MUMBAI: The Reserve Bank of India has probably, for the first time in many years, said that inflation may 'spiral' out of control, hurting investments and economic growth. This is an indication that policy rates will keep rising till it re-creates an atmosphere for sustained growth. "The current rate of inflation does raise concerns about the risks of spiralling, as high inflation becomes increasingly entrenched into the wage and price-setting behaviour of workers and producers," Subir Gokarn , deputy governor at the Reserve Bank of India, told an industry conference. "In turn, if this were to adversely impact investment activity, the growth momentum would inevitably slow down. In essence, the trade-off is more between inflation now, and growth in the future," Mr Sbir Gokarn said. India's inflation that started climbing due to food prices two years ago and is fast spreading to all parts of the economy. That is forcing wage-earners to seek higher salaries and is triggering product price increases. Wholesale prices rose 8.31% in Feburary, above the RBI's 8% target that was revised many times. Food inflation was at 9.5% for the week ended March 19. RBI raised rates eight times in 13 months to 6.75%, but the negative real return continues. "It signifies the extent or magnitude of the spill-over of higher food and oil prices to generalised inflation," said Deepali Bhargava, chief economist at ING Vysya Bank . Central bankers, inspired by former US Federal Reserve chairman Alan Greenspan, are careful in their diction to describe the state of the macro economy. The RBI has been gradually moving to accepting that price rise is now widespread, after arguing that monetary policy is ineffective in tackling supply-side induced inflation. In the last few quarters, it shifted to saying that supply side is 'spilling over' to manufacturing that could keep inflation at elevated levels. Economists tracking the central bank say, this may be first time that the word 'spiralling' is being used by a top central banker. It could not be confirmed. Inflation is threatening to plunge economies into crisis. China raised interest rates for the fourth time since the crisis ended, and US Fed chairman Ben Bernanke and Jean Claude Trichet of the European Central Bank are joining the chorus about the destabilising effects of price rise. "We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintain price stability," Ben Bernanke said on Monday. The desire for above average economic growth may force people to live with higher prices for a sustained period. "Acceptance of a higher rate of inflation as the new normal - an inevitable consequence of rapid growth - will raise risk of accelerating inflation," said Gokarn. "If in fact, the contribution of investment spending to growth is declining, the constraints can only become more binding, further aggravating inflationary pressures." Crude oil prices near $120 a barrel and copper, lead and silver prices at historic highs could accelerate further as investors losing faith in paper currency chase real assets.
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Wednesday, April 6, 2011
REVISED TAKEOVER CODE, JALAN COMMITTEE REPORT FACE DELAY
It is now clear that the revised takeover code and the Bimal Jalan committee report will not be implemented soon and in the same form, since the finance ministry wants to seek industry views on these two sets of recommendations this month, before the market regulator could take a decision. A section of industry has criticised the Jalan panel report for its opposition to listing of stock exchanges and the revised takeover code recommendations for making acquisitions costlier, among other issues. It was expected the two issues would be on top of the agenda of new Securities and Exchange Board of India (Sebi) Chairman U K Sinha. While the capital markets division in the finance ministry would hold consultations on the Jalan panel report, Chief Economic Advisor Kaushik Basu would have interactions on the revised takeover code. Both would happen this month, officials told Business Standard . In a clear indication that the Jalan panel report might be tweaked, a key official said, “Nowhere in the world are reports suggested by committees implemented in toto.” A committee set up by Sebi on the takeover code had recommended raising the trigger for open offer to 25 per cent from the current 15 per cent. A panel headed by the former presiding officer of the Securities Appellate Tribunal (SAT), C Achuthan, also proposed to raise the statutory open offer size to 100 per cent. The proposal on 100 per cent open offer may make it difficult for local players to fund the acquisition. As such, the local players may be placed at a disadvantageous position vis-avis foreign ones, said Equity Head of SMC Global Research Jagannadham Thunguntla. The Bimal Jalan committee on ownership and governance of market infrastructure institutions has recommended that exchanges should not be allowed to list, a ceiling should be put on their profits and dividends, and the role of anchor investors should be limited to only domestic players. A section of industry has criticised the report as anti-competitive. When asked whether the government has some concerns on the revised takeover code, Basu said, “At the moment, I have an open mind.” The chief economic advisor said he would shortly decide who should be invited for consultations.
Banks Mean Business, Inclusion Long Way off
RBI’s latest release of ‘Statistical Tables relating to Banks in India’ is quite revealing when we juxtapose FY00 and FY10 data. We’ve had several measures that have been invoked under financial liberalisation while a lot has also been spoken of on inclusion to add a social dimension. How has this model worked? The study of data over these 10 years has some interesting stories to tell. Three aspects of banking development could be looked at: banking structures, business profile and financial performance. Under banking structures, the growth in network increased from 67,532 branches to 87,768. However, the share of rural branches came down from 48% to 37% while that of urban and metro increased from 30% to 40%. Quite clearly, banks have been going to places where there is business. Simultaneously, the staff strength came down by around 14% to less than a million i.e. 869,412 (FY09). Banks have effectively used technology to replace surplus manpower. The business profile reveals that deposits remain the main source of funds, accounting for 79% of total liabilities as against 80% in FY00. Second, term deposits continue to be around 65% of deposits and there has been virtually no change here. Third, surprisingly, households have become less important for banks in terms of garnering deposits with their share going down from 67.6% in FY00 to 58.3% in FY09. Banks evidently prefer to raise bulk deposits from corporates which have lower transaction costs and are easier from the point of view of ALM considerations. This also reflects household’s preference for stock markets and insurance products and corporate proclivity for parking funds with banks through the CD markets, which is a sign of a mature banking system. On the lending side, some discernible patterns have emerged. To begin with, the share of term loans has gone up from 36.5% in FY00 to 57.4% in FY10, which may be attributed to the demise of development banking with banks taking on the role of long-term lending. Second, the share of priority sector lending remains at around 31% and banks have just about met their targets and have not really followed the inclusive model. Maybe, there is a very critical role for MFIs here. The fact that NPAs in this sector tend to be higher could be a reason for not converting enthusiasm into action. Third, the level of concentration in loans is unchanged and Maharashtra and Delhi still account for around 42% of credit, which is reflective of the demand coming from the more industrialised states where business is higher. Fourth, the sectoral distribution of credit has also changed. In terms of share in total credit, professionals (3.2% to 9.8%), personal (11.2% to 12.7%), finance (4.8% to 8.5%) have been gainers while trade has come down from 15.6% to 10.7%. The success of banks in terms of financial performance has been quite amazing. Profits, which were never really very important for public sector banks, have seen a turnaround. The return on assets has increased for the entire sector from 0.73% to 1.05% in FY10, after peaking at 1.12% in FY08. This is remarkable at a time when the base of total assets has quadrupled from . 15.16 lakh crore to . 60.25 lakh crore. Return on equity, however, has been more volatile. The increase in base of net worth explains most of this phenomenon. Third, despite interest rates coming down on account of RBI policy on both deposits and advances, the spread has remained rather stagnant. Such high spreads are atypical of mature banking systems and may be attributed to a combination of higher risk in the system as well as operating expenses. Intermediation costs have been coming down from 2.68% of total assets to 1.80% in FY10.Last, gross NPAs have come down from 12.8% to 2.5%. So, how does one evaluate the performance over this decade? Banks have been driven by commercial considerations as witnessed in improved financial performance and proliferation of banking structures towards centres and sectors of growth. Intermediation costs have to be improved upon and one vital missing link in banking ideology which has to get excluded is the 'inclusive nature of banking'. Quite evidently, new innovative models have to be built aggressively if we are really serious.
Kamath takes over as CMD at Vijaya Bank
HS Upendra Kamath took charge as the Chairman and Managing Director of Vijaya Bank, succeeding Albert Tauro who has retired from service. Kamath, who has 37 years of experience in the banking sector, was previously the executive director at Canara Bank. He is considered an expert in areas such as corporate finance, SME finance, risk management and international operations and has been a member of committees of the RBI and Indian Banks Association such as the working group on Benchmark Prime Lending Rate and the committee on retail banking.
Tuesday, April 5, 2011
EDI celebrates 12th convocation in G'nagar
AHMEDABAD: Cheerful smiles and warm greetings filled the lush green campus of Entrepreneurship Development Institute of India (EDI) at Gandhinagar which donned a celebrative mood on Monday. The institute was celebrating its 12{+t}{+h} convocation of the 'Post-Graduate Diploma in Management - Business Entrepreneurship' and 'Post-Graduate Diploma in Management of NGOs.' The convocation, which had deputy governor ofReserve Bank of India K C Chakrabarty as its chief guest, awarded diplomas to a total of 74 students from the two programmes. EDI president and IDBIchairman R M Malla, EDI director Dinesh Awasthi, faculties of the institute and many parents were present at the event. At the convocation's speech, Chakrabarty said that the youth are at a right time to explore opportunities in entrepreneurship and other areas in the country. "If one goes by indicators, such as spending power, lifestyle, health and opportunities in general, one can derive that the Indian economy has come a long way in terms of economic growth. Especially over the last few years, the economy has entered a high-growth phase, averaging 8.6% per capita income per annum. India is sure emerging as a dynamic economic hub where growth is facilitated by efficient banking system, foreign direct investment, export demand, capital markets etc. The domestic entrepreneurial class is greatly benefiting from this and leading growth," he said. Chakrabarty also referred to globalisation and its consequential changes in economic policies and technology as an opportunity for entrepreneurship. "Look at how new communication technologies have reduced economic distances, lowering costs and ensuring faster and cheaper movement of goods and services. I would say amidst such an environment, it is easy for potential entrepreneurs to grow," he said. Highlighting the importance of both commercial entrepreneurship and social entrepreneurship before concluding his speech, Chakrabarty said that the two kinds of entrepreneurship are like the two sides of the same coin and they must go hand-in-hand.
Messing up succession
There was no reason why the Union finance ministry should have messed up succession planning at the country’s premier bank, State Bank of India (SBI). If the idea was to allow the incumbent managing director, R Sridharan, a limited tenure in the top job, as a consolation since he missed out being considered for the job given the existing rules on age and eligibility, it is understandable. No harm done if you allow a senior person a brief term, before the regular appointment is made. In the past, even the Reserve Bank of India (RBI) had such interim governors. However, if the reason for the present situation was lack of proper paper work by those responsible for the selection process, then it reflects poorly on the Union government and the Union finance ministry. Also, it is unfair to whoever finally gets the top job at the country’s biggest bank. It is axiomatic that the successor to an outgoing top executive of any important organisation should be identified at least six months in advance. Not doing this lays the system open to the allegation that there is a conscious desire to build scope for extended lobbying and influence peddling. As and when a chairman with a reasonable tenure takes over, he will have his hands full, and a handicap to boot. The previous chairman had defied the RBI by not fully meeting the provisioning norms laid down. Doing so now will immediately depress the bottomline, thus putting it in an unfavourable light compared to the earlier period. This will reinforce an unfortunate pattern in the reporting of public sector banks’ bottomlines. As the time for one chief to go approaches, performance starts smelling of roses and there is a sharp decline immediately after the new chief takes over, inviting the notion that he has inherited a poor legacy. Another challenge the next chairman will face is to improve the quality of assets. It is far from what it should be, with SBI trailing its peer group. There was, in fact, no improvement in this regard during the long tenure of the previous incumbent. The asset quality appears to have been sacrificed on the altar of high growth and improvement in market share, important as they are. Therefore, a period of consolidation instead of chasing growth for the sake of growth may be in order. The outgoing chairman, O P Bhatt, had displayed remarkable aggression vis-à-vis the competition and this can-do attitude had enthused the organisation and enabled him to lead from the front. The challenge for the new leader will be to continue to enthuse without some of the earlier bravado, particularly picking a fight with the regulator. But though motivation is needed, there must be something to motivate. It is highly doubtful if the likes of Mr Bhatt are being recruited now at the entry level. Four decades ago, not only were the bank’s entry level salaries among the best in the country, including the private sector, the number of decent private sector jobs obtained on merit was far fewer. The bank has developed a serious talent deficit and the government has to do something to allow it to win appropriate talent across levels. SBI is a national organisation so it must get the best in the national interest. Better leadership planning is a necessary part of building organisational morale, which is critical to attracting good talent in any organisation.
Delay led to uncertainty: Anand Sinha
The Deputy Governors of the Reserve Bank of India (RBI) are known to rarely, if ever, let anyone know what’s on their minds. However, in a rare interview, RBI Deputy Governor Anand Sinha didn’t shy away from expressing his anxiety about the delay in his appointment. Sinha replaced Usha Thorat, who retired in early November. “With the time for my usual super-annuation from the bank’s services fast approaching, it made things a bit uncertain for me and my family, since in such a situation, I was not able to a take a view on my plans for the future. I could also see my wife and children were tensed,” Sinha said in an interview published in Without Reserve, an RBI magazine. Chief General Manager Deepak Singhal is the editor of the magazine. The search committee to identify a deputy governor was formed in August and the recommendations were sent in September. Yet, the post was vacant for more than two months, due to a delay in the appointment announced by the government. To be eligible for the post of RBI deputy governor, one has to be less than 60 years of age, with two years of residual service. The retirement age for a deputy governor is 62 years, while for other RBI employees, the retirement age is 60. Things became uncertain for Sinha because he attained the age of 60 in February, and as an executive director, he would have retired had he not been appointed a deputy governor. “To be honest, the instant thought was more of relief than happiness. Yes, I did feel happy when, just after the interview, newspapers started indicating that my name had been recommended by the selection panel. The final announcement of course, came after quite a while,” Sinha said. “So, when it came, I just felt relieved. Did I feel ecstatic? No, I have a pretty steady temperament,” said Sinha, who names Mahatma Gandhi as his favourite personality.
Top jobs at PSU banks lie vacant
NEW DELHI: State Bank of India, the country's largest lender, is not the only bank to have a near empty top deck. There are at least half-a-dozen high-level banking jobs that are lying vacant as various government agencies keep tossing files from one ministry to another. On Monday, the number of vacancies shrunk marginally with Sushil Muhnot taking over as the new CMD of SIDBI, a post that had been lying vacant for over nine months. But the job of Punjab & Sind Bank CMD has been lying vacant for over nine months as the Prime Minister's Office and the finance ministry cannot decide if they should stick to the 30-year-old practice of appointing a Sikh or change the rule. South Block, where PMO is housed, has raised the issue at least twice but amid opposition from Sikh leaders, the finance ministry went ahead and suggested that a bureaucrat be appointed Punjab & Sind Bank CMD as there were no Sikh bankers available to step into the corner office in Delhi's Rajendra Place. Similarly, despite interviewing candidates last November, the government is yet to decide on who should be the new Nabard chief though the post is empty since U C Sarangi moved out of the refinance and regulatory agency in early December. But this would pale in comparison to the delay in the appointment of an IDBI Bank deputy MD for which interviews were held as early as November 2009. On March 30, nearly 18 months later, the personnel department asked the finance ministry to resubmit the proposal to appoint B K Batra as deputy MD after seeking fresh vigilance clearances from RBI and the Central Vigilance Commission. At SBI, four of the top board-level executive slots are unoccupied as the government has been unable to finalise appointments. The fifth position—held by R Sridharan, a managing director who is the officiating chairman—is due to fall vacant in less than three months. This is in sharp contrast to the private sector where the CEO is announced months in advance and groomed to take over the corner office. Following the sacking of P J Thomas as CVC, the government has increased due diligence in government appointments in recent weeks. But over the last 12-18 months, most appointment proposals put up by the finance ministry has run into hurdles in the PMO, only to be cleared on resubmission.
A case in point is the selection of a bunch of CMDs for public sector banks where the finance ministry had proposed to lower the eligibility norms. The PMO initially turned down a proposal saying that those with less than two years of residual service were ineligible. Similarly, it opposed the finance ministry's proposal to straightaway appoint an executive director as the CMD of a large bank. Typically, on promotion, an executive director is appointed as the head of a small public sector bank and later moved to a larger bank. Subsequently, the PMO cleared both the appointments, said an official. Between tossing of files, there is complete uncertainty at banks. For instance, Union Bank of India staff and clients do not know if they will have to deal with a new chairman in three months as M V Nair has been given only 18 months extension against the original proposal to reappoint him for a year. Officials said that what also delays is frequent change in rules or complete absence of procedures. For instance, the cabinet secretariat recently pointed out that there were no norms in place for the appointment of SBI chairman. Similarly, there are no norms for reappointment of bank and financial institution chiefs. This was recently pointed out by cabinet secretary K M Chandrasekhar who has now asked the finance ministry to set up a board to review the performance of an incumbent before recommending him or her for reappointment. So, an extension to LIC chairman who is due to retire in around two months, is likely to be routed through this committee first before going to the Appointments Committee of Cabinet.
A case in point is the selection of a bunch of CMDs for public sector banks where the finance ministry had proposed to lower the eligibility norms. The PMO initially turned down a proposal saying that those with less than two years of residual service were ineligible. Similarly, it opposed the finance ministry's proposal to straightaway appoint an executive director as the CMD of a large bank. Typically, on promotion, an executive director is appointed as the head of a small public sector bank and later moved to a larger bank. Subsequently, the PMO cleared both the appointments, said an official. Between tossing of files, there is complete uncertainty at banks. For instance, Union Bank of India staff and clients do not know if they will have to deal with a new chairman in three months as M V Nair has been given only 18 months extension against the original proposal to reappoint him for a year. Officials said that what also delays is frequent change in rules or complete absence of procedures. For instance, the cabinet secretariat recently pointed out that there were no norms in place for the appointment of SBI chairman. Similarly, there are no norms for reappointment of bank and financial institution chiefs. This was recently pointed out by cabinet secretary K M Chandrasekhar who has now asked the finance ministry to set up a board to review the performance of an incumbent before recommending him or her for reappointment. So, an extension to LIC chairman who is due to retire in around two months, is likely to be routed through this committee first before going to the Appointments Committee of Cabinet.
Sebi to address RBI concerns on foreign investment in MFs
The Securities and Exchange Board of India (Sebi) will address the concerns of the central bank while framing the guidelines for allowing foreign individual investors to invest directly in registered mutual funds. The guidelines, which will be in place by mid-May, will also ensure that the subscription process is as simple as possible. A senior finance ministry official said Sebi was working on the guidelines in consultation with the Reserve Bank of India (RBI). RBI has been worried over the high share of portfolio funds in overall capital inflows as they are prone to sudden stops and reversals. It has also been insisting on strict adherence to know-your customer (KYC) norms for investments from abroad. The official said the guidelines would address these concerns. At present, foreign institutional investors (FIIs) are allowed to invest in mutual funds. “The group on capital inflows, in July last year, suggested general permission for foreign institutional investments. It has been decided that the recommendations will be implemented in stages, beginning with mutual funds,” he said. The group on foreign investment, headed by the current Sebi Chairman, U K Sinha, who was UTI Mutual Fund chairman that time, recommended an overhaul of the regulatory framework. The panel proposed doing away with different categories such as FIIs, foreign venture capital investors and non-resident Indians (NRIs). In the Budget, Finance Minister Pranab Mukherjee announced the government’s intent to liberalise the Portfolio Investment Scheme to allow Sebi-registered mutual funds to accept funds for equity schemes directly from foreign investors who meet the KYC norms. Sebi will issue the guidelines to implement the move while RBI will rewrite the Fema Inbound Investment Regulations.
No easy banking entry for NBFCs as finance ministry seeks tougher norms
NEW DELHI: The finance ministry has sought strict norms for non-banking finance companies, or NBFCs, that want to convert into banks or promote banks. The move threatens to upset plans of several finance companies that are keen to enter the banking space. The ministry has suggested that only those NBFCs, which have a minimum balance sheet size of Rs 10,000 crore and gross non-performing assets of less than 5%, should be allowed to convert into banks or set up new banks, said an official privy to the discussions between the ministry and the Reserve Bank of India (RBI). "We want only those NBFCs that have a strong capital base and smooth operations to participate in the process," the official said requesting anonymity. Various entities like Religare , Bajaj Finance , Mahindra & Mahindra , IL&FS and Shriram City Union Finance are mulling entering the banking space. The ministry is currently examining the draft guidelines on the new banking licenses submitted by RBI last month. The banking regulator had originally planned to release the draft by the end of the month. But divergent views between the ministry and RBI have delayed their release. The RBI's discussion paper on conditions for entry of new banks had invited arguments for and against allowing NBFCs to convert into banks. It had also deliberated on the issue of allowing NBFCs to promote banks. In the guidelines sent to the government, the RBI has favoured both the options. It has even proposed that if an NBFCs converts itself into a bank, its existing branches in Tier III to Tier VI cities should get a branch status automatically. But the finance ministry does not agree with this view. "One of the major initiatives for new banking licenses is financial inclusion," said the official quoted earlier. "NBFCs which have already set up their base in smaller cities are more competent to take the cause of financial inclusion." RBI had in 2001 allowed an NBFC with a good track record to convert into a bank, provided it was not promoted by a large industrial house and satisfied the prescribed minimum capital requirement. Only one finance company has so far converted into a bank. he finance ministry has also opposed RBI's suggestion to restrict foreign direct investment in new banks. It says bringing down foreign investment limit to 49% from the existing 74% will send a wrong signal to investors. "But RBI has argued that when it is already encouraging foreign banks to set up wholly-owned subsidiaries, allowing 74% FDI in new business will defeat the objective of setting up Indian banks," the official said. Foreign banks have already said they should not be treated differently from lenders such as ICICI Bank and HDFC Bank , in which foreign holding is more than 49%. RBI has, so far, maintained that both the banks are exceptions and if 74% FDI was allowed in new banks, it would not be able to justify the difference between foreign and private banks, which have more than 50% foreign investment.
Malegam panel mulls recommending more licences for urban co-op banks
The cooperative banking sector is gearing up for a makeover, with greater participation of cooperative societies in banking operations. A high-powered committee, under the chairmanship of Y H Malegam, a member of the board of directors of the Reserve Bank of India (RBI), is considering recommending licences to new cooperatives planning to become urban cooperative banks (UCBs), and convert the existing credit cooperative societies into a cooperative bank. At a recent meeting, the six-member Malegam Committee decided to meet national and state cooperative federations and cooperative bankers to chalk out the road map for making urban cooperative banking more inclusive for the cooperative sector. “We are exploring the possibility of simplifying the licensing procedure for cooperative societies seeking to become a registered UCB. Further, we are also considering an option of converting existing credit societies into a UCB,” said H K Patil, president, National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB). Patil is also a member of the Malegam committee. The terms of reference laid out by the committee seek to recognise the need for UCBs in India and rising financial inclusion in non-banked regions of the country through these UCBs. The committee would also look at giving credit societies the authority for banking operations. Currently, there are about 50,000 credit societies in India. The Malegam committee will also discuss the possibility of an apex body under the umbrella organisation concept to advise UCBs for better monitoring of funds and investments. The apex body will also offer guidance on various technological aspects to modernise the functioning of UCBs. “Only UCBs can reach the non-banked regions of the country. So far, there is only 40 per cent financial inclusion in India. For the remaining 60 per cent, UCBs bear immense importance. So, there are a lot of expectations from the Malegam committee recommendations,” said Subhash Gupta, chief executive, NAFCUB. According to industry sources, going forward, some issues related to higher authority and freedom in the urban cooperative banking may also come up. “The UCBs are not allowed to operate in forex or take deposits from trusts or government agencies, while nationalised banks are permitted under the banking act. Hence, it would be required to put UCBs on a par with nationalised commercial banks to make them sustainable,” said Ghanshyambhai Amin, president, Gujarat State Cooperative Federation. So far, the committee met four times in the past three months and the next meeting is scheduled to be held later this month. “Though we have a deadline, we cannot comment on when would the report be finalised, as we not even come halfway so far,” said Patil. Currently, there are around 1,674 UCBs operating in India, with 6,900 branches spread across the country. The total number of customers with these USBs exceeds 20 million. The deposits are expected to grow by around 16 per cent in the current financial year. UCB deposits were recorded at Rs 1.82 lakh crore as on March, 2010. This was a rise of 14 per cent compared to the previous year. The growth in advances has been almost on a par with growth in deposits.
High interest rate regime over
CHENNAI: Good news for potential home and car buyers. Bankers said that lending rates have peaked and they may not go up further. That holds true for deposit rates too. "I am not expecting either lending or deposit rates to move up from here. They are going to remain benign, depending on the situation of inflation," Mohan Tanksale, executive director of Punjab National Bank, said. M Narendra, chairman and managing director of Indian Overseas Bank, said that some small banks, who have not been able to fully pass on the increase in their cost of fund, may go for a further 0.25% increase in their lending rates. "However, interest rates in general are going to remain stable in the first quarter of 2011-12." S C Sinha, executive director of Oriental Bank of Commerce, said deposit and lending rates are going to fall from here on. The bankers' opinion is based on the expectation that inflation rate will come down further. They are also expecting the liquidity situation to improve in the coming days. "We have seen that the inflation rate is coming down because of the combine effort of the RBI and the government. We are expecting inflation to come down further to 7%. The government also has started spending, which would ease the pressure on liquidity. Thus we may see only one or two small steps from the RBI," said Narendra. United Bank of India's executive director S C Bansal said that the RBI may increase its policy rates by another 0.25%. He, however, said that the hike will not have any further impact on the interest rates. "There are two reasons why interest rates may not go up further. Banks are comfortable with the liquidity, where it stands now. Second, the first quarter of a financial year is usually sluggish in terms of credit demand. Thus, there is no pressure on banks to raise lending and deposit rates," Bansal said. According to the Reserve Bank's latest data, banks have seen a 23.3% growth in their credit in FY11, compare to a 16.2% in FY10. The demand for deposit grew only by 16.6% as against 18.8% the previous year. Banks are expecting things to change. They are pegging deposit growth at 20%+ in the current financial year.
ASSOCHAM urges govt to exempt currency conversions from service tax
The volatility in exchange rate markets even on intra-day is quite large, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM). Apex industry body ASSOCHAM has urged the government to exempt currency conversions from service tax as the new rule will put extra burden on corporates and blunt competitiveness of exports out of India. The Reserve Bank of India (RBI) publishes market rates at noon to act as a reference rate and the foreign exchange market is open between 0900 to 1630 hrs. Even if a bank decides to charge no incremental charge or fee over and above its cover rate in inter-bank market, the final transaction rate charged to a corporate can be significantly different from the RBIB (RBI reference rate). The volatility in exchange rate markets even on intra-day is quite large, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM). On many days in the past one year when exchange rate moved by one per cent, the median intra-day movement was half per cent. “Therefore a banking and financial services entity cannot charge such difference to its customers on real time basis when transaction is booked,” said chamber’s secretary general D.S. Rawat. “This valuation basis will significantly increase transaction costs and decrease India’s competitiveness in global markets.” Charging service tax on the differential between RBIB and the rate at which transaction is booked has no link with service provided by a bank. There is no element of service involved in such transactions, said Mr Rawat in a representation to the Central Board of Excise and Customs. “Moreover, companies have no control over such transactions.” There are no such instances of a similar tax being imposed anywhere in the world – especially in countries where Indian companies compete in common markets. This has also been stated in a research study released by the Department of Economic Affairs. “As a matter of fact, competing countries have been facilitating their external sector by various measures like a stable currency in China, procedural relaxations and lower interest rates,” said Mr Rawat. “It would tantamount to imposing service tax not on the service part – which otherwise is absent in such transactions – but on the profit or loss made by money changers.” This is against the very spirit of service tax legislation where rendering services is a determining factor, he added. If at all the government wants to bring these transactions within the ambit of service tax, then determination of value of services should be restricted to fees or spreads charged by banks towards foreign exchange conversions, and not otherwise. In any case, said Mr Rawat, the taxable value tax should not be more than 0.01% of transaction value.
RBI to make public roadmap for introduction of holding co soon
The RBI is likely to soon come out with a roadmap for introducing a holding company structure for banks which will help conglomerates in the finance sector to generate funds for subsidiaries. An RBI working group, headed by Deputy Governor Shyamala Gopinath, has almost finalised the discussion paper on this and it would be out soon for public comments, sources said. The holding company would be regulated by the Reserve Bank of India (RBI) and all the entities, including the new and the old, in the banking sector will follow the holding structure model once the central bank puts this in practice, according to the sources. A holding company can usually have a bank, life insurance firm, a general insurance and an asset management company as its subsidiaries. India now follows a universal bank model which can have financial services like insurance, asset management, securities business are separate subsidiaries of a bank. For example, county''s largest bank SBI has SBI Life, SBI MF, SBI Capital etc as its subsidiaries now. Following the announcement made by the RBI in its last annual policy, it constituted working group headed by Gopinath to recommend a roadmap for the introduction of a holding company structure together with the required legislative amendment or framework. The other members of the committee include financial sector expert Y H Malegam, Prashant Saran, member SEBI, Keki Mistry Vice Chairman HDFC Ltd, R Sridharan Managing Director SBI, N S Kannan, Chief Financial Officer ICICI Bank. The last discussion paper on the Holding Companies in Banking Groups by Reserve Bank was made public in 2007. The feedback on the discussion paper emphasised the need for introduction of bank holding companies or financial holding companies in India to ensure an orderly growth of financial conglomerates and better insulation of a bank from the reputation and other risks of the subsidiaries within the group. The holding company model is expected to ease burden on banks for infusion of funds into capital-intensive subsidiaries like life insurance. The Committee on Financial Sector Assessment (CFSA), in its report issued in March 2009, observed that given the lack of clarity in the existing statutes relating to the regulation and supervision of financial holding companies, the holding company structure as prevalent in the US for financial conglomerates is not currently in use in India. The CFSA noted that the absence of the holding company structure in financial conglomerates exposes investors, depositors and the parent company to risks, strains the parent company''s ability to fund its own core business and could restrict the growth of the subsidiary business.
Monday, April 4, 2011
Exhibitions on FEMA in Tamil Nadu
Reserve Bank of India, Chennai intends to hold exhibitions on Foreign Exchange Management Act (FEMA) at five locations in Tamil Nadu viz. Chennai, Tiruchirapalli, Madurai, Tuticorin and Coimbatore. The thrust of the exhibitions will be to promote awareness on Rules and Regulations governing the forex business in India and foreign exchange facilities available for residents and non-residents under FEMA. Target audience includes customers of commercial banks, exporters, importers, NRIs, Chartered Accountants, college students and corporates. Each exhibition will be organized over two days and will comprise of auditorium events and display stalls.
Regional Rural banks revamp in line with Chakrabarty report
Recapitalisation to be combined with new monitoring structure, with performance time lines. Almost half of the 82 regional rural banks (RRBs) in the country would be recapitalised, with the infusion of Rs 2,200 crore in two stages by the end of 2011-12, and the authorised capital of all 82 banks would be increased to Rs 500 crore from the present level of Rs 5 crore. Besides, the performance of RRBs would be monitored by state level committees headed by finance secretaries of state governments with officers from the National Bank for Agriculture & Rural Development (Nabard), sponsor banks and the Reserve Bank of India. This is to be done half-yearly, instead of the yearly one by the Union finance ministry. This follows acceptance by the central government of a slew of recommendations from a committee headed by K C Chakrabarty, Deputy Governor of the RBI, for RRBs to achieve a capital to risk-weighted assets ratio (CRAR) for RRBs of at least nine per cent by March 31, 2012. The report was given a year before. A Nabard official, who did not want to be named, told Business Standard: “Chairmen of all RRBs have been asked to initiate necessary action in respect of action points pertaining to their bank. The committee had assessed the capital requirement for all the 82 RRBs to enable these to have a CRAR of at least seven per cent as on March 31, 2011, and at least nine per cent from March 31, 2012, onwards.” Adding: “The committee had included provisions required for arrears of wages due to revision of pay scales, gratuity and leave encashment, and had recommended that depreciation on SLR (statutory liquidity ratio) investments by marking to market (writing down assets to reflect current value) as applicable to commercial banks may be made effective by RBI from April 1, 2013, onwards. Accordingly, the recapitalisation requirement would be Rs 2,200 crore for 40 of the 82 RRBs. This amount will be released in two installments, comprising Rs 1,337.50 crore in 2010-11 and Rs 862.50 crore in 2011-12.” Further, a memorandum of understanding would be signed with Nabard by each RRB, as also with the state government concerned and the sponsor bank, on the roles of various stakeholders and the performance benchmarks to be achieved, with schedule. On an increase in the authorised capital to Rs 500 crore, the committee had observed that the accumulated losses of RRBs as on March 31, 2009, were about Rs 2,300 crore. The RRBs carry, at the same time, share capital deposits aggregating Rs 3,900 crore. As a one-time measure, therefore, the committee had recommended that RRBs be permitted to write off the accumulated losses as on March 31, 2010, against the share capital deposits. Any balance left as share capital deposit may then be appropriated as paid-up share capital. “However, as the RRBs would continue to need higher capital in view of their expanding business, the committee had recommended that their authorised share capital be increased to at least Rs 500 crore. Necessary amendments will be made to the RRBs Act to facilitate it,” the official informed.
IBA appoints new member
The managing committee of Indian Banks’ Association (IBA) has appointed A. S. Bhattacharya, CMD of Bank of Maharashtra, a premier nationalized Bank as Member.
Govt yet to finalise on names to fill top slots in SBI
The government is yet to finalise a successor to State Bank of India (SBI) Chairman O P Bhatt, who retired on March 31 and fill up other senior-level management vacancies. Pending appointment of new chief of the SBI, the government has given additional charge of Chairman to R Sridharan, who is currently the Managing Director of the bank until further orders. Besides, vacancy of Chairman, three positions of the Managing Directors are to be filled in the bank which alone commands about 25% market share. The government has also not found replacement for S K Bhattacharya, who retired as Managing Director last year. Although the process for appointment of successor of Bhatt and other top executive began in December last year, no formal announcement has been made for filling up vacancy arising out of superannuation or otherwise. The SBI board comprises of an executive chairman and two managing directors. With amendments in the SBI Act, it made provision to appoint two more managing director by the Government of India, which holds about 59 per cent stake in the bank. Currently, country's largest insurer Life Insurance Corporation has three managing director besides the executive Chairman. Sridharan, the senior most executive of the bank, would manage the affairs of the bank. His term is coming to an end in June this year. Pratip Chaudhuri, currently the Deputy Managing Director and Group Executive international banking of State Bank of India, is understood to be leading the race for the chief of SBI. Besides, Hemant G Contractor, Chief Finance Officer and Diwakar Gupta Deputy Managing Director and Group Executive (rural business and national banking) is also believed to be in the reckoning for the job. The name would be finally cleared by Appointment Committee of the Cabinet (ACC) headed by the Prime Minister Manmohan Singh. The other members include Home Minister P Chidambaram and Finance Minister Pranab Mukherjee. Chaudhuri joined SBI as Probationary Officer in 1974. He took over charge as DMD (international banking) in April, 2009. The search panel to appoint the next SBI chairman, headed by Reserve Bank of India governor D Subbarao, had interviewed 4-5 candidates in December, 2010.
Sunday, April 3, 2011
Monetary Policy Statement 2011-12 on May 3, 2011
Dr. D. Subbarao, Governor, Reserve Bank of India will announce the Monetary Policy Statement 2011-12 on Tuesday, May 3, 2011. This will be done in a meeting with the chief executives of major scheduled commercial banks at 11.00 a.m. on May 3, 2011 at the Central Office, Reserve Bank of India, Mumbai.
I Can Do Financial Planning - Book Review by P. P. Ramachandran
Swapna Mirashi is a Financial Literacy Consultant and author of two books. She was a member of the Steering Committee of Financial Literacy of the Reserve Bank of India. Mirashi developed a comprehensive rural financial literacy manual for ICOCI Bank and is a regular contributor to financial journals. The book under review is a manual of financial planning. Financial planning is a process of planning and managing your current finances to meet your goals. Income, expenses, savings, assets and liabilities have to be so organised as to secure your aims - buying of a house, provide for education and wedding of your children and plan your retirement. This is a well- organised step by step manual enriched with smart worksheets and checklists. It encourages you to design your own personal financial plan. Almost every page contains a box that highlights important concepts. The first step is to set clearly your goals - with a time frame. If your start planning early in your career you have to set aside less money each month. A basic need is to assess clearly your financial position. It is advisable to have realistic goals commensurate with your assets and income. A cogent analysis of your financial needs is a must. Set reasonable goals and take firm steps to achieve them. The next subject tackled is ' investment'. Seek out profitable avenues like provident fund, fixed deposits and ensure a good balance between growth and steady income. Acquire a thorough knowledge of avenues of investment. Arrive at an ideal portfolio. Due to inflation you have to invest in such a way that the value of your money is retained. A wise management cycle is to save regularly - invest wisely - spend intelligently and at the same time ensure your security. ou have to master the process of investing, gauging risks and taking right decisions. There are various investment channels - some riddled with risks and some high yielding. Study stocks and shares and available exemptions. ou can arrange your investment portfolio and review periodically your holdings. Another crucial area is planning and managing your debt portfolio. ou have to be aware of risks involved. Risk is the possibility of a loss or negative out come. Vulnerability to risks varies from individual to individual. You have to be aware of certain practices that inevitably lead to risk. This manual offers guidance on methods of managing and overcoming risks. Information is offered on briefly on regulators like RBI, SEBI and those who regulate insurance market and pension fund market. It is safe and essential to build an emergency fund to combat risks, Different types of risks are analysed. The manual provides sample planning steps to achieve common financial goals. The volume has a valuable glossary, a tiny list of books ( why no books by India analysts are included is not clear) and a number of useful websites. The Governor of the Reserve Bank of India Dr. D. Subbarao, who contributes a " Foreword" rightly, hails the book as: " A rewarding learning experience." Surely this manual is very valuable and offers an easy- to- implement advice to wise financial planning. The Reserve Bank deserves warm praise for bringing out this book as part of its efforts to encourage financial literacy. THIS BOOK IS AN ATTEMPT TOWARDS EQUIPPING THE READERS WITH THE SKILLS OF PLANNING AND BUDGETING FOR A FINANCIALL SECURE FUTURE.
After fast food, drive-through banking
A concept more usually associated with burger or vada pav sale outlets has been found to work well with the business clientele of banks. The idea in question is the ‘drivethrough’ facility, where a customer comes to an outlet in his or her vehicle and transacts the business without getting out of it. “I went to America 12 years ago and saw this kind of banking,” says Jyotindra Mehta, now chairman of the Gujarat Urban Cooperative Banks Federation. He used to be the chairman of Rajkot Nagarik Sahakari Bank Ltd (RNSBL) and thought it was worth trying. There were logistic issues with the branches at Rajkot, and it was decided to try the experiment at the south Gujarat city of Surat, 470 km away, where there was a single branch. In that bustling commercial centre, people are generally in a hurry; in addition, the Surat branch (it has about 50,000 acount holders) had a growing problem in offering vehicle parking. Thus began the experiment with a drive-through bank. The clientele liked it. They could make cash and cheque transactions without getting out of the car, at a window. And so, in time, it was decided to offer it in Rajkot, too. There were some limitations, so instead of cash and cheque (in Surat, one can now make cash transactions up to `1lakh through the window) facilities, it was decided to offer only those for demat transactions. That began a year before. “You just drive in a car to the window and transact,” says Bhavesh Rajdev, branch manager of the demat division of RNSBL. About 35,000 demat holders are entitled. “When the market is good, it is around 100 a day.” “We will implement the drive-through banking facility in other branches, too. But we need to set up proper infrastructure and it will take some time,” says Kalpak Maniyar, chairman of RNSBL.
Anganwadi awaits RBI model village
LOHARDAGA: The construction of an anganwadi centre at the RBI's model village Doba under Kuru block in Lohardaga, which was undertaken in December 2010, is yet to be completed. The Reserve Bank of India has adopted the village under its model village banking programme, while the district administration had promised to take special care on development work here. The construction of the anganwadi centre at Doba Bar Toli undertaken under the Backward Region Grant Fund (BRGF) scheme was scheduled to be completed by December 2010. Incidentally, the work began in early December when the administration was gearing up to welcome RBI governor D Subbarao. The work came to a halt as soon as the governor's programme concluded. Deputy commissioner Ratan Kumar said the delay in the work was due to a dispute between villagers over the selection of site, which ended in November before the work started. "I was informed about the problem by block level officials. I will look into the matter," he said. The DC said plans were ready to be implemented. "Soon the village road will be black-topped. This scheme is being taken under the Integrated Action Plan."
No more fights with BEST bus conductors over change
Now, you won’t have to fight over change with the bus conductor. The Reserve Bank of India (RBI) has agreed to give Rs25 lakh in coins every month to the Brihanmumbai Electric Supply and Transport (BEST) undertaking. Earlier, the RBI used to give Rs16 lakh in coins every month to the undertaking. “Passengers have been complaining about the lack of change. Often arguments take place between the conductor and passengers. So, we had requested the RBI to give us more money in coins and they agreed to give us Rs 25 lakh a month,” said Sanjay Potnis, BEST committee chairman. The Siddhivinayak Mandir Trust in Prabhadevi has also agreed to give Rs 2 lakh in coins, whenever the public undertaking wants.“Now, we are getting more than enough from the RBI so there is no need take coins from anyone else,” said a BEST official on condition of anonymity because of protocol issues. Commuters are very happy with RBI’s decision. Versova resident Nikita Dalal, who travels by bus every day to Bandra, said, “This news is a big relief. I often face this problem. Now, I will demand change from the conductor.
Saturday, April 2, 2011
Opening of Rural Planning and Credit Department at RBI, Panaji Office
Rural Planning and Credit Department has started functioning from today at the Reserve Bank of India office, Panaji. The Department, among other things, undertake financial inclusion and financial literacy initiatives as also look after implementation and monitoring of the Lead Bank Scheme. Its functional jurisdiction will cover the State of Goa. The address and contact details of the department are :
Reserve Bank of IndiaRural Planning and Credit Department
3A/3B, Third Floor, Sesa Ghor
Patto, Panaji-403001
Tel No.0832 2438656
Fax No.0832 2438657
The Reserve Bank of India started functioning in Goa in 1983 when Goa was still a Union Territory. It catered to the foreign exchange needs of the people and institutions in the Union Territory of Goa.
RBI introduces Working Paper Series
The Reserve Bank of India today released two Working Papers on its website. These are:
Working Paper 1: An Empirical Analysis of the Relationship between Currency Futures and Exchange Rates Volatility in India by Somnath Sharma; and Working Paper 2: The Implications of Renminbi Revaluation on India’s Trade – A Study by S. Arunachalaramanan and Ramesh Golait. The Reserve Bank of India has decided to introduce a ‘RBI Working Paper Series’ (RBI - WP) to provide a platform to the Reserve Bank Staff for presenting their research studies as well as to receive feedback from informed researchers. One of the hallmarks of research in central banks is to sense the relevant developments and emerging challenges and provide quality research inputs for policy making. To be able to do this, the research studies should be on subjects linked with the goals and objectives of the central bank and should be conducted in a scientific way. With proactive and strategic role of the central bank staff, the research inputs could serve as necessary tools for scientific policy-making and efficient functioning of the central bank. The initiative to publish the Working Papers comes in the wake of encouraging the Reserve Bank staff to contribute towards such efforts. The Reserve Bank has another research publication called the ‘Occasional Papers’. Research published in ‘Occasional Papers’ is work produced by the Staff of the Reserve Bank on a broad range of issues. Papers published under ‘Working Papers’ Series are quick analytical research papers on issues and challenges of contemporary relevance to the Reserve Bank. Unlike Occasional Papers, which are published with specific periodicity, RBI - WP Series will be published, as and when ready and in digitised form only. ‘DRG Studies’ is also another attempt to carry out an in-depth study on contemporaneous subjects. These are prepared under the auspices of Development Research Group (DRG) involving an outside expert leading an internal researchers’ team. The views expressed in all the research publications of the Reserve Bank, including the RBI Working Papers Series, do not necessarily reflect the views of the Reserve Bank and as such should not be reported as representing the views of the Reserve Bank of India. Feedback, if any, on the papers could be addressed to the respective authors of the research studies.
R Sridharan named Acting Chairman of SBI
Mumbai: R Sridharan will be taking over as Acting Chairman of the country's largest lender State Bank of India from O P Bhatt, who superannuated. Sridharan, who currently serves as the Managing Director and Group Executive (Associates and Subsidiaries) at the bank will take over as Acting Chairman from April 1, according to a source close to the development. He started his career in State Bank of India in 1972, the same year as Bhatt, and has been with the top lender throughout. Sridharan, a graduate from the University of Madras, had taken over his current position in December 2008. The Ministry of Finance has reportedly zeroed in on Deputy Managing Director Pratip Chaudhuri as Bhatt's successor, but with a formal announcement not yet made, it has appointed an Acting Chairman.
FSDC’s efficacy yet to be tested, says RBI’s Mohanty
Mumbai: By setting up the Financial Stability and Development Council (FSDC), under the chairmanship of finance minister, the coordination mechanisms within the financial sector have been strengthened, said Deepak Mohanty, executive director, Reserve Bank of India (RBI). But, Mohanty added, that it is yet early to assess their efficacy which will be tested by future developments. The recent experience of managing global financial crisis by central banks showed that conventional policy framework may not always be sufficient to deal with crisis, he said. “The central banks have to be flexible enough and innovative in their policy approach to respond promptly to the build-up of sectoral imbalances,” said Mohanty, while participating in the Central Banks Conference of the Bank of Israel, Jerusalem on Friday. He was speaking on ‘Lessons for Monetary Policy from the Global Financial Crisis : An Emerging Market Perspective’. According to Mohanty the monetary policy frameworks in EMEs, mostly based on multiple indicators (in China, India and Russia) and multiple instruments were found to be more effective in responding to the crisis situation without being confronted with zero lower bound. Liquidity management operations being an integral part of execution of monetary policy in EMEs, sequencing of policy measures in a combination of rate and quantity instruments proved to be more effective, he explained. While interest rate continues to be the dominant instrument for implementing monetary policy, supplementing it by other quantity or macro-prudential instruments even in normal times will not only enhance the flexibility of monetary policy to attain multiple objectives but also could obviate the risk of hitting the zero lower bound, he said. In the context of stability of the external sector, a key initiative could be to develop the local currency bond market.
5 crore special coins to mark 150 yrs of taxation
Five crore commemorative coins of Rs 5 denomination, unveiled recently to celebrate 150 years of taxation, will be minted for public distribution soon. The coins, released by Finance Minister Pranab Mukherjee on February 26, will be put in public domain and will be a collector's item. These will have no extra price, a senior Finance Ministry official said. The special coin was unveiled along with a coin in the denomination of Rs 150 on the occasion of completion of 150 years of taxation and also of the Income Tax department from 1860 to 2010. The Rs 5 coin, made of an alloy of Silver, Copper, Nickel and Zinc, has an international design with 'Satyameva Jayate' and 'India' on the front and a portrait of 'Chanakya and lotus with honeybee' on the reverse. The Rs 150 coins will also be minted in the same fashion but only about 200 coins will be minted and would be available on request at a special price, he said. Earlier only 100 coins of Rs 5 were planned to be issued but the Central Board of Direct Taxes (CBDT) and the Income Tax department impressed upon the government the need to mint more such coins in public interest, he said.
Procedural irregularities hold up SBI chief’s appointment
The formal appointment of the State Bank of India (SBI) chairman has been delayed due to procedural irregularities in selection of the candidate proposed by the finance ministry. The irregularities have been highlighted by Cabinet Secretary K M Chandrasekhar. He has written to the finance ministry, questioning Pratip Chaudhury’s selection for the top job at the country’s largest lender. A senior government official told Business Standard . that Hemant Contractor’s name was on the top of the list during the selection of managing directors (MDs). However, for the chairman’s post, Chaudhury’s name was sent to the Cabinet Secretariat, he said. He added the cabinet secretary had asked the ministry to explain the reason for this change. The official said usually the names proposed by the finance ministry for top posts at public sector banks were cleared. But this was an unusual situation, he said. “A final decision is likely to be taken after the finance ministry’s explanation,” he said. The panel to select the SBI chairman interviewed four deputy MDs – Hemant Contractor, Pratip Chaudhury, Diwakar Gupta and A Krishna Kumar. The government has handed over the interim charge of the bank to Managing Director R Sridharan. O P Bhatt retired from the post yesterday after a five-year tenure. Sridharan, whose is to retire four months from now, is likely to continue on the post till his term ends. Sridharan was appointed as an MD in December 2008 and was looking after SBI’s associate banks and subsidiaries. There have earlier instances of SBI being headed by an acting chairman. In 2006, when A K Purwar retired, one of the MDs, T S Bhattacharya, was given the interim charge.
Friday, April 1, 2011
SBH to extend financial aid to 1,102 villages
Following the Reserve Bank of India (RBI) directions, the State Bank of Hyderabad (SBH) said it would extend financial inclusion across 1,102 villages with above 2000 population spread across 36 districts in Andhra Pradesh, Maharashtra, Karnataka and Gujarat. hese districts together cover a rural population of about 42.69 lakh. Financial inclusion will provide banking products such as savings, loans and services like remittance and insurance in areas where there are no banking services. It caters to low income groups and offers services at an affordable cost. According to SBH, the proposed financial inclusion will be implemented in two phases. While the first phase will cover about 300 villages by March 2011, the remaining villages will be covered in the next fiscal. SBH said it has already commenced enrolment and opening of savings accounts in 261 villages covering AP and Karnataka. On Tuesday, the bank distributed biometric cards to customers in few villages in Mahaboobnagar district. As part of the project, the bank has launched overdraft products to meet the financial requirements of beneficiaries across all villages. Besides opening a savings account, customers can also opt for variable recurring deposit, term deposits, overdraft in recurring deposits and term deposits in loan category general purpose credit card will also be available to all villagers.
FSDC not meant to be a super regulator'
The Union finance ministry has again taken pains to emphasize that the newly formed Financial Stability and Development Council (FSDC) won’t be a ‘super regulator’. “That is out of the question,” a key ministry official told Business Standard. FSDC, he noted, was not a statutory body. The commission, to be chaired by the finance minister, is meant as a broad “regulatory collegium”. There has been renewed discussion recently, as at the time it was formed, on whether it would be grow into the role of a regulator of the existing regulators, something the Reserve Bank of India, for one, has been wary about. “The issue is whether there could be a super regulator to oversee and co-ordinate the other regulators,” Financial Sector Legislative Reforms Commission chairman B N Srikrishna had told Business Standard. The FSDC was constituted through a notification by the finance ministry, not by an act of Parliament. Its aims include inter-regulatory coordination and maintaining stability in the system, among other things. Its creation came as a turf war occurred between the regulators of the capital markets and the insurance sector on the policing of unit-linked insurance products. The RBI had said FSDC should not assume the role of a super regulator, but confine itself to financial literacy and financial inclusion, which are also the aims of the council. It had also expressed reservations over a proposed joint mechanism under the ministry to sort out a turf war between regulators. Later, the RBI governor was appointed as the vice-chairman of the joint mechanism, chaired by the finance minister. However, no such post was given to the RBI governor in FSDC, but he was made head of a sub-committee on the coordination of inter-regulators. Experts say RBI’s opposition to FSDC as a super regulator was probably because its prime role at the High Level Coordination Committee (HLCC) that had regulated the financial sector. RBI feared those would be diminished once FSDC came into being, as the latter was chaired by the finance minister. The sub-committee, chaired by RBI within FSDC had replaced HLCC.
Cheque payments to get costlier
NEW DELHI: Making payments through cheques may become a costlier affair from tomorrow, as RBI has allowed banks to levy higher service charges for their clearing, especially of high-value and outstation cheques. As per a RBI circular coming into effect from April 1, 2011, banks would be free to fix service charges on speed clearing of cheques of value above Rs 1 lakh. At present, RBI does not allow banks to charge more than Rs 150 per cheque for speed clearing of cheques worth over Rs 1 lakh, while there are no charges for value up to Rs 1 lakh. However, speed clearing of cheques with value up to Rs 1 lakh would continue to remain exempt of any service charges. Speed clearing refers to processing of outstation cheques electronically and without movement of cheques from the presentation centre (city where the cheque is presented) to drawee centre (city where the cheque is payable). For normal local clearing also, drawee bank can charge up to Rs 1.50 per cheque from tomorrow, as against Re 1 at present. For local clearing through cheque truncation system, which works electronically by processing the scanned image of the cheque, drawee bank can levy a service charge of Re 1 from tomorrow, up from 50 paise at present. Besides, RBI has also given a free hand to the banks to decide on the service charge on outstation cheques of over Rs one lakh, as against a maximum limit of Rs 150 per cheque allowed currently. However, RBI has decided to lower the service charge for outstation cheques up to Rs 5,000, by allowing a levy of Rs 25, as against Rs 50 currently. The outstation cheques between Rs 5,000 and Rs 10,000 would continue to attract a fee of Rs 50, while those between Rs 10,000 and Rs 1 lakh would also continue to be levied a charge of Rs 100. While fixing service charges not mandated herein, banks have been told to get approval from their boards for service charge structure. "Charges fixed should be reasonable and computed on a cost-plus-basis and not as an arbitrary percentage of the value of the instrument. The service charges-structure should not be open ended and should clearly specify the maximum charges that would be levied on customers including charges if any, payable to other banks," RBI has told the banks. The service charges by banks should be inclusive of all charges (postal, courier, handling, etc.) other than service tax, RBI said.
RBI misses deadline to issue banking licence guideline
The Reserve Bank has missed the deadline to issue the much-awaited guidelines for giving new banking licences. "I am sure we are not issuing it (licence) today," RBI Deputy Governor K C Chakrabarty said. In the Budget 2011-12, Finance Minister Pranab Mukherjee had said the RBI plans to issue guidelines for the grant of new banking licences before the close of this financial year. Recently, Department of Economic Affairs Secretary R Gopalan had said that RBI will come up with the guidelines by the end of this month. In the last Budget, it was announced that the Reserve Bank of India would consider giving traditional banking licences to private sector players, he had said. Following the announcement made by the Finance Minister, the Reserve Bank had brought out a discussion paper in August, 2010, on giving out new banking licences to business houses and non-banking finance companies, besides regulations for the same to foster greater competition. The RBI also sought to know "whether industrial and business houses could be allowed to promote banks." Furthermore, it sought stakeholders' views on whether NBFCs should be allowed to convert into or promote banks. The RBI has received comments on its discussion paper from all stakeholders. Various entities like Reliance Capital, IndiaBulls, Religare, IL&FS, IDFC, IFCI and Aditya Birla Financial Services are reported to be mulling an entry into the banking space. At present, India has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, 4 local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.
SBI opens 25,000th ATM and 9,000th semi-urban branch
Mumbai, Mar 31 (PTI) The State Bank today opened its 25,000th ATM and the 9,000th semi-urban branch, and said it will add 10,000 ATMs annually for the next three years. The outgoing Chairman Om Prakash Bhatt said SBI had plans to deploy 10,000 ATMs every year over the next three years. He inaugurated both these facilities at the SBI board room here through video conferencing, which was attended by the entire board of the bank, including RBI Deputy Governor Shyamala Gopinath. While the 25,000th ATM is located at south Mumbai''s Girgaon, the 9,000th rural, semi-urban (Rusu) branch is at Sundargarh in Orissa''s Bhubaneswar Circle. Speaking at the occasion, Gopinath said though ATM was the most innovative product in the banking space, there was a need for an optimal ratio of technology and physical branches as rural customers still preferred physical branches. Of the 13,500 plus branches, as much as 67 per cent are located in rural and semi-urban areas, Bhatt said, adding the State Bank Group has 25,000 ATMs, out of which SBI alone has 20,087. In the last two years alone, the SBI Group has put up as many as 13,596 ATMs. SBI''s ATM network processes over 7.5 million transactions a day, disbursing nearly Rs 1,500 crore in cash. The State Bank has issued over 90 million debit cards and enjoys a market share of over 38 percent. From June 2006 to March 2011, more than 3,400 branches were opened by SBI alone, Bhatt said. The State Bank Group now has 18,181 branches. In FY11, SBI opened 1,040 branches, including the merged branches of State Bank of Indore.
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