RAJKOT: The National Litigation Policy (NLP) aimed at reducing the cases pending in various courts in India is nine months old, but the Reserve Bank of India (RBI) which is supposed to implement the pro-citizen policy in the banking sector is unaware of it. The Department of Banking Operations and Development in the RBI's central office in Mumbai has told a Right to Information (RTI) activist that it does not have any information on how the RBI is implementing the NLP. The RTI activist J P Shah from Junagadh filed an RTI application in December 2010 seeking information on the date of receipt of NLP by the RBI, steps initiated by it for compliance of the policy, feedback given to the government and copies of feedback from the SBI, Syndicate Bank, Dena Bank, Corporation Bank and the Punjab National Bank. Central Public Information Officer B Mahapatra of the RBI wrote back to Shah on January 31 saying that the information sought by him was not available with the Department of Banking Operations and Development. The NLP is aimed at decongesting courts and reducing litigation cost and time. Under the policy, effective from July 1, 2010, banks have to form committees to review all cases before filing a lawsuit so that petty cases do not clog the courts and waste the time and money of the bank and the customer. Not satisfied with the reply, Shah went in appeal. V S Das, Executive Director of RBI and appellate authority, ruled on March 28 that "the CPIO is duty bound to provide only that information which the public authority holds". Das has directed Mahapatra to forward Shah's query to the RBI's legal department as well as the secretary's department "to explore the availability of the information sought with those departments and furnish an appropriate response to the appellant". "How can you expect proper implementation of an important policy under such circumstances?" asks Shah. The RBI is the regulatory body of banks in the country and, thus, is the implementing agency of central government policies such as the NLP. "It is shocking that an important wing of the RBI has no copy of a pro-people policy, especially because banks are one of the big litigants against the public. Some banks compel customers to move courts even for petty issues such as an unwritten policy or they file cases in courts at the drop of the hat and waste public money to harass the public," says Shah, a retired bank manager. The NLP is based on the recognition that government and its various agencies are the pre-dominant litigants in courts and tribunals in the country. It aims to transform government into an efficient and responsible litigant. It is the responsibility of the government to protect the rights of citizens, to respect fundamental rights and those in charge of the conduct of government litigation should never forget this basic principle, said Shah. Shah has now written to the Union law minister, finance minister and RBI Governor to ensure effective implementation of the NLP by the banking sector.
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Thursday, April 21, 2011
Banks asked to submit status report of credit opportunities for women
Lead District Manager Samba, R.K.Mehta along with Chief Manager Administration SBI Jammu R.C. Sharma carried out an extensive tour of various Bank branches in twin districts of Samba and Kathua. It was necessitated keeping in view the annual Banking statistics ending March 2011 and its early collection district-wise for the further submission to Reserve Bank Of India and the convener SLBC Srinagar for meaningful and timely organizing State and District level Banker review meetings. Speaking on the occasion, Sharma exhorted all the Branch heads to immediately provide him the status report of credit opportunities available to women in Jammu and Kashmir for prompt submission to RBI Jammu. It was revealed by various managers that the submission of the data to respective LDMs is primarily delayed due to statuary audits and Panchayat elections, however they assured early submission. LDM Mehta reiterated the instructions of Mubarak Singh, Deputy Coommissioner Samba and asked the Bankers to report correct developmental data for meaningful discussion in ensuing DLRC meet of the District.
SBI withdraws teaser loans
At the end of the day the regulator is right. We cannot afford to be in perpetual conflict with the regulator, hence this decision” PRATIP CHAUDHURI SBI Chairman
Less than a month after State Bank of India's most illustrious Chairman OP Bhatt's tenure ended, India's largest lender announced the withdrawal of SBI Easy Home Loan and SBI Advantage Home Loan, widely called `teaser home loan' schemes, rather abruptly from May 1, 2011. Clearing establishing the regulatory pressure, which Bhatt resisted, the bank said in a statement that upward pressure in real estate prices, consequent exit of end users and regulatory concerns have led to withdrawal. The Bank had launched the popular step-up home loan products in August 2009 in the aftermath of the global downturn. Several banks followed suit. But when RBI's tough talk did not yield result, the apex bank increased the provisioning on such loans to 2 per cent. All, except SBI withdrew the teaser home loan schemes. Chairman OP Bhatt relentlessly pursued with RBI on why the loans were totally transparent and that the selection of the borrower was such that it was given to creditworthy individuals. In an interview Bhatt had said: “RBI has not understood our product.“ RBI officials on condition of anonymity have told The Pioneer on how the then SBI chairman argued before the RBI officials explaining to them the utility of teaser loans and why it was transparent. Another RBI official said Bhatt had even questioned RBI on why it didn't object to teaser rate when it was launched, especially when RBI Deputy Governor Shyamala Gopinath was a director on the board of State Bank of India. “In the last few quarters the status of the residential real estate market has experienced upward pressure on prices across cities and micro markets. Consequently, the industry has witnessed exit of end users and tapering of investment demand. Taking cognizance of the above and also taking note of regulatory concerns, the Bank has decided to withdraw SBI Easy Home Loan and SBI Advantage Home Loan w.e.f May1, 2011,“ the statement by SBI said. SBI did not make any provisioning for special home loan scheme till December. However, should the regulator require it to, the bank would have to set aside Rs200-300 crore, Bhatt had said on the final day of his stint on March 31, 2011. SBI had extended the teaser scheme by one month, till April 30, 2011.
Norms for hiring CMDs, EDs for PSBs relaxed
Mumbai: There have been relaxations galore for the appointment of CMDs for the seven government-owned banks which will see vacancies during the current fiscal year. The interviews of 19 executive directors (EDs)working at various public sector banks (PSBs) took place in New Delhi on Wednesday. However, one of the candidates, P Pradeep Kumar, managing director of State Bank of Travancore, didn’t turn up. The banks which will have vacancies for the CMDs position during the current fiscal, include Central Bank, Corporation Bank, Dena Bank, Andhra Bank, Bank of Maharashtra, Syndicate Bank and Union Bank. The interviewers’ panel had financial services secretary Shashikant Sharma, RBI Deputy Governor Anand Sinha, Kolkata IIM’s S Chaudhuri and the former HDFC chairman Jagdish Capoor. Except for Chaudhuri, who has been given an extension, all the remaining members of the panel are first timers. Going by the normal practice of inviting only those EDs who have completed two years in their current position and having a residual service of two more years, then there were only three such officials namely Mohan Tanksale (Punjab National Bank), BA Prabhakar (Bank of India) and MG Sanghvi (Bank of Maharashtra). All the three EDs who had appeared for the interview for CMD posts last year had missed the bus last year. Hence, the norm was relaxed to the one year and nine months of the residual services in which seven more EDs became eligible. But the norms were relaxed further by saying that even those EDs, that have already completed six months in office are also eligible to be considered for the post of CMD. This change in the norms delighted eight more EDs, who have assumed their offices merely six months back. In another development, four out of seven general managers who had been denied the opportunity on the grounds that they had already appeared for such interviews for three times in past are also likely to be called for the interview for the post of EDs. The interview for 17 ED posts will begin later this month. However, there are no relaxation in norms for the appointment of the EDs at various PSBs, which are to be filled up during the current financial year. The existing norms say a candidate needs to have completed of two years as general manager and should have three years of remaining services. Four of the seven GMs who are likely to appear for the forthcoming interview were denied the opportunity during the last year on the plea that they had already appeared for the interview for three times in past and still couldn’t make it. The interview of 34 GMs are likely to take place by end of April by the same panel, sources said.
IBA backs ICICI’s micro loans recast proposal
MUMBAI: The Indian Banks' Association (IBA) has recommended the inclusion of securitised microfinance debt in the proposed recast of thousands of crores of loans under corporate debt restructuring, which is opposed by Axis Bank and SBI, but sought by ICICI Bank. RBI has sought the opinion of banks involved in the restructuring of microfinance loans that are on the verge of default after the sector was plunged into a crisis due to a special law in Andhra Pradesh that promoted voluntary defaults. "We have asked the Reserve Bank of India to consider select banks' plea to restructure their investments in these securitised papers," said an IBA official, who did not want to be identified. "The banking system has invested in these papers to meet their priority sector requirement.
Wednesday, April 20, 2011
RBI cautions banks on e-banking
Mumbai: The Reserve Bank of India (RBI) had cautioned banks that though e-banking as a new technology has many capabilities, it also has many problems and users are hesitant to use the system. “The use of e-banking has brought many concerns from different stakeholders. Everybody’s primary concern is security. As more and more people are exposed to the information superhighway, privacy of information and the security that goes hand and hand with this information is crucial to the growth of electronic transactions,’’ said R Gandhi, Executive Director , Reserve Bank of India. Gandhi said in order to provide effective and secure banking transactions, there are four technology issues that need to be resolved. “The key areas are the security, privacy and authentication,” he said. By strengthening the privacy technology, this will ensure the secrecy of sender’s personal information and enhance the system’s security. “Also encryption may help make the transactions more secure, but there is also a need to guarantee that no one alters the data at either end of the transaction,” Gandhi said.
RBI Authorizes IDBI Bank to Deal in Government Securities Market
Mumbai (ABC Live): The Reserve Bank of India on Tuesday has authorized IDBI Bank Limited to undertake Primary Dealer business in Government securities market with effect from April 20, 2011. Information and confirmation to this effect was made by Ajit Prasad, Assistant General Manager through Press Release: 2010-2011/1515 that IDBI Bank Limited was given permission to deal in Primary Dealer business in Government securities market in lieu of authorization withdrawal from IDBI Gilts Limited, its subsidiary.
New licences set to drive bank job boom
As many as half a million jobs are likely to emerge across the banking sector as the economy rebounds on the growth path and the Reserve Bank of India (RBI) gets set to issue new banking licences. In a huge turnaround for a sector that was the worst hit in the global financial crisis, RBI has also started giving its approval to foreign banks to set up shop in India. Industry experts said the job rush could begin as early as in the next 12 to 18 months. Rabo Bank and Goldman Sachs have got the central bank's approval, while several others such as Morgan Stanley, JP Morgan are waiting. Human resource firms said that banks wishing to set up shop in India have initiated a preliminary talent hunt already. The existing foreign players in the sector such as Citibank and HSBC have chalked out their expansion plans. "The broad strategy of banks that wish to set up shop here would determine their recruitment strategies," Deepak Verma, chairman, Sheffield Haworth, a financial services executive search major told Hindustan Times. Verma said that the high growth prospects of the domestic market are driving the banks and other financial sector firms to embark on a major recruitment drive. Verma said the large scale hiring would begin from end of the year.
RBI imposes Rs 5 lakh penalty on Maha-based cooperative bank
MUMBAI: The Reserve Bank today said it has imposed a Rs five lakh penalty on Maharashtra-based cooperative lender Dwarakadas Mantri Nagari Sahakari Bank for violation of directives related to disbursement of loans and advances. "The RBI has imposed a monetary penalty of Rs 5 lakh on Dwarakadas Mantri Nagari Sahakari Bank Ltd, Beed.. for violating RBI directives/instructions relating to loans/ Advances to directors/their relatives/concerns in which they are interested," the apex bank said in a statement. 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, bank's reply and personal submissions in the matter, the RBI came to the conclusion that the violations were substantiated and warranted imposition of the penalty," it said.
Cycle of rise in key policy rates may be extended
The cycle of upward revision in key policy rates by the Reserve Bank of India (RBI) is likely to be extended, owing to the high prices of commodities, according to economists. Many economists also said the pricing power of producers posed upside risks to inflation. Market observers have now revised their outlook on policy rate increases, following higher-than-expected inflation in March. To tame rising inflation, RBI may raise rates by 75-100 basis points in the current financial year, they say.
Why India overheats
The finance ministry has left something conveniently unsaid: 9% growth at what inflation rate? The inflation problem continues to fox economists and unsettle ordinary Indians. However, the metaphorical man on the street seems to have had a better sense about the soaring arc of prices than the men and women with econometric models. A year ago, the overwhelming consensus among Indian policymakers and private sector economists was that inflation would begin to decline to more reasonable levels in the quarters ahead. For example, the Reserve Bank of India (RBI) had said in April 2010 that inflation would be at 5.5% by the end of the fiscal year. Meanwhile, the 4,000 urban households that the central bank surveys each quarter to assess their inflation expectations were more pessimistic. They had indicated in December 2009 that inflation would be in double digits in the first three months of 2011. The latest inflation numbers for February show that the man on the street was closer to the correct estimate than the economists. Prices continue to surge. Inflation hovers around double digits. The revised inflation number for January is 9.4% and the first estimate for February is 8.98%. One explanation why households have got a better handle on the trajectory of inflation than the experts is that information distributed in a complex system such as an economy is better captured by a large group of people than a single model: the wisdom of the crowds. A less Hayekian explanation is that the man on the street was just plain lucky, a factor that has a greater role to play in the prediction game than most participants would accept. It is the third possibility that is the most worrying. The wide gap between official inflation forecasts and the expectations of ordinary citizens could be an indication of a serious problem—the lack of institutional credibility. In short, common wage earners and consumers discount the guidance given by the finance ministry and RBI on inflation. And they have diminishing confidence in the ability of these authorities to control prices. To be sure, the entire blame for the surge in inflation cannot be laid at the doors of the government and the central bank. There is a structural element in the inflation trend, as higher incomes have raised demand for fruit, meat, vegetables and milk. Some inflation has also been imported, as global oil and commodity prices have shot up thanks to the strong economic recovery in emerging markets and loose monetary policies in most Western economies. But domestic cyclical factors are undoubtedly a big part of the story as well. Higher global commodity prices are already pushing up input costs for most companies. High inflation expectations could fuel demands for higher wages as well. Whether these two factors have an effect on final prices depends on the ability of Indian companies to pass on higher costs to consumers. The International Monetary Fund said this month that the output gap has closed; companies are operating close to full capacity. The ability to pass on higher costs to consumers is usually strong at such points in the business cycle, since there is little excess capacity to ramp up production. The usual short-term response to an outbreak of high inflation is by cooling demand. RBI will have to raise interest rates far more aggressively than it has till now. The government has already announced a fairly ambitious plan to cut the fiscal deficit. Higher interest rates will weigh down on private demand and less red ink in the national budget will keep government demand under control. Both strategies will mean that some economic growth will have to be sacrificed. The closest we have had to an official recognition of this hard fact is when Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said after the release of the new inflation data on Friday, that the economy is unlikely to grow at 9% this fiscal. However, as this column has pointed out earlier, demand management can work only in the short term. Further, it will involve sacrificing some growth. The more sustainable response will have to come from the supply side, through more investments and higher production capacity in farm and factory. I fail to see how such supply side effects can kick in without policy clarity and more economic reforms. A final point: the Economic Survey released by the finance ministry in February used simple calculations to show that the Indian economy is quite capable of growing at 9% a year. India has an investment rate of around 36% of gross domestic product. India requires four units of capital to produce one extra unit output. But what the finance ministry left unsaid was: 9% growth at what inflation rate? The recent past reiterates an old truth. The Indian economy cannot grow at over 8% for more than a few quarters without overheating.
Banking licence draft guidelines in next 15-20 days: FinMin
New Delhi: The Reserve Bank of India (RBI) will bring out a second draft of the proposed guidelines for issuance of new banking licences in the next 15 to 20 days, the finance ministry said on Thursday. “Second draft guidelines for new bank licences in next 15 to 20 days,” Financial Services secretary Shashikant Sharma told reporters here. The finance ministry will have a look at the draft guidelines and comments will be invited before the final guidelines are notified. 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 the last financial year, by 31 March, 2011. 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 RBI 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, four local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.
ET in the Classroom: Public debt office
A public debt office or a debt management office is an autonomous government agency which acts as the investment banker to the government and raises capital from the markets for the government. It formulates the borrowing calendar for the government and decides upon the maturities of the securities to be issued on behalf of the government. A public debt office works separately from the central bank and has nothing to do with the formulation of the monetary policy or setting interest rates.
Click to read.......India’s central bank battles alone in inflation struggle
What more does India’s central bank have to do? Last week data showed March inflation rising to almost 9 percent on an annual basis. More importantly, core inflation is above 7 percent for the first time in 3 years meaning demand-side pressures are rising fast. And that’s despite the Reserve Bank of India raising interest rates eight times since last March. The inflation data comes just after a quarterly HSBC report based on purchasing managers indexes showed that inflation in India seemed impervious to monetary policy tightening. The truth, is the inflation-fighting central bank has little backup from the government which remains stubbornly in spending mode. Its foot-dragging on reform and foreign investment contributes towards keeping food price inflation high. This year’s fiscal deficit target is 4.8 percent of GDP and even this is seen as optimistic. What India really needs is to have domestic demand slowing down quite rapidly but the government is not prepared to risk that,”says Claire Dissaux, investment strategist at Millenium Global in London. The RBI has repeatedly said it shouldn’t have to do all the heavy lifting. But lack of support from the government means the central bank will have to put up rates another 100 bps this year, analysts reckon.
Tuesday, April 19, 2011
RBI may hike key rates: Economists
New Delhi: With inflation showing no signs of moderation, economists expect the Reserve Bank to hike key policy rates by at least 25 basis points in its annual monetary policy to be unveiled on May 3. The headline inflation (WPI) stood at 8.98 per cent for March, much above the RBI's projection of 8 per cent, fuelling speculation that the central bank may go in for another hike in the repo (lending) and reverse repo (borrowing) rates. "We are definitely expecting a rate hike. While we do see a 25 basis points (bps) hike in repo and reverse repo rates, it is also likely that the RBI could hike both rates by 50 bps each," Yes Bank Chief Economist Subhada Rao said. Referring to 8.98 per cent inflation in March, she said: "These are very, very disturbing numbers. The sharp upward movement in core inflation is at 29-month high. For RBI this is going to be of great concern, as demand is extremely robust". Expressing similar views, Crisil Chief Economist D K Joshi said, "We expect the RBI to hike repo and reverse repo rates by 25 bps each in its May policy review". "Another hike of 25 bps in the next policy meeting is a certainty," opined Tushar Poddar, Chief India Economist at Goldman Sachs. The repo rate is 6.75 per cent and reverse repo is 5.75 per cent. In order to check rising prices, the RBI has raised the key policy rates eight times since March 2010. The rise in wholesale price inflation was mainly on account of increasing prices of manufactured items, milk, vegetables and fruits. The WPI stood at 8.31 per cent in February. Besides, food inflation, which accounts for nearly 15 per cent of overall WPI inflation, touched the year-low level of 8.28 per cent for the week ended April 2 as prices of certain essential items like pulses and wheat declined, from 9.18 per cent in the previous week. "Food inflation will not have much of a bearing on the RBI's decision making process. From a policy perspective non-food inflation is very critical and it is rising. Looks like inflation will remain high this year", Joshi said. Right now, inflation is suppressed because the fuel price increases globally have not been passed on to Indian consumers yet. If they are transferred, inflation will be much higher than it is at present, Joshi added. On an annual basis, fuel and power prices went up by 12.92 per cent, driven mainly by a 23.14 per cent rise in petrol prices and a 14.99 per cent jump in cooking gas (LPG) rates.
PSU LENDER, AP GOVT MAY START NBFC FOR MICROFINANCE CREDIT
HYDERABAD: A city-based public sector bank is mulling to start a Non-Banking Financial Company, in which the Andhra Pradesh government will join in the equity participation, to extend microfinance credit to the poor, said a state government official said. The state government move may spell doom to the already crippled microfinance institutions with significant exposure in the state. “A couple of banks are in touch with us. We also want to take part in the equity participation. By August 15 we may start operations,” R Subrahmanyam, principal secretary, told PTI. He said the feasibility study has been entrusted to Andhra Pradesh Mahila Abhivruddhi Society (APMAS) a non- governmental public society stands under the Foreign Contribution Regulation Act. MFI have preferred to focus more in the areas where banking network is active and on the groups that are already in the financial inclusion, taking advantage of the awareness of poor in group dynamics and lending methodology, the state government had earlier said. The proposed NBFC would have Rs 500 crore of authorised capital and Rs 150 crore of paid-up capital. Besides, a PSU Bank, both the central government and the state government would join the company as equity investors along with the National Bank for Agriculture and Rural Development (Nabard). Once the feasibility study is completed, the proposal will be sent to Reserve bank for further proceedings and approvals, Subrahmanyam said, adding the NBFC will extend microfinance to mandal samakhyas in the state through self help group (SIG)-bank linkage programme. The MFI lending in the State has come down drastically after the state government came out with a regulation to control microfinance activities. Microfinance Institutions Network strongly criticised AP Microfinance Bill and said it the Bill will create hurdle for the legitimate RBI-registered microfinance in providing access to finance for the poor. “The issue of unavailability of credit to 97 lakh borrowers and outstanding loans of Rs 7,500 crore is looming large before the industry and passing the bill without required amendments will impact the ability of MFIs to function smoothly,” Alok Prasad MFIN CEO had said earlier.
RBI to take new anti-inflation steps
The Reserve Bank of India (RBI) is likely to come out with a new policy measure to rein in inflation in its annual monetary policy review as high inflation remains a "matter of concern" for the apex bank. "We will have our own policy very soon. Inflation remains a matter of concern and we need to evaluate and underline the inflationary pressures," RBI deputy governor Shyamala Gopinath told reporters on the sidelines of a programme organised by the apex bank on Monday. She said that monetary policies required about 12 to 18 months to have an impact on inflation. "Once a policy is in place, it will take around 12 to 18 months to work. It is better that different mechanisms work in a calibrated manner," she stated. Gopinath said that the current inflationary pressure had been a result of high inflation from the food and the non-food manufacturing sector. "We will have to mark these trends and then ensure that there is no demand and supply mismatch," she added.
Inflation a concern for us: Gopinath
Ahead of the monetary policy review on May 3, Reserve Bank of India (RBI) Deputy Governor Shyamala Gopinath today said inflation was a concern, mainly on account of the high prices of non-food manufacturing goods.
50 better than 25 - Arjun Parthasarathy
The sharp upswing in March inflation, almost a percentage point over RBI forecasts, deserves a higher quantum of rate hikes. The RBI should raise repo and reverse repo rates by 50bps each as a signal of inflation veering sharply higher than estimates and as a signal of inflation being understated due to government’s fuel subsidy policies. RBI is scheduled to hold their policy meet in May 2011. The market is expecting a 25bps rate hike based on RBI’s wordings in their policy review in March, but will now start factoring in a 50bps hike after the March inflation numbers. A 50bps hike will be accompanied by a more benign inflation forecast as the RBI will then look to see the positive effects of rate hikes on inflation. The 50bps rate hike should then be taken positively by the market, as it decreases uncertainty on surprise hikes or jumps in inflation numbers. The market will also start looking ahead towards the end of rate hikes, which could just be a couple of policy reviews away. In the meanwhile if the government does raise fuel prices, inflation numbers become more reasonable and reflect reality. The sensex will benefit from a 50bps rate hike as the currency will be under pressure to appreciate bringing in more foreign flows. The RBI is not alone in their anti inflation campaign. China saw inflation for March come in at 5.4% against expectations of 5.2%. China has raised rates twice this year to quell rising inflation expectations. The Yuan has benefitted from the rate hikes and has climbed by 4% over the last one year against the USD and is holding at 15 year highs. The Shanghai composite index has gained around 8% over the last three months, indicating that equity investors are expecting a soft landing for China. Singapore allowed its currency to appreciate to a record high this week to counter inflation which is running at 5% levels. The Singapore dollar has gained around 10% over the last one year. Inflation as measured by the WPI (Wholesale Price Index) came in at 8.98% for the month of March 2011 against economists’ consensus expectation of 8.38%. RBI had forecast an inflation rate of 8% for March 2011. The WPI growth was revised to 9.35% from 8.23% for the month of January. The March inflation number does not factor in the sharp rise in oil prices as the government has not raised fuel prices to pass on the oil price rise to the end user. The Indian crude basket price climbed to over USD 110/bbl in March up by 9% over the previous month. Global oil prices are higher by over 30% in the last six months. The government is running up a subsidy bill of over Rs 175,000 crores at current selling prices of fuel. The fuel subsidy is vastly understating inflation and the upside surge in inflation for March does not even remotely reflect the fuel price rise.
Options to shop with your mobile increase
Plastic money has helped wallets shed a lot of weight. Technology has taken a step ahead and enabled you to get rid of the wallet completely. With the Reserve Bank of India (RBI) taking a proactive role in popularizing mobile payments and beginning to issue the necessary licences, and mobile banking becoming popular by the day, you may soon get hooked on to the facility if you haven’t already. Last week, Corporation Bank launched a mobile wallet, known as YPayCash, a mobile payment platform along with eMudhra Consumer Services Ltd. At the launch function, Ramnath Pradeep, chairman and managing director, Corporation Bank, said, “Mobile banking has become very popular as it creates a convenient and fast financial transactional channel. We are glad to provide this secure mobile payment platform.” A few other banks also offer mobile wallets. These include Yes Bank Ltd and Union Bank of India. Airtel is the only telecom company to have been granted the licence by RBI to provide a similar service through Airtel Money. The facility being provided by Corporation Bank is currently restricted to person-to-merchant establishment payments. In other words, it cannot be used for person-to-person fund transfers but only to make payments to retailers. The payment solution has currently gone live in Mumbai and Bangalore where the bank has almost 16,000 point of sales (PoS) terminals. However all these PoS have not gone live with the facility and the bank expects them to do so in the coming months. Existing Corporation Bank account holders who have signed up for the payment solution can make use of the facility at merchandise outlets that have gone live with the system. If you are an existing Corporation Bank account holder, just walk into a bank branch and apply for the facility. Once your number is added to the system, you will get an SMS with a link in it. Click on it to install the client application. The first time you log in, you will be prompted to create an alphanumeric password. You can either ask the bank to maintain a fixed amount in your mobile wallet, request for periodic transfer of a fixed amount from your savings account or do a top-up through your cellphone same as in a prepaid connection. Currently, the limit is Rs. 5,000. In order to initiate the transaction, you have to log in to the client application installed on your cellphone and key in the amount to be paid. The application will then generate a unique 2-dimensional bar code. This bar code captures your personal data such as your account number, phone number, time scan and certain other details. The merchant will then photograph the bar code from the bank’s client application installed on his cellphone and the payment is complete. Both you and the merchant will get an SMS alert, stating the amount paid and that the payment has been successful. The best part is while transacting, you don’t need to share any personal details such as your account number, user identity or name with the retailer. You can use this to make payments at retail outlets. Eventually, you would be able to use it to pay utility bills and for other transactions. Says Ravi Jagannathan, managing director and CEO, eMudhra Consumer Services, “What we are looking at is a whole ecosystem that will allow you to do a host of transactions as it evolves. In fact, we are also in talks with several other banks to get them on board. We expect three of them to go live by June-end.” More banks coming on board could also mean inter-bank transactions, he adds. Says Jagannathan, “You will receive an SMS alert for each and every transaction, so in case you have been unable to track your expenses, then you also have a record of your transactions and expenses.” So now you need not worry about having to count the exact change when shopping.
Breather for SBI as RBI seeks clarification on special loans
Mumbai: State Bank of India (SBI) has got a breather on its controversial special home scheme as Reserve Bank of India has asked clarification from the bank. The communication from RBI reached SBI last weekend. "We have received communication from RBI seeking clarification on certain issues relating to our special home loan scheme. We will send a reply by this weekend," a senior SBI official said. The SBI had written to the RBI soon after it had raised provisioning amount on teaser home loan scheme to 2% from 0.4% clarifying that the bank's special home loan scheme couldn't be termed as teaser, and hence, the bank didn't have to provide any extra capital. However, RBI hadn't replied to the SBI earlier and the bank has been reviewing and relaunching its scheme after end of every quarter. SBI had conducted a high level meeting under Krishna Kumar, MD of SBI, to review the situation where the bank may have to modify its special home loan scheme. "We haven't decided anything on the scheme and it continues as it is," said the official. Meanwhile, sources at.RBI said the central bank may ultimately ask the bank to provide at 2% for its special home loan scheme. "Our stand is very clear. Any home loan product having feature of both fixed and floating rates will fall under teaser home loan scheme. SBI product is neither fully fixed nor fully floating. The new customers of SBI are being attracted with low fixed rates but may have to pay higher floating rates afterwards. We don't want to encourage this product,'' sources at RBI said. Soon after taking over as the new chairman of SBI, Pratip Chaudhuri had hinted that the bank’s special home loan schemes may be modified since the higher provisioning norms for such assets of 2%, as prescribed by the regulator, were beginning to hurt. “We are continuing with the schemes at present. At the same time, we are in dialogue with RBI and will try to address the concerns of the regulator, deliver value to the customer and also make sure the provisioning is affordable,” said Chaudhuri. Chaudhuri's predecessor OP Bhatt, who was instrumental in growing SBI's home loan portfolio with the special home loan scheme, had staunchly defended the product. Reiterating RBI’s stance that SBI’s special home loans are similar to the sub-prime loans lent in the US in the run-up to the 2008 global financial meltdown, Bhatt said this view is beyond logic as his offering is sold to those who are “absolutely credit-worthy.”
RBI refuses to endorse Sivasankaran's Tamilnad Mercantile Bank stake sale
CHENNAI: The Reserve Bank of India has refused to acknowledge maverick NRI businessman C Sivasankaran's sale of nearly 33% stake in the private sector Tamilnad Mercantile Bank (TMB) to Indian and foreign investors four years ago. Sivasankaran had sold the stake to Ramesh Vangal and ex-McKinsey chief Rajat Gupta , among others. The RBI, which was directed by the Bombay High Court last year to decide on the ownership, has said the deal lacked transparency and it violated the Foreign Exchange Management Act ( FEMA . According to a copy of the RBI order, available with ET, RBI deputy governor Anand Sinha has found "no transparency" in the deal. He said the seven foreign investors, and the Indian investors had acted in concert and "formed a group" while buying the stake. This, he said, is a violation of FEMA. The investors now have to reduce their collective holding to below 5%. TMB managing director AK Jagannathan said the RBI has submitted its decision to the bank. "The appropriate stakeholders should study it and see what needs to be done. The RBI order is an order for us and only the implications of the order matter to us." Vangal couldn't be reached for his comments. In May 2007, seven foreign investors - Vangal's Katra Holding, Ravi S Trehan's RST, Rajat Gupta's GHI, Kamehemaha Mauritius, FI Investments (Mauritius), Cuna Group (Mauritius), and Swiss Reinvestors (Mauritius) - and Indian investors Gokul Patnai and Vector Programme bought 24.93% in TMB, a Nadar community-dominated bank. These investors paid 24,182 a share for the 10 paid-up share of bank. Besides the new non-Nadar investors, another 8% was picked up by influential Nadar businessmen and Indian investors such as MGM Maran and MG Muthu, PS Sathiyaseelan, Hemangini Finance and Leasing, Shanmuga Financial Services, L Sridhar, and N Ganeshan. R Chinnakannan and C Chandammal, the parents of Sivasankaran, were also part of this group. These investors had paid 6,050 a share. The shares where bought from four companies belonging to Sivasankaran's Sterling group. Jagannathan said the bank's accounts are being audited and the balance sheet would be ready by the end of this month. The AGM will also be held shortly where major decisions would be taken. "We will be raising capital and things will evolve after that," he said. In October 2010, the Bombay HC had restrained the TMB from taking any major policy decision or holding its annual general meeting till the Reserve Bank of India acknowledged the transfer of shares. Sources told ET that based on the RBI's directive, the bank's board has decided to hold the AGM for the 2010 and 2011 fiscals at Tuticorin on June 15. Among other things, it will list resolutions to be adopted by members for increasing the authorised capital from 1 crore to 100 crore, issue 30 bonus shares for every one share and allow investors to hold shares in the demat form. Sources said following the directive from the RBI, the bank has to find investors for the over 32% stake at a huge premium. At the same time, the RBI's stand will pave the way for the bank to float a public issue and offer shares to retail investors. On a thin equity of 28.45 lakh, TMB has reserves of over 1,200 crore.
Leighton faces India payment snag
Leighton Holdings Ltd has been forced to re-extend the payment deadline for the $104 million sale of part of its Indian business, according to a report by The Australian newspaper. The report said the sale of 35 per cent of Leighton Contractors India was formalised last December, and cash payment was due on March 31. Leighton said this was delayed by the Reserve Bank of India's bureaucratic process, and the deadline was extended. The company had hoped for payment by last Friday, but this deadline also lapsed. Leighton shares tumbled more than 15 per cent last week after the company announced a sudden profit downgrade of about $900 million. It was yesterday forced to defend the announcement to the ASX, after being hit with a disclosure query.
Heat on vexed trade payment route
Calcutta, April 18: The Reserve Bank of India (RBI) may take a relook at the Asian Clearing Union mechanism — set up in 1974 under the aegis of the United Nations Economic and Social Commission for Asia-Pacific — involving the central banks of India, Bangladesh, Myanmar, Iran, Pakistan and Sri Lanka. Speaking at an interactive session on the Foreign Exchange Management Act, RBI deputy governor Shyamala Gopinath said, “ACU mechanism may be relooked into. We need to reflect on this.” The Tehran-based ACU mechanism was virtually dismantled after an RBI notification, which said that all eligible current account transactions, including trade transactions, with Iran should be settled outside the ACU mechanism. Under the ACU mechanism, payments for all transactions between Indian firms and entities of any of the member countries are settled by debiting to the ACU dollar account in India of a bank of the member country or crediting to the ACU dollar account of the authorised dealer maintained with the correspondent bank in the member country. “This (the December sanction) has been imposed in view of the difficulties being faced in payments to and receipts from Iran. The country is now facing ban of the US dollars and euro. This situation has become more complex and it is engaging a lot of our attention. The matter is now with the ministry of external affairs and the government,” Gopinath said. Following the December notification, banks have stopped paying domestic exporters any remittances from Iran and opening letter of credit account for the importers of Iranian produce. Meanwhile, domestic importers and exporters to Bangladesh have also urged the deputy governor to allow them to settle payments outside the ACU mechanism. “I get a feeling from this forum that exporters want the flexibility of settling payments outside the ACU mechanism,” Gopinath said. While India is trying to find ways to settle the payment row through using some other currency, including the rupee, some quarters believe that the RBI sanction may in fact help India-Iran bilateral trade to grow because exporters and importers of both the countries can now engage in bilateral trade and payment settlement outside the ACU mechanism. This development assumes significance given the fact that in its third summit the Brics (Brazil, Russia, India, China and South Africa) countries have mooted the idea to engage in multi-lateral trading among themselves in their own currencies and thereby reducing the dominance of the dollar and the euro.
IMF expects RBI to confront inflation challenge
The International Monetary T Fund expects the Reserve Bank of India to effectively deal with the challenge of inflation, noting that the initial food price driven inflation now appears to be generalizing. “At one point, it (inflation) was thought to be a temporary factor, but apparently, that is not the case, and the initial food price-driven inflation is now somewhat generalizing,“ IMF's India Mission Chief Masahiko Takeda said, adding: “So the Reserve Bank of India is now very concerned about it, and we expect the RBI to stay vigilant and take necessary action.“ If combating inflation is the immediate job on hand, the medium term challenge for India will be to focus on maintaining its current high growth, Takeda said, noting: “There must be some appropriate environment for high growth to continue.“ India, he said, would have to address struc tural reform issues in order to give a boost to infrastructure sector, enhancing foreign direct investment, boosting agricultural productivity and increasing the level of human capital. Looking at the whole Asian region, the IMF reckons that inflation and overheating are the twin risks now confronting several key economies. Even while lauding the region for its sound growth performance and weathering the global downturn, it wants action to deal with the two dangers. “Headline inflation has accelerated in the last six months and initially that reflected commodity prices, but we do see these pressures now spilling over into core inflation and inflation expectations,“ said Anoop Singh, Director of IMF's Asia and Pacific Department, providing an Asian perspective to the media at the just-concluded IMF-World Bank spring meetings. The IMF expects inflation in many Asian economies to increase further this year before slowing modestly next year as global commodity prices stabilize and macroeconomic policies are tightened. “But the inflation risk for Asia is clearly on the upside,“ said Singh. Overall the Asian region is expected to grow at 7 per cent in 2011 and 2012 (India is projected to grow at 8.25 per cent this year and 7.75 per cent next year), but the economies of the region have to stave off the danger of overheating. According to Singh, pockets of overheating pres sures have emerged across Asia in both goods and asset prices. The rising commodity prices pose an added risk, Singh said, noting: A more proonged disruption of industrial production n Japan could have effects on o t h e r economies n the region, and elsewhere in the world, that are linked to a pan through the global supply chain.“ The prescription for the whole region as it combats inflationary pressures will be “certainly further monetary tightening“. Exchange rate appreciation would help tighten monetary conditions, while some economies in Asia needed more fiscal consolidation, he said. While IMF expects foreign capital flows into the region to continue this year and next, although at a lower pace than last year, Singh said global tensions could cause more volatility in inflows. “Macro prudential measures targeted at reducing the risks from volatile capital flows can be helpful, and they are being taken forward. They are complements to macroeconomic policy adjustments, but of course they are not substitutes,“ he said.
Monday, April 18, 2011
New rules soon for better service to bank customers
Bank customers may soon expect better services and fast-track redressal of their grievances as RBI is likely to soon consider a fresh set of rules to improve the banks' customer service practices. Almost a year after RBI put in motion a process to improve banks' customer service practices, a high-profile panel set up by the central bank in this regard is likely to submit its recommendations later this month. Sources close to the matter said that the panel is likely to suggest a tighter vigil by RBI for banks lacking on customer service front, monetary and procedural penalties and other remedial measures to guard against such lapses. Besides, banks may be asked to resolve various customer grievances within a pre-determined time period, they added. The committee, constituted by RBI in June last year under the Chairmanship of former SEBI chief M Damodaran, is likely to submit its recommendations on required changes in existing policy framework and prevalent practices of customer service in banks, sources said.
RBI fails again – Inflation mocks Government Prediction
Proving an absolute failure by the Finance Ministry as well as the Reserve Bank of India (RBI) in controlling inflation, the annual average inflation rate in the country has climbed up to a record high of 9.4%. This comes as a grave concern as the rate of average inflation in the previous year of 2009-10 was a low 3.6%. It is to be noted that exactly a month ago on March 17th, the Reserve bank of India had raised the interest rates for the eighth time in the last twelve months. The policy rates were raised by 25 bps, the repo rate (the lending rate) rose to 6.75% and the reverse repo rate (the borrowing rate) rose to 5.75%. This was all with a big claim by the RBI that controlling inflation was their first priority and that the increase in interest rates would bring down inflation in the country. In fact, the Reserve Bank had forecasted that with the increase in interest rates, the inflation would be limited to 8% by end of March. However with the inflation in March rising to about 9% (8.98% accurately), the projections of both the finance ministry and the Reserve Bank of India (RBI) has been proved to be wrong. The Indian Government is continuously making big claims about India’s high growth rate and using it as a principal political campaign. However, if the inflation continues with the same increasing curve, the growth in India will be unsuccessful. For the lives of 1.2 billion people of India to get better, the growth rate makes sense only when the inflation rate is under control. It is an absolute necessity for the Reserve Bank of India to undertake additional policy changes to tighten its grip on the economy. All eyes are now on the monetary policy meeting of the RBI scheduled in May.
Central bank rebuffs SBI on home loans
India’s banking regulator has rejected State Bank of India’s (SBI) appeal to waive the additional provision requirement for its special home loans, two persons familiar with the development said. This means the country’s largest lender will have to set aside around Rs.400 crore to provide for such loans which, according to the Reserve Bank of India (RBI), carry more risk of default as they are priced at relatively lower interest rates for the initial two-three years before the rates are raised. Setting aside money for making extra provisions dents a bank’s profits. The Indian central bank has also turned down SBI’s request to revise its decision to downgrade its rating, following an inspection of the bank’s books for the fiscal year ended March 2009. The rating, based on the six parameters—capital, asset quality, management, earnings, liquidity, and systems and controls (CAMELS)—has been brought down by one notch, from B to B minus, as RBI found the bank had underestimated bad assets and inflated its capital by not making provisions or setting aside money for certain assets. The CAMELS rating of a bank is highly confidential and neither the bank nor the regulator ever discloses it. RBI’s inspection for fiscal 2009, completed in January 2010, also pointed out corporate governance issues with the bank. SBI had a few months ago moved the central bank, asking it to reconsider the revision. It argued that its large loan book is being continuously monitored and minor deterioration in the quality of assets is no cause for worry and does not call for the downgrade. The size of its loan book was Rs.7.4 trillion in December. The banking regulator, in its communication, made it clear that it has taken a serious view of the bank’s failure in making adequate provisioning and underestimation of bad assets and stuck to its decision of downgrading its rating. RBI has also made the on-site inspection of a large bank like SBI an annual affair and not once in two years, which had been the case till recently. An SBI executive confirmed receiving RBI’s communications on home loan provisions and the bank’s rating. Another official said the banking regulator’s inspection for fiscal 2010 is just getting over. No one was willing to be named considering the sensitivity of the issues and involvement of the regulator. In its mid-year review of monetary policy in November, RBI had raised the provision for standard assets of special home loans fivefold—from 0.4% to 2%. According to RBI, such loans impact the quality of assets as chances of defaults by the borrowers are high when the rate rises and, hence, the directive for higher provisioning, which will discourage them from selling such loans. While SBI calls the product a special home loan, RBI dubs it a “teaser loan” as it carries a relatively lower rate of interest in the first few years, after which it’s reset at a higher level. RBI’s concern is some borrowers may find it difficult to service the loan once regular rates become effective. The regulator is willing to bring down the provision rate from 2% to 0.4% for those loans that do not turn bad one year after the loan rates go up. Former SBI chairman O.P. Bhatt strongly contested RBI’s perception of risk and had said that while giving such special loans, the bank takes into consideration a customer’s capacity to service the loan when the rates go up. His view was that, in the absence of any risk of default, the bank does not need to make extra provisioning as directed by RBI. The audit committee of SBI’s board, headed by chartered accountant Dileep C. Choksi, endorsed the chairman’s decision, and did not make any provision for the December quarter. Armed with the audit committee note, Bhatt had moved RBI seeking a waiver of the extra provisioning. Incidentally, SBI has also been raising provision requirements for its bad loans in phases unlike other banks that have already done this in conformity with RBI’s norms. There are three types of bad loans—substandard, doubtful and loss assets. Till recently, banks were required to set aside the entire amount of loss assets, or those assets which can never be recovered, while provisioning requirement for other two categories varied, depending on their age and quality. RBI, in 2009, made 70% provision mandatory for bad assets for all banks. SBI has so far made close to 64% provisioning for its bad loans and sought time till September 2011 to raise it to 70%. Bhatt had called the RBI move “arbitrary” and argued that since money has already been set aside for different categories of bad assets, there was no need for 70% provisioning. No SBI official is willing to speak on the rating downgrade on record, but in private, SBI executives said all concerns of the regulator have been addressed and many of the issues raised by RBI’s inspection team have been resolved. SBI raised its provisions in the September quarter and as a result of this, net profit was flat at Rs.2,501.37 crore. In the December quarter, net profit rose 14% to Rs.2,828 crore, taking the profit of nine months in fiscal 2011 to Rs.8,243.64 crore. With Bhatt having retired in March, new chairman Pratip Chaudhury will sign off on the bank’s annual accounts. SBI closed at Rs.2,803.30 on Friday on the Bombay Stock Exchange. Since January, it has remained flat, as has the banking index, Bankex, while the bellwether equity Sensex has lost 5.47%.
Fin holding firm must for entering banking space
New Delhi: The government and Reserve Bank of India have decided to make it mandatory for corporate groups wanting to set up banks to ring-fence their financial sector operations from other businesses by setting up a financial holding company (FHC). For the existing financial conglomerates, however, conversion into FHC would be optional. Officials also indicated that companies being investigated by the CBI, Central Vigilance Commission and Enforcement Directorate will not be permitted entry in the banking sector. This could dash hopes of some companies which are embroiled in the 2G spectrum scam but are known to be interested in a foray into the banking sector. The FHC structure would help the central bank in ensuring that new banking entrant’s activities are ring-fenced from its promoters. “Holding company should ring fence the regulated financial services activities of the group including the new bank from other commercial and industrial activities of the group,” according to RBI’s draft on new banks submitted to the finance ministry. The FHC model has been suggested by an internal panel of the RBI, headed by deputy governor Shyamala Gopinath. The panel suggested to the finance ministry a number of legislative changes required to implement this model. These include removing restrictions on voting rights and empowering RBI to supersede a bank’s board, among others. “Many legislative changes suggested by the RBI panel on holding companies and its draft on new bank licences, are overlapping. The government is trying to see how both these proposals can be handled simultaneously,” a source said, indicating why there has been some delay in unveiling the norms for entry of private sector firms into the banking sector. RBI was supposed to release the guidelines by March end. Finance ministry is deliberating on the Gopinath panel’s recommendations, as well as draft guidelines on entry of new private sector banks. The ministry has, in principle, agreed to accommodate these changes by amending the Banking Regulations Act. A FHC structure is currently the missing link in India’s financial sector. Government panels including the Committee on Financial Sector Assessment, in its report issued in March 2009, highlighted the need for more clarity in existing statutes relating to regulation and supervision of financial holding companies. In a discussion paper on the subject in August 2007, the RBI has preferred a financial holding company model over an intermediate holding company model, as the latter is seen as less transparent and difficult to regulate. The central bank had then struck down proposals from SBI and ICICI Bank to set up intermediate holding companies. Gopinath panel’s draft would outline the central bank’s thinking on the subject. FHC are seen as an efficient vehicle to raise capital for subsidiary companies. The regulators find it easier to supervise FHCs as compared to intermediate holding companies.
IMF monitoring to avert future financial crisis
WASHINGTON: International Monetary Fund (IMF) member countries including India have agreed to expand and deepen its surveillance of the global economy to identify largest systematic risks to avert future crisis. The IMF will produce a new report investigating how financial policy decisions in countries around the globe affect others, the 187- nation institution's policy making International Monetary and Finance Committee said Saturday. The new IMF report will mesh in with Group of 20 economies' decision Friday to monitor world's seven largest economies, including India, to highlight and suggest corrective steps to rectify imbalances that could pose risks to the global economy. "Global challenges demand global solutions. The need for global cooperation in solving our most pressing problems of today is vital," said leader of the Indian Delegation, Reserve Bank of India governor Dr. Duvvuri Subbarao. "The crisis has taught us that no country can be an island, and that economic and financial disruptions anywhere can cause ripples, if not waves, everywhere," he said warning "uncoordinated responses will lead to worse outcomes for everyone." Noting that complex global problems facing the world today are "not amenable to easy solutions and many of them require significant, and often painful adjustments at the national level," Subbarao said. "At the same time, the global crisis has shown that the global economy, as an entity, is more important than ever," he said underlining the central role of IMF "in reforms so that it continues to spearhead and weave together the fabric of international cooperation." "There are significant vulnerabilities still in the global financial and economic system," said Tharman Shanmugaratnam, the finance minister of Singapore and chairman of the panel. "That reflects the legacy of an international monetary system that is still not in what we consider satisfactory shape. On top of that, we have new vulnerabilities and new risk," he said, mentioning the Middle East, Japan and higher commodity prices. "We need to strengthen the linkage between surveillance of the financial and macro-economic dimensions of the world economy," he said. The IMF is trying to learn from the 2008 crisis and become better at understanding developing risks in the world economy, said a communique of the governing body. The committee also said authorities need to implement existing international agreements to better regulate the global financial system and cautioned that excessive risks remain in place more than two years after the financial crisis. The global economic recovery "remains vulnerable" despite showing some signs of sustained momentum," it said warning that some international banks continue to pose system risks to the international economy. The IMF board also asked members to push forward with a new framework for dealing with capital flows saying a "comprehensive and balanced approach" to deal with capital flows is needed. The committee separately said the IMF will chalk out a "criteria-based path" to include other currencies in the basket that makes up the special drawing right (SDR), IMF's lending unit.
Settling the dues
The financial difficulties faced by families on account of delayed settlement of life insurance claims are well known. What’s generally not known is the problems that legal heirs run into when it comes to accessing the bank accounts and lockers of deceased depositors The banking regulator— the Reserve Bank of India (RBI) — is, however, aware of this and has issued detailed instructions to banks on the subject, aimed at reducing the hassles faced by relatives. Yet, all banks don’t follow the regulator’s instructions in letter and spirit, resulting in considerable hardship for the surviving family members. Firstly, when a customer opens an account or hires a locker, the bank is supposed to advise him or her on the imperative need for nominations. Similarly, term deposits should have nominations and even if the depositor is unaware of its importance or forgets about it, the banks have a responsibility in ensuring that it is done. Banks, however, never take this task seriously. In fact, the regulator has also advised banks to educate customers on the importance of the “survivorship clause” in case of joint accounts, as otherwise the surviving joint account holder does not automatically get the right to the account. Similarly, in respect of term deposits, the RBI says that banks should not insist on completion of the term of the deposit and should allow premature termination on the death of the deposit holder. Yet, there are many cases where banks have refused to cut short the term of the deposit and denied the deposit amount to the legal heirs in urgent need of money. Even where the deceased depositor has not made any nomination, banks should adopt a simple procedure for repayment to the legal heirs, advises the regulator. In fact, on June 9, 2005, the banking regulator issued detailed instructions to banks on how to simplify and expedite claim settlement following the death of a depositor. Even after six years, such simplified procedures elude family members. In fact, the RBI circular sets a time limit of 15 days for settling the claims in respect of deceased depositors. I wonder how many banks really stick to this time limit? Well, in order to keep tabs on this, the regulator suggests banks should report to the customer service committee of the bank’s board the details of the number of claims received and the time taken for settlement and if there has been a delay, the reasons for it. It’s time the regulator asked banks to make this information public.
RBI, Sebi likely to crack the whip on FII funds in banks
The flow of foreign portfolio money into banks' certificate of deposits (CDs) through fixed maturity plans (FMPs), a debt mutual fund product, of late, has raised concerns among financial market regulators. The subject was discussed in a recent inter-regulatory body meeting, involving the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi). In this meeting, top regulatory officials expressed worries about the indirect flow of 'hot money' - an euphemism to describe short-term foreign fund flows into a country's financial markets - into certificate of deposits through FMPs. Foreign investors are barred from directly investing in CDs, which are money market instruments used by banks to raise money for the short-term. But these investors have managed to gain exposure to this instrument by investing in FMPs that invest in CDs, which are instruments that banks float to raise short-term funds. A decent return on CDs and uncertain equity market conditions prompted foreign investors to invest through FMPs. In March, CDs with tenure of three months fetched as high as 10% because of tight liquidity, though returns have dropped to about 8.5%. Mutual fund industry officials said many foreign investors have managed to lock in money in short-term FMPs at as high as 9-10 %. "Its easy arbitrage for them, as they are getting money at less than 1% and here they can easily make risk-free returns of 7-8 %," said a top official with a mutual fund, owned by a foreign bank, requesting anonymity. Investing in CDs is considered risk-free, as they are floated by banks. In India, a dominant section of the money market participants is state-owned banks and its securities enjoy a rating equivalent to sovereign bonds. This is a reason why foreign investors prefer investing indirectly in CDs than buy commercial paper (CPs)- another money market instrument used by companies to raise short-term funds - where they are allowed to invest directly. Though CPs deliver higher returns, foreign investors prefer investing in instruments that have status equivalent to sovereign bonds despite lower returns, fund managers said. "While FII money going into CDs may help banks raise cheaper, RBI does not want foreign money in short term in debt. That's why they are encouraging FII money in infrastructure bonds, though it's yet to take off," said a senior official with a primary dealer. The extent of flows into mutual funds' FMPs in recent months could not be ascertained, but asset management officials said some top fund houses have managed to attract significant money. Regulators are un-comfortable about such flows, because they are volatile in nature and causes uncertainty in currency movements. But the central bank, or Sebi, can't legally stop the flow of foreign institutional money into mutual funds. Sebi regulates mutual funds. However, regulators can use the power of moral suasion - an informal per-suasion tactic used by regulators to get entities to comply with their decision - to control such flows. "It will not be possible for regulators to selectively control foreign investor inflows through the legal route. Probably, there could be some verbal restrictions," said a chief investment officer with a mutual fund, partly owned by a public sector bank.
Sunday, April 17, 2011
RBI asks NE Banks to monitor accounts of customer
Reserve Bank of India has asked the banks operating in the North East to closely monitor the accounts of the customers. According to the Executive Director of RBI, Mr HR Khan, banks in the North East have been asked to remain vigilant and extra cautious in this regard considering the gravity of the situation. Mr Khan stated that as this region shares international border and therefore more vigilance would be needed to avoid such incidents. To overcome the problem, the existing KYC (know your customer) rules have been strengthened, he added. Reserve Bank of India has asked the banks operating in the North East to closely monitor the accounts of the customers. According to the Executive Director of RBI, Mr HR Khan, banks in the North East have been asked to remain vigilant and extra cautious in this regard considering the gravity of the situation. Mr Khan stated that as this region shares international border and therefore more vigilance would be needed to avoid such incidents. To overcome the problem, the existing KYC (know your customer) rules have been strengthened, he added. It may be recalled that RBI recently issued a circular asking the banks and financial institutions to scan all existing accounts to ensure that these are not held by or linked to any entity or individual figuring in the UN list of terrorists or terror-related organisations.
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