sector assets in the country. “While they are expected to improve their outreach and scalability for sustaining high growth of the economy, they are second to none in retail banking practices and profitability. “There are, however, several concerns that need to be fully addressed,” Mr. Mukherjee said, in reference to the issues like high costs and need to expand the banks’ reach to more customer segments and geographies. The minister said that most of the financial sector policies in the past few decades were aimed at accelerating the penetration of the banking and financial services. “However, as I said, the outcomes of these efforts are yet to show the desired results. Newer perspectives and approaches towards financial inclusion are the need of the hour. “There is a case for the policy makers and other stake holders to re—strategize the financial policies that are meant to reach the un—reached and the unbanked sections of our country,” he added. To address the issue of capital constraints faced by the PSU banks, Mr. Mukherjee said the government had provided over Rs 20,000 crore towards recapitalisation of public sector banks during 2010—11. “An additional amount of Rs 6,000 crore is also being provided for 2011—12. This will enable the PSBs to meet the credit requirements of the growing economy,” he added.
Symantec favours more security for online transactions
With consumers using variety of mobile devices like smartphones, tablets and netbooks, banks need to ensure security features like two-level authentication to safeguard online transactions, says security software firm Symantec."Today's threat landscape requires a multi-layered approach where user identities are authenticated on at least two levels. "Two-factor authentication is a type of authentication that is based on something a user knows (factor one) plus something the user has (factor two)," Symantec Director (Development) Suhas Prakashkumar told PTI. In order to access a network, the user must have both factors to retrieve money from a bank account, making the transaction safer, he added. Recently, the Reserve Bank of India (RBI) said banks need to put in place an additional layer of security for credit and debit card transactions over IVR (phone) in India. This is further to its instructions in April 2009 to provide additional authentication beyond data available physically on the card for all internet banking transactions. Two-factor authentication often includes a one-time password (OTP), which is sent to the user to his/her registered mobile phone number. This OTP is refreshed after every 30 seconds to ensure further security. Therefore, even if a hacker has someone's card details, he/she doesn't have access to the handset/ device where OTP is sent, and the transaction will not be completed. "The RBI has taken cognizance of the continued growth in sophistication of the threat landscape, where attackers are looking to steal confidential information for financial gains," Prakashkumar said. According to a Symantec report (July-September 2010), 23 per cent of global goods and services advertised on the online underground economy -- worth over $5.3 billion -- involved stolen credit card details. "As more Indians transact online, it is imperative for businesses -- both banking institutions as well as online retailers using digital medium -- to ensure a level of trust and confidence that customer/user accounts are secure and their data is not exploited," Prakashkumar said. It is particularly important not only to ensure security, but also demonstrate security since customers first need to trust the site before parting with their information and money, he added. "This can be done through keeping the consumer informed of the various security measures taking by the bank, providing tips on securing transactions etc," he said. With banks enabling users to conduct transactions through mobile devices, security of financial information becomes crucial, especially when there are over 700 million mobile subscribers (according to TRAI), Prakashkumar added.
GOVT YET TO DECIDE ON NEW SBI CHIEF
The government is yet to take a final decision on who will be the next chairman of State Bank of India (SBI), the country’s biggest lender. Present chairman O P Bhatt’s term ends on Thursday. When Business Standard asked Bhatt if his successor had been decided by the government, he replied: “Not to my knowledge.” Earlier media reports claimed four deputy managing directors – Pratip Chaudhuri, Hemant Contractor, Diwakar Gupta and A Krishna Kumar – were in the race for the top post. Finance minister Pranab Mukherjee, present here today at an event organised by the Central Bank of India, refused to comment. “As and when it takes place, you will come to know. We don’t make premature announcements,” he told reporters. Special rate home loan. Separately, Bhatt said SBI would decide on extending its special rate housing loan schemes on Thursday. The schemes are set to expire at the end of this month. “We will see on March 31 (if there’s an extension), as we always do. Of course, there is a scope that the deadline can be extended,” Bhatt said, without detailing. Under the scheme, SBI’s interest rate on home loans up to `30 lakh is 150 basis points over its Base Rate and for housing loans between `30-75 lakh, it is 175 basis points over the minimum loan rate. SBI’s minimum loan rate or Base Rate is now at 8.25 per cent. The bank has been extending its low interest housing loan schemes despite Reserve Bank of India’s concerns over these. The regulator fears that low-rate loan products are likely to deteriorate a bank’s asset quality in the long run. Bhatt, however, said SBI had not witnessed significant slippages in its special rate home loan portfolio.
Prolonged inflation is dehumanizing - S.S.Tarapore
There is a strongly articulated viewpoint that inflation is a necessary concomitant of growth. The Indian economy has now been in the throes of inflation for the second year. In the ultimate crunch, proponents of growth have prevailed over the Common Persons fear of inflation. There have been many instances, in the past, when inflation has spun out of control but on each occasion decisive action has been taken to curb inflation, irrespective of the fall out of these anti- inflationary policies. In the recent period, however, there are strong underlying political economy pressures to ensure that nothing be done which would slowdown growth. The longer we defer slaying the dragon of inflation, the worse would be the eventual price which has to be paid for reining in inflation. Among the emerging market economies, ( EMEs), India was known for one of the lowest inflation rates. It is disconcerting that now India has one of the highest inflation rates among the EMEs. In contrast, those countries with historically high inflation rates have brought down their inflation rates. In India there is, at present, a powerful lobby that sees great merit in not countenancing any deceleration in growth, notwithstanding the devastation caused by inflation. Anyone advocating a conscious slowdown in growth is treated as a renegade who should be ostracized. We seem to be moving towards a society which upholds the Thrsymachus Principle that " justice is the interest of the stronger"( a viewpoint which is rejected in Plato's Republic) There is a strongly articulated viewpoint that inflation is a necessary concomitant of growth. Policymakers with impeccable credentials cogently argue that the objective is growth with price stability but many of these policymakers are not willing to recognize that some growth has to be sacrificed in the control of inflation. When a couple of years ago, the then US President George Bush attributed the world commodity inflation to the poor eating too much, there was an uproar. It is amazing how attitudes have changed. International Monetary Fund ( IMF) officials have argued that consumers should get used to paying more for food as demand is rising faster than output and that it will take years before production can be expanded to keep up with increased demand. Nearer home, in India, it is being argued, in official documents, that the policy of " financial inclusion" is the cause of inflation. For instance, it is argued that because of the Mahatma Gandhi National Rural Employment Guarantee Act ( MGNREGA) consumption has gone up thereby causing inflation. Inflation is attributable to the Common Person putting his money into circulation! There is also a viewpoint that inflation in primary articles, particularly food, is because the standard of living of the poorest segments going up. There is the ingenious argument that inflation is healthy as it reflects the improvement in the standard of living of the masses. It is now becoming the conventional wisdom that inflation is caused by the poor eating better. In this context it is argued that only vibrant growth can ensure that inflation would abate and any slowing down of growth would worsen the inflationary situation. This is like advocating sinning for a good cause! While Indian macroeconomic policy is not formally committed to " inflation targeting", traditionally, monetary- fiscal policy has all along emphasized the importance of a low " acceptable" rate of inflation. In policy pronouncements the " acceptable" rate of inflation for March 2011 has moved up from 5.5 per cent in April 2010 ( when the inflation rate was 11 per cent) to 8 per cent as we approach the end of March 2011. One recognizes the difficulties in conducting macroeconomic policies as extraneous developments in the global economy ( particularly crude oil) are contributing to the inflationary pressures. While there are no soft policy options, what the present policies portend is an acceleration and not a deceleration of inflation. It is unfortunate that the weakest segments, particularly in the interiors of the country, are unable to strongly articulate the imperative need to undertake a significant and enduring reduction in inflation. What is also of concern is that the urban and semi- urban poor are being hit by the all pervasive effects of inflation. Inflation is even hurting the articulate middle class and there are dangers of a serious social backlash. Now, what should be the response of the small saver in a scenario where inflation shows no sign of abating? There are two policy signals which need to be taken note of. First, policymakers have expressed the hope that lending rates will drop as inflation eases. Secondly, banks are temporarily offering relatively high rates of interest on fixed deposits, which for senior citizens is currently as high as 10 per cent for periods of 555 days. Small depositors would do well to quickly lock themselves into these relatively high deposit rates as these deposit rates are unlikely to continue beyond the end of March 2011. There would be strong pressures to reduce lending rates well before a significant reduction in inflation rates which will imply that deposit rates would fall in the very near future. In the present milieu, the small depositors would do well to immediately storm the deposit desks of banks. As the sage economist the late Professor P. R. Brahmananda has poignantly said: " Not caring about inflation is like going into battle not caring about the wounded, the dying and the dead." Such an approach is dehumanising.
Banana plants hold key to hidden treasure, literally
If everything goes well, it could be a jackpot for the research scientists at Navsari Agricultural University (NAU), who are engaged into making high-quality paper from banana plant that can meet the specific standards used to make currency notes in India. The research scientists have already prepared specimen and sent it to the Research and Development wing of the Reserve Bank of India in Mumbai, which has been in touch with the university authorities for the last few days to make the research viable on a large scale. At present, RBI uses imported pulp to make currency notes. Banana plantation is high in Gujarat and farmers reap handsome profits. Research scientists from the NAU have been working for years to find ways to make use of wastes of banana plants. The pseudostem of banana plant is stocked as waste by farmers, who find it difficult to dispose it. The NAU team carrying out research on pseudostems have found these useful in making edible candy, high-quality paper, yarn, organic manure and its medicinal properties. Besides scientists from the NAU, the 12-member team of researchers also included scientists from J K Paper mill at Songadh in Surat, Indian Council of Agricultural Research in Mumbai and Mantra, a Surat-based private organisation engaged in research into man-made textiles and textile education. R G Patil, who is heading the team, said: “We are working hard to make high-quality paper used to make currency notes, cheque books and other important government stationery. We have taken this project on a pilot basis and have sent our findings to RBI a few days ago. We hope an RBI team will visit NAU soon. If our project is approved, we expect that the cost of making currency notes will be cut.” Patil said the high-grade paper that they have made from pseudostems of banana plants could be stored for hundreds of years. From one pseudostem of banana plant, 1.5 per cent of its fibre content can be extracted in a mechanised way while remaining waste can be used in liquid fertilisers and organic manure, he added. “Even farmers will get good returns by selling wastes of banana plant,” Patil said.
Sunday, March 27, 2011
Succession planning 'important for Indian businesses’ - Dr.Y.V.Reddy
One of India's leading economists has spoken about the importance of effective succession planning for businesses in the country. Dr Y.V.Reddy, former Governor of the Reserve Bank of India, said corporate leaders have a duty to ensure that they leave their organisation in capable hands after stepping down. According to the Times of India, Dr Reddy made his comments during a recent conference entitled Leadership and Corporate Governance in Turbulent Times at the University of Hyderabad. He suggested India's traditional business models can lead to problems in succession planning because family members are often selected to replace an outgoing leader, regardless of their suitability for the role. "A good leader is one who is able to ensure there are better leaders after him," the expert commented. Dr Reddy became the 21st governor of India's central bank in 2003 and stepped down in September 2008, when he was succeeded in the role by Duvvuri Subbarao.
Bank fined Rs 1 lakh for not complying with RBI guidelines
The Reserve Bank of India has imposed a penalty of Rs 1 lakh on Bhabhar Vibhag Nagrik Sahakari Bank Ltd (BVNSBL) in Gujarat for not complying with the guidelines on reporting financial transactions of over Rs 10 lakh. "The RBI has imposed a penalty of Rs 1 lakh on the Bhabhar Vibhag Nagrik Sahakari Bank Limited, of district Banaskantha," an official statement said. The bank had failed to follow RBI's instructions on maintenance of records of cash transactions of over Rs 10 lakh, and reporting them to Financial Intelligence Unit-India. BVNSBL had earlier been served a show-cause notice by the apex bank. After it submitted a reply, the penalty was imposed, an RBI official said.
Jammu & Kashmir Bank’s subsidiary receives RBI approval
Jammu & Kashmir Bank???s subsidiary - JKB Financial services has been permitted by RBI that in addition to stock broking services it can undertake the following activities of Depository Services and Collection of Utility Bills. Further RBI has also permitted the banks subsidiary to enter into distribution of Life & Non-Life Insurance, Mutual Funds and Credit Cards. Recently, the State Government has overdrawn Rs 2,300 crores from Jammu and Kashmir Bank (J&K) in the form of outstanding overdraft (OD) facility. In accordance with the recommendations of the 13th Finance Commission and with the help of union finance ministry the liability will be wiped out in one go. The outstanding overdraft amount would be paid soon to the bank. Jammu and Kashmir Bank has a pan-India presence through its network of 556 branches, out of which 344 branches are located in semi-urban and rural areas. It also includes extension counters and service branches. The bank has a network of 212 ATMs which is the largest ATM network in J&K. It is the only bank in private sector that has been designated as agent of RBI for banking.
Only 500 in Nagpur turn off their lights!
NAGPUR: A city with a population of more than 35 lakhs, but only 500 seemed to have woken up to the reality of Earth Hour. A little more than 500 people from Orange City shut their bulbs, fans, TVs, computers, etc to observe Earth Hour on Saturday at 8.30pm. Evidently the response is very poor but environmentalists see light in the darkness as they feel in future these 500 people will spread the message and the vision of Earth Hour will be realized. Environmentalist and a founder of NGO Green Vigil Kaustav Chatterje and his 35 members visited many areas to create awareness among Nagpurians to observe 'Earth Hour' by switching off lights. Subsequently, around 200 flat owners residing in many apartments including Bhavishyati, Jaika, Hemchandra, Prestige and Utkarsh (Anuradha) from Civil Lines area observed the cause. Similarly, Green Vigil members, who also campaigned in Mahal, Nandanwan, Manewada, Kamptee, Kanhan, Vaishali Nagar, Motibagh and Institute of Science's girls' hostel also participated. Kavita Chatterje, another member of Green Vigil said that the Earth Hour was a global initiative by WWF ( World Wide Fund for Nature) that aimed to send out the message that people are concerned about climate change and that policymakers should make it their topmost priority. She claimed that the members also urged the shop owners to at least turn off the lights of their hoardings or banners. Shakti Rattan, retired RBI official and administrative head of the NGO, pointed out that every citizen should participate in this campaign. He further explained that there are thousands of countries, many religions, but there is only one Earth. "Hence, irrespective of caste and creed, people should come forward to save the Mother Earth," he said.
The ‘real’ truth behind Yunus’ Grameen story
The feud in Bangladesh between Prime Minister Sheikh Hasina and Mohammed Yunus, the founder of the microloan-making Grameen Bank and a winner of the Nobel Peace Prize, is being portrayed as a modern-day replay of the famous battle between the wicked Kauravas and the virtuous Pandavas in the "Mahabharata". The suggestion is that a vindictive prime minister is playing politics in punishing the saintly Yunus, the man who pioneered microfinance, for having threatened to enter politics. Sheikh Hasina is even being compared to Russia's Vladimir Putin in his campaign against the oligarch Mikhail Khodorkovsky. But the Grameen case is more complicated, and carries a moral contrary to what Yunus' wellmanaged public-relations campaign suggests. First, Sheikh Hasina is no ordinary politician. She is the daughter of the first president of Bangladesh , Sheikh Mujibur Rahman, a charismatic leader often described as the Father of the Nation, who was assassinated in August 1975 by the army. Hasina won office in 2009 after a landslide victory in an election that was free from fraud. She is also one of the few women to have gained the premiership not by inheriting it, but in her own right, long after her parents and some of her siblings were murdered. Sheikh Hasina escaped the massacre of her family only because she was in Germany at the time. Over many years, she patiently worked her way back into, and to the top of, Bangladeshi politics. Moreover, Sheikh Hasina has gained political power at the polls in an Islamic country, which is no mean feat for a woman. By getting the US to side with Yunus against the Bangladeshi prime minister, secretary of state Hillary Clinton seems guilty of arrogantly intervening in the domestic affairs of a friendly, democratic government —in direct contradiction of President Barack Obama's preferred modus operandi. Second, many of those now discounting Sheikh Hasina's credentials are guilty of inflating those of Yunus. Consider the frequent refrain that Yunus is the "pioneer" of the microfinance movement. In fact, the true pioneer of microfinance is a remarkable woman from Ahmedabad , Ela Bhatt, a follower of Gandhi who established SEWA (Self-Employed Women's Association ) as a bank in April 1974, two years before Yunus founded his Grameen Bank Project in Jobra, Bangladesh. Throughout its existence, SEWA has been regulated by the Reserve Bank of India, staying strictly within the law and seeking no special dispensations. Unlike the Grameen Bank, it has received no foreign money (such as the grant of $100 million from Norway, the handling of which led to the initial charges of malfeasance against Yunus), and it has distributed dividends of 9-12 % annually each year since its founding. Yunus is suspected of covering up losses at Grameen with huge sums of money from abroad, whereas SEWA has demonstrated that poor, self-employed women can own and run a financial body in a self-sustained fashion without external largesse. Third, many Bangladeshis, jealous of the independence they secured in the crucible of the Pakistani army's genocide in East Pakistan 40 years ago, resent the vast influx of foreign money , which has turned Grameen and Yunus almost into a rival to the democratically elected government, a phenomenon that no government would tolerate. Indeed, Clinton's intervention in the feud between Yunus and Sheikh Hasina highlights the danger of foreign influence in Bangladesh's internal affairs. Finally, there is the issue of microfinance itself . Microlending is certainly a useful supplement to tested anti-poverty policy instruments —and one that pays an extra dividend insofar as it aids women. But the fact is that India's massive economic reforms, which began in earnest in 1991, have had a far greater impact on poverty , and indeed on the incomes of several disadvantaged groups, including women. This has been amply documented by recent empirical studies, which have shown that earlier assertions to the contrary were wrong. By contrast, Bangladesh has not experienced anything like India's acceleration in economic growth. As Sheikh Hasina has seemed to appreciate since returning to office two years ago, Bangladesh has for decades been handicapped by doctrines that undermine growth. Unfortunately, Bangladesh's most influential economists, and hence the country's policies, remain mired in the growth-killing socialist economics that they learned at Cambridge and the London School of Economics a half-century ago. Ela Bhatt's SEWA adds to the huge benefits to the poor and underprivileged that a reformed macroeconomic policy framework has brought to India. By contrast, Yunus's Grameen Bank puts at best a microeconomic finger in the leaky dyke of Bangladesh's largely unreformed macroeconomic policies. Can we hope that the Grameen affair will be a prelude to the fight for the liberal reforms that will transform the Bangladeshi economy?
(The writer is professor of economics and law at Columbia University and senior fellow in international economics at the Council on Foreign Relations)
Credit-counselling centre opened at Perumbavoor
The Union Bank of India, the lead bank of Ernakulam district, has set up the first financial-literacy and credit-counselling centre in the district at Perumbavoor. D. Subbarao, Governor, Reserve Bank of India (RBI), recently visited the centre, accompanied by Suma Varma, Regional Director of the apex bank in Thiruvananthapuram. M.V. Nair, Chairman and Managing Director of the Union Bank, and Mayank Mehta, Regional Head, were present. Such centres, recommended by a high-power committee headed by Usha Thorat, former RBI Deputy Governor, on the lead-bank scheme, are being set up in every district to provide counselling through face-to-face interaction or e-mail, mobile phone, fax and other media. Special stress is being laid on educating people in rural and urban areas on various financial products and services available from the formal financial sector and making them aware of the advantages of connecting with the sector. Ideas are disseminated for formulating debt-restructuring plans for borrowers in distress and recommending them to formal financial institutions, including cooperatives, for consideration and taking up such activity that promote financial literacy, awareness of banking services, financial planning and amelioration of debt-related distress of individuals.
Saturday, March 26, 2011
Financial inclusion programme held
VISAKHAPATNAM: A ‘Financial inclusion and literacy programme' was held as part of the platinum jubilee celebrations of Reserve Bank of India (RBI) at Chintalaveedhi village of Paderu mandal in the district on Thursday. The village was adopted by the RBI and attached to Union Bank of India, Paderu branch, to cater to all the banking needs of the villagers of that village. The objective of adopting the village was to save the villagers from the clutches of money lenders and micro financiers, according to a statement issued by the bank. Regional Director of RBI, Hyderabad, A.S. Rao inaugurated the programme. General Manager of State Bank of India T.S. Ramaswamy, Assistant General Manager of UBI, Visakhapatnam region, D.V. Gupta and Project Officer of ITDA, Paderu, S. Satyanarayana participated in the inaugural programme. In his report, the Branch Manager of UBI Paderu N. Subba Rao said that there were 210 households in Chintalaveedhi and ‘no frills' accounts were opened in the names of the householder and his wife. They were given an ATM card, cheque book and passbook. He said that SMART cards were issued to 50 per cent of the eligible beneficiaries. The speakers stressed the need for timely repayment of the loans taken for availing more facilities from the banks. Assistant General Manager, RBI, Hyderabad, Krishna Kumar proposed a vote of thanks.
Issue of new bank lincences
The finance ministry is correct when it says that the Reserve Bank of India (RBI) should not curb foreign investments in new banks at 49%. Today, foreign investors can hold up to 74% stake in established banks; so, a lower ceiling for new banks will make no sense. Instead of making sectoral rules simpler and more transparent, the RBI's suggestion, if turned into policy, will create extra clutter with two different caps on overseas investments in the same sector. The government is also correct to specify that real estate companies should not be allowed into banking. The world over, real estate markets are subject to long-duration business cycles, which on the downturn have been known to destabilise entire economies. This happened in Japan in the 1990s and more recently in Europe and the US. Besides, India's real estate market is notorious because it is a sink of cash transactions and there's a very real fear that realtors could turn banks owned by them into money laundering machines. So, allowing real estate companies to start banks will be a recipe for the perfect economic storm and the RBI and the government are correct to be wary of such a possibility. Less than half of all Indians have access to a bank account. This is a shame, in the second-fastest growing big economy in the world. For many years, inclusive banking has been talked about, but little has happened to push banking deeper into India's hinterland. Low levels of literacy combined with the mass of paperwork that all banks need to open and operate accounts contribute to the low penetration of banking. The lack of urgency demonstrated by commercial banks to open branches and services in rural India adds to the problem. To push banks to the hinterland, the RBI correctly specified that at least 25% of all branches of new banks must be in towns with populations of 10,000; the finance ministry should not dilute this by raising the population bar to 50,000. If it is serious about inclusive banking, the rules for all banks and not just new ones, should say that a quarter of all branches must be in towns where at least 10,000 people live.
Seven years jail for melting, destroying coins
New Delhi: The Lok Sabha on Friday passed the bill making melting or destruction of currency coins punishable by a maximum jail term of seven years. The Coinage Bill, first introduced in the house in December 2009, was given the nod without a discussion after Finance Minister Pranab Mukherjee moved it. The laws amalgamated under this comprehensive legislation are the Indian Coinage Act of 1906, the Small Coins (Offences) Act of 1971; the Metal Token Act of 1889 and the Bronze Coin (Legal Tender) Act of 1918. The parliamentary standing committee of the finance ministry sought a jail term of 10 years for those destroying coins. But the union cabinet settled for seven years imprisonment. The bill broadened the definition of "coin" to include one rupee currency notes which are virtually out of circulation. As coins made of silver, nickel, copper and bronze are no longer in circulation, the legislation proposed to bring under its cover the use of any other material besides metals or mixed metals, informed sources said. According to the Reserve Bank of India, coins with denomination of 25 paise and below will cease to be legal tender from June 30. Now, coins of 50 paise, Re 1, Rs 2, Rs 5 and Rs 10 are in circulation.
Rangarajan for monetary tightening
New Delhi: The Reserve Bank of India will have to continue with its monetary tightening policy to curb the inflation that continues to remain in the uncomfortable zone, Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan said on Friday while forecasting that headline inflation may come down in coming months falling from a level of 8% in February to 7.5% in March and further down to more confortable level of 6% in the next financial year. “The inflation rate continues to remain high and therefore, monetary policy will have to remain tight in order to ensure that the inflation rate is brought down,” Rangarajan said on the sidelines of the Skoch summit in the Capital. The apex bank has already revised key policy rates eight times this year to squeeze liquidity from the system and put a check on rising inflation on a the short term. The measures have helped in bringing down headline inflation from double digit mark earlier to 8.3% in February. Rangarajan said that while there were positive indications that inflation may fall further in coming months, concerns remained on high crude prices that may get rise furtrher in wake of ther Libyan crisis and act as deterrant for checking inflation. “If the crude oil prices remains at a high level, this could impact government finances and price level,” he said. On growth, Rangarajan said that the Indian economy may grow by 8.6% in the current fiscal and 9% in the next financial year. However, inflation and deficits are constraints to 9% sustainable growth, he added. Rangarajan also exudede confidence that capital inflows of around $60 billion in the year will keep the current account deficit in check during 2010/11 and finance the deficit levels of just over 2.5%.
RBI okay with banks profiting from arbitrage
MUMBAI: The Reserve Bank of India does not find anything wrong with banks borrowing from its liquidity facility and on-lending to the rest that leads to profiting from arbitrage which during times of liquidity crunch raises issues of correct practices. "We have to look at our press release of 2007 which says that if banks borrow from the repo, there is really no view or restraint on on-lending that," RBI deputy governor Subir Gokarn said. There have been talks among bankers whether those banks having excess liquidity are right in borrowing from the central bank at cheap rates and lend in overnight markets, leading to a straight profit of 50-75 basis points, which for a few traditional bankers does not count as banking activity. RBI in 2009 had issued an advisory to banks directing them to limit their exposure to mutual funds, since there was always a concern for circularity of money. "There is a second concern that there could be a regulatory arbitrage in the sense that mutual funds are lending to companies, which banks could not directly lend to," Governor Duvvuri Subarao had said in a media interview back then. That was, however in a different time when the credit growth had plunged to 9%. Banks which had excess government bonds than the prescribed 24%, borrowed funds against it at the repo rate of 6.50% (before the 0.25% increase), on-lending it in call money markets at close to 7%, as the repo rates were almost 0.50% (or 50 basis points) lower than the call rates.
Friday, March 25, 2011
Central banker’s primer for the aam aadmi
In the entire history of the Reserve Bank of India (RBI), there have been only two or three economists who rose to become Deputy Governors in charge of monetary policy. Savak Tarapore is one of them. His long and distinguished career at the RBI, including a stint at the International Monetary Fund in the late 1970s, culminated in his being appointed to DG in 1992. He was at the helm, or at least in the control room, during much of the tumult of those times. The emergency air-lift of gold as collateral, the steep devaluation of the rupee, interest rate deregulation, moving to market determined rates for government borrowing, the aftermath of the Harshad Mehta scam are all part of some of the battle scars he wears. He wears them lightly though, and he has always played a stolid and subdued, second fiddle role to many bosses. His sterling innings has been called a Gundappa Vishwanath role by RBI’s historian T CA Srinivasa Raghavan. Tarapore remained active even after retirement, heading two crucial committees on capital account convertibility and a member of the Technical Advisory Committee. He has been a prolific writer, columnist and commentator. However, his most distinguishing quality has been his concern for the aam aadmi ,the ordinary bank customer, the depositor or small borrower. This is best reflected in his unhesitatingly hawkish stand on inflation, or support for increasing the deposit rate, or campaign for a gold bank. Tarapore’s new book speaks directly to the common man. It is acompilation of 70 short articles, written over a three year period between 2006 and 2009, for a Gujarati newspaper. Its language is non-technical, free of jargon, completely free of ambivalence (the bane of many economists), and it contains practical advice too. Even though the writing was part of a fortnightly column, and hence necessarily topical, there is an Aesop’s Fables quality to the short chapters. Tarapore’s insight and opinion on many matters, both monetary and otherwise, are nicely supported by tidbits from history. For example, he reminds us that relations between RBI and North Block weren’t always adversarial. It was Pranab Mukherjee who brilliantly defended the RBI governor in Parliament in 1982. Tarapore writes, “The proceedings of the debate should be mandatory reading for all who have interest in monetary policy. Following 1996, there is breakdown in the bonhomie between RBI and the North Block.” His defence of RBI against what he calls “illinformed attacks” might sound partisan, but is well substantiated. In fact, he has himself been a severe critic of the RBI’s less than proactive treatment of inflation control. The writings from 2008 warn about impending crisis, and are testimony to Tarapore’s prescience and understanding. He wrote in January 2008, that subprime crisis was more serious than portrayed then, and he warns that “there are large non-performing assets in the Indian financial system, which no one is keen to acknowledge.” Similarly, almost five years ago in 2006 he warned about the excesses of the micro-finance institutions, and possible human rights abuses, in coercive recoveries. It was only after micro-loan related suicides in 2010 that Andhra Pradesh passed a harsh ordinance that has paralysed the entire industry. If only the bad apples had been isolated in 2006, we wouldn’t have had the Black Swan of microfinance today. One of the most abiding themes in the book is Tarapore’s canvassing of the common man’s predicament. He writes in Chapter 9, “It is unconscionable not to raise the savings bank deposit rate”. The suppressing and nonderegulation of the savings rate continues to be a cruel joke on small depositors. Tarapore was instrumental in setting up the watchdog body for banking services. Here, too, he laments that despite introduction of no frills accounts, the customers are at the mercy of banks. He says, “The sad fact is that most customers are afraid to complain”. The procedures for “Know your customer” (KYC) have become a licence to kill the customer! (He has an interesting anecdote about mutual funds too). The book is divided into eight parts, with the first three focused on monetary and fiscal policy, the next on the small saver, followed by two on macro issues, a special section on gold and a last section on general policy issues. There is an interesting chapter on India’s pulses problem, which today is spoken of as the protein inflation problem by RBI. The beauty of Tarapore’s book is that it is possible to read the book non-sequentially or only one section at a time. The non-technical and light treatment masks much deeper understanding and passion for larger policy issues. It stands as adouble ton in ‘Gundappa Vishwanath’s’ career.
FINANCIAL POLICIES AND EVERYDAY LIFE (THE INDIAN CONTEXT) - Book Review by Ajit Ranade
RBI to address Manipur's small denomination
IMPHAL: The Reserve Bank of India (RBI) has promised to resolve the acute shortage of small denomination and coins in Manipur. The state's economy has been hit by the crisis and people have to settle for chewing gums or match boxes in return for an amount between Re 1 to Rs 5. It is also not difficult to find women coin vendors' selling coins at places like Khwairamband Bazaar in Imphal. RBI Executive Director D.K.Mohanty took note of the issue at a press meet at Ukhrul town on Monday and said he would take steps to ensure the smaller denomination shortage gripping Manipur was resolved. Mohanty added that since the coins were flown into the state, efforts would be made to increase the number of flights so that the crisis is dealt with. The RBI Executive Director was speaking at a financial outreach camp organized by the bank at Ukhrul. With the primary target to expand banking facilities in the northeast, RBI, which has its office in Guwahati, has planned to set up a unit in Agartala, Mohanty said.
Non-food inflation reversal is a big concern: Subir Gokarn
Indian market has witnessed high volatility since a long time on rising crude oil prices and mounting inflation. Most analysts feel that oil rates and inflation numbers are going to make it difficult for an emerging market like India to mark better-than-expected growth despite scoring higher on the GDP scale. In the opinion of the RBI deputy governor Subir Gokarn, rising crude prices have created more risks for the global economy besides inflation, which is hampering growth to a greater extent, reports CNBC-TV18 quoting Dow Jones. Gokarn is most concerned about non-food inflation reversal and sees investment momentum dipping down, which is again a worrisome matter. He said that he is trying to do a balancing act between growth and inflation and has been successful in not disrupting growth prospects so far. However, he added that there is a need to be watchful on monetary stance. “We can’t be insensitive to global and domestic growth risks,” he added.
Letters: 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 bank’s 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
RBI Penalizes Gujarat Co-operative Bank for Violating Anti-Money Laundering Guidelines
Mumbai (ABC Live):The Reserve Bank of India has imposed a monetary penalty of 1.00 lakh (on The Uttarsands People Co-operative Bank Limited, Uttarsanda, Dist. Kheda, Gujarat, in exercise of powers vested in it under the provisions of Section 47(A)(1)(b) read with Section 46(4) of the Banking Regulation Act, 1949 (AACS) for violation of Reserve Bank of India's guidelines of requirement of reporting of cash transactions in excess of ` 10.00 lakh to Financial Intelligence Unit-India (FIU-IND), as required under Anti-Money Laundering (AML) guidelines. Information to this effect was made by Ajit Prasad, Assistant General Manager, RBI through Press Release: 2010-2011/1358. The Reserve Bank of India had issued a show cause notice to the bank, in response to which the bank submitted a written reply. After considering the facts of the case and the bank's reply in the matter, the Reserve Bank came to the conclusion that the violations were substantiated and warranted imposition of the penalty.
BANKING M&A TO BE UNDER PURVIEW OF CENTRAL BANK
The government, for now, has sought to put to rest the issue of who is to regulate mergers and acquisitions (M&A) in the banking sector, by conferring the power on the Reserve Bank of India (RBI). The Banking Laws (Amendment) Bill, 2011, tabled in the Lok Sabha recently, comes in the wake of pressure from RBI to clarify the matter. Predictably, the Competition Commission of India (CCI) is not very pleased at this development. While not officially grumbling, officials in CCI say if monitoring powers over banks’ M&A are taken away from the competition watchdog, there could be similar demand in other sectors. For the record, a senior CCI official said: “There is no turf war. This is a dynamic situation. Tomorrow, if the government feels CCI should regulate (bank) M&A’s, it can do so.” The Competition Act itself empowers the government to allow such exemptions, he noted. Under the Competition Act, 2002, CCI has the power to regulate combinations (M&A) which cause or are likely to cause an appreciable adverse effect on competition within the relevant market in India. The Act also allows the government to make exceptions in the larger public interest if a particular industrial segment needs to be out of its purview. The banking Bill proposes to insert a new section, 2A, in the Banking Regulation Act, 1949, to exempt mergers of banking companies from applicability of the Competition Act.The RBI had expressed reservations about putting bank M&A under the purview of the CCI. It felt any other watchdog would not be able to appreciate the complexities in banks’ mergers. Though the Competition Act was passed in 2002, CCI became functional only in May 2009. It had notified rules relating to mergers only recently. This is the third major occasion where the government has tried to address RBI reservations on regulatory issues. After a spat between the regulators for the capital markets and the insurance sector on unit-linked products, the Union finance ministry had decided on an oversight panel chaired by the finance minister. After RBI resisted, the central bank governor was made vice-chairman of the mechanism. There were similar RBI objections to the proposal for aFinancial Stability and Development Council. It was decided to have one sub-committee of the Council, to be chaired by the RBI chief. The opposition from RBI was because it used to chair the coordination committee between financial sector regulators and these decisions by the finance ministry diluted its earlier role. The banking laws amendment bill also proposes to empower RBI to call for information and returns from associate enterprises of banking companies and to inspect these, if necessary. This may lead to a turf war, if these associate enterprises fall in other regulators’ domain, analysts said. RBI had expressed reservations about putting bank M&A under the purview of the CCI.
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