MUMBAI: Banks will face regulatory action and penalties for old derivative deals where currency laws were flouted and complex products missold to companies. The Reserve Bank of India (RBI), which has been scanning the derivative books of banks for close to a year, has identified the errant banks and the nature of irregularities . A fortnight ago, in a meeting with senior members of the money and currency markets, the banking regulator spelt out that errant banks will be pulled up. Seven banks, including six private and foreign banks and a state-owned lender, may be pulled up by RBI, said a source familiar with the development . "RBI has come up with specific views on each bank and the penalty will depend on how severe the violations are," said the person. The central bank has conveyed its decision to association of money market dealers, currency dealers and the lenders' lobby, Indian Banks' Association. "In some cases, it may just be a rap on the kuncles and word of caution. But some will be fined. That's the impression we get," a senior banker told ET. RBI had sought information and went through derivative deals of as many as 22 banks. It has now come to a conclusion that some banks had entered into transactions that were not only sharp but unacceptable. "The penalty to be imposed is relevant as banks had marketed high risk products," said Sandeep Parekh , lawyer, Finsec Law Advisors. "This move will give further teeth to the demand for a further probe by a law enforcement," he added. "Banks had structured these derivative transactions in accordance with the RBI guidelines. If the RBI imposes a penalty corporates and the authorities would be convinced that the banks were at fault. This would weaken the banks defence," said a lawyer who had handled the case of a private sector bank. "If the penalty is imposed the only positive is that the court may rule against a CBI probe as it would be convinced that the regulatory body has taken prudential action," he added. "Banks have stopped marketing these exotic derivatives since 2008 hence this move will not have any significant impact on the derivatives market. At present, banks are offering plain vanilla products," said a senior banker. Over-the-counter derivatives help companies to hedge against fluctuations in foreign exchange and interest rates. Banks had sold currency derivatives to enable corporates of all sizes to either improve the earnings on their exports, or lower the outgo on imports or cut the interest and repayment cost on loans.
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Monday, April 25, 2011
Co-op banks take RBI to court over Parekh losses' write-off
In another case of a regulated entity taking the regulator to court, the Gujarat Urban Co-operative Banks Federation (GUCBF) has petitioned the Gujarat High Court, seeking relief from a circular issued by the central bank. The case relates to the Madhavpura Mercantile Co-operative Bank (MMCB), which was trapped in the 2001 Ketan Parekh scam and had lost money heavily. The 150-odd Gujarat-based co-op banks had kept deposits with MCCB, which was also acting as the clearing bank for many of these smaller banks. In December, RBI issued a circular asking them to write off all the losses in one go in the financial year 2010-11. If implemented, the net worth of at least four co-op banks from Gujarat would get wiped out. Most banks have partially provided for such losses and a few have provided for fully, but the four smaller banks whose net worth would get wiped out have joined the federation in filing this petition. The petitioners have told the court that “on account of the negative impact on the balance sheet, there would be erosion of faith” that can lead to the depositors resorting to massive withdrawals. “This would further affect the working of the bank. The bank would also not be in a position to maintain the statutory CRR (cash reserve ratio) and SLR (statutory liquidity ratio). This would again lead to further action under the Act, making it virtually impossible for the bank to survive and function,” they said. The High Court has admitted the petition and has issued notices to the Union government, RBI, CBI, Central Registrar and MMCB. The case is scheduled for hearing on Monday. The federation has also asked the court to set aside RBI’s December circular. The banks’ representation to RBI has not helped them in securing more time for making such a provision. They have represented to the RBI, seeking seven years’ time to make full provision. The petitioners have also requested the court to ask the investigators to file a report and show how money is being recovered from Ketan Parekh. When contacted, Jyotindra Mehta, chairman of the Gujarat Urban Co-operative Banks’ Federation said, “The recovery of dues from Parekh could solve the problem. RBI should provide for more time for the revival of MCCB, which is under way, and the RBI deadline will end in the second quarter of the current financial year.” A committee led by a retired IAS officer is trying for the revival of MCCB, leading accounting firm Deloitte was appointed to suggest a plan. Deloitte had submitted an interim report and the final one is expected soon. “The RBI deadline for MCCB revival is ending in the next quarter, which should be extended to give revival a chance,” said Mehta. The federation has also petitioned the High Court to direct the Central Bureau of Investigation and the authorities concerned to take effective steps for recovery of amounts outstanding from broker Ketan Parekh and his firms. It has sought a speedier investigation and the cancellation of broker’s bail.
Monetary Policy, Inflation and Depositors – S.S.Tarapore
The Common Person could live with the current inflation rate if it were a 'true' indicator of inflation which is commonly known to be much higher than what the official indices show. The Reserve Bank of India ( RBI) is scheduled to announce its first quarterly monetary policy review of 2011- 12 on May 3, 2011. There would be considerable interest as each set of players would evaluate it from their own viewpoint. What then should the Common Person look for in the monetary policy? The central anxiety, for quite some time, has been the acceleration of inflation. Inflation is hurting the vulnerable sections the most. What is the extent of inflation? There are various ways of measuring inflation but the official focus in India is on the year- on- year change in the Wholesale Price Index ( WPI). This index does not correctly reflect the impact on consumers. The authorities are making efforts to have a comprehensive Consumer Price Index ( CPI) and although this has been undertaken there is need for the new index to stabilize before it becomes relevant for policy purposes. The RBI has many constraints in dealing with inflation. The RBI does not have a single inflation target while the issue of growth predominates and quite often inflation becomes a secondary objective to overall growth. Policymakers have repeatedly said that monetary policy should not do anything which would jeopardize growth. This has blunted the efficiency of monetary policy. RBI's comfort zone was all along meant to be around a 5 per cent inflation and higher inflation rates would invite monetary policy action. In this context, the present episode of a prolonged high inflation rate has made a dent into RBI's credibility. The RBI's cherished goal of a medium- term inflation rate of 3 per cent is no The kind of inflation we now have is generalized and not restricted to a few sectors and it no longer makes sense to go on talking about supply side inflation. It is heartening to see that the government is somewhat subdued on the issue of growth and now concedes that some sacrifice of growth would be necessary if inflation is to be brought under control. The Common Person could live with the current inflation rate if it were a ' true' indicator of inflation which is commonly known to be much higher than what the official indices show. Moreover, what hurts the Common Person is not the rate of inflation but its level. Illustratively, when mong dal prices rise from Rs 60 per kilo to Rs 100 per kilo the increase is 66.6 per cent, but when it rises further to 120 per kilo, we are told that the rate of increase has come down from 66.6 per cent to 20 per cent. Now when the price comes down to Rs 105 per kilo we are expected to rejoice and forget that a price of Rs 105 per kilo is historically very high causing great distress to the Common Person. It is time the Common Person is not deceived by these numbers and told the true story which would then push monetary policy to take stronger action to tackle inflation. It would be unfair to only blame the RBI as the problem lies elsewhere. The government wants its borrowing programme to go through smoothly without unduly high interests and at the same time expects that adequate credit is made available to the commercial sector. To meet these conflicting objectives, the RBI keeps the system sloshing with liquidity. This also enables banks to keep lending What the RBI has done is to fix its current policy repo rate at 6.75 per cent ( the repo rate is the rate at which RBI provides liquidity to banks against the security of government securities). The RBI has, over the past year or so, undertaken eight increase of the repo rate, each of ' baby' steps of 0.25 per cent. The current policy rate is totally ineffective. Given the present inflation rate, what is required is a full one percentage point increase in the repo rate but the present philosophy of the RBI would not permit it. The May 3, 2011 increase in the repo rate should be, at least, 0.50 per cent. The RBI would do well to take a leaf out of the Chinese central bank's policy which prefers strong monetary policy action. The other powerful instrument is the cash reserve ratio ( CRR) under which the RBI presently impounds 6 per cent of deposits of banks. An increase in the CRR by 0.50 per cent, which would impound Rs 25,000 crore of liquidity, would be appropriate. But the RBI has been shy of using this instrument during the past two and a half years. Here again, the RBI needs to closely study the active Chinese CRR policy. A victim of the present monetary policy has been the depositor who faces negative real rates of interest as the return to depositors is less than the inflation rate. It is true that, in the February- March 2011 period, some banks offered rates as high as 10 per cent. This was largely to swell the balance sheet numbers for March 31, 2011. Predictably, these banks have, in early April 2011, cut back deposit rates by one percentage point. Depositors are the mainstay of banks but they are not fairly remunerated. All that depositors can pray for is that the RBI, on May 3, 2011, shifts gears to undertaking a strong tightening of monetary policy. The RBI is at the cross roads. If it chooses the path of tightening monetary policy it would be criticized by vested interests, but if it does not it will be condemned by history for not alleviating the suffering of the masses.
Sunday, April 24, 2011
The Suvikas People's Co-operative Bank Ltd., Ahmedabad – Penalised
The Reserve Bank of India has imposed a monetary penalty of Rs. 1.00 lakh (Rupees one lakh only) on The Suvikas Co-operative Bank Ltd., Ahmedabad, Gujarat in exercise of powers vested in it under the provisions of Section 47(A)(1)(b) read with Section 46(4) of the Banking Regulation Act, 1949 (AACS) for violation of Reserve Bank of India instructions on Know Your Customers (KYC). 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 Reserve Bank came to the conclusion that the violations were substantiated and warranted imposition of the penalty.
Efforts on to minimise cheque transactions
VARANASI: Deputy Governor of the Reserve Bank of India (RBI) Shyamala Gopinath said efforts were being made to encourage electronic transaction of money to minimise transactions through cash and cheques. Talking to reporters on Saturday, she said it was not possible to stop the use of cheques for money transactions in one go, but efforts were on to encourage maximum use of ATM and electronic transaction of money. For the purpose, money transactions through cheque would be made costly, she said and added efforts were also being made to expand the reach of banking system in rural areas of the country. She further stated that RBI had undertaken financial literacy and financial inclusion campaign in rural areas to bring rural populace into banking fold. Through this campaign, rural masses are educated about the banking system and they are mobilised to open their accounts in banks. She said positive response was being received and efforts were being made to develop proper infrastructure and link the government schemes to banks. "It is just a beginning, a lot has to be done yet," she said and added technological upgradation of the system was being done to provide maximum benefits to people. Replying to a query regarding the operation on non-banking financial institutions, she said RBI had got a suggestion that it should regulate the functioning of non-banking financial institutions for small borrowers. She said financial inclusion in rural areas was needed for proper growth and development. Gopinath was in the city to attend programme on financial inclusion and financial literacy organised by the Lucknow unit of RBI at Nagepur village in Raja Talab area on Saturday. The programme was organised under RBI's programme to conduct outreach visits and develop certain identified villages as model villages. Addressing the programme, she highlighted various activities of RBI and expressed her hope that rural development was possible if banks and state governments worked together. Addressing the function, the executive director of Union Bank of India SC Kalia said efforts were being made to upgrade the Kisan Credit Cards to draw money from ATM without going the the bank branch. The function was also addressed by RBI Regional Director Amrendra Sahoo and others. The RBI personnel also distributed smart cards among the villagers, school bags to children and cricket kit for the students of Shiv Narayan Memorial Inter College on the occasion.
Over 50% population without bank account: RBI Deputy Governor
Inspite of 40 years of nationalisation of banks, over 50% of the country's population is without a bank account, deputy governor of Reserve Bank of India (RBI) Shyamala Gopinath said today. "We have started an innovative programme to educate such people. A 'financial literacy mission' has been launched to make people aware of the schemes they can avail," said Gopinath while addressing a function in Varanasi. "There is a need to get villagers out of clutches of local money lenders who are exploiting them and charging humongous interest rates," Gopinath said. After this programme common man would become aware and benefit from government loans, mutual funds and banking services, she said. To lessen the pressure on banks and facilitate an easy transaction of money for those working under Mahatma Gandhi NREGA a plan of payment through their biometric cards is also on anvil, Gopinath added.
Ethics, governance step into the murky real estate world
Good governance’ is fast becoming a buzzword in the murky world of the country’s real estate. At a time when the realty sector is facing a credibility crisis, following its links with the 2G telecom scam, regulators, government, non-profit bodies and stakeholders are working on measures that might bring a semblance of order in the chaotic industry. The National Housing Bank (NHB) and the Indian Banks Association (IBA), for instance, are learnt to have finalised guidelines for property valuation that can be used as yardstick for bank lending. Valuation of property is extremely disorganised in India and lacks uniformity of any kind, while it is a streamlined business the world over, points out a real estate expert. Sachin Sandhir, managing director and country head (India), Royal Institution of Chartered Surveyors (RICS), told Business Standard that initially banks and financial institutions would use the property valuation guidelines as recommendation, but these might become mandatory for the industry over a period of time. The project is being carried out under the guidance of the Reserve Bank of India (RBI).
Union Bank chief expects rate hike by central bank
Mumbai: State-owned lender Union Bank of India may revise its lending rates in case there is any hike in the key policy rates in the annual monetary and credit policy by Reserve Bank of India(RBI), due on May 3. However, the bank is not looking at revising its deposit rates even after the revision in the key policy rates said MV Nair, CMD, Union Bank. The bank crossed a total business of R3,55,000 crore as of March 2011 and has recorded growth of 19.1% in deposits and 26.3% in advances. “We do expect that the RBI might increase its key policy rates when it announces its annual monetary policy early next month as it was during inflation. So, we will wait for the policy before revising our lending rates. However, in any case, we may not revise our deposit rates,” he said. Commenting on the recent RBI regulation on provision coverage ratio (PCR) where RBI has said banks need not provide beyond 70% of their gross non perfoming assets, Nair said the bank has already reached the regulatory requirement level of 70%. “Now we will start creating a buffer,” he added. Replying to a query that what would be the hit on his bank out of the second option of pension for the bank’s retired employees, which banks have been asked to do within last year’s balancesheet, Nair said the bank will have to take a hit of R480 crore. “We are ready for it. The bank expects to achieve credit growth of 23% and deposit growth of 20-21% during the current fiscal. In any case, we want to be above the industry level by about 2-3% when it comes to credit and deposit growth for the current fiscal,” said Nair. Nair said his bank was looking at an NIM of 3-3.1% for the current fiscal, as against the currently existing mark of 3.25%. At present, the bank is focused on implementing two key initiatives with the support of consultants. One is on the HR front and another in the area of customer service excellence. As a part of its relationship value to customers, the bank is aggressively promoting various online payments to government and its agencies and to the integrated services under government schemes, by leveraging on technology.
Credit Policy review around the corner; inflation a major concern
The monetary policy makers will meet in the first week of next month to review the various factors influencing the macroeconomic conditions, and to make the necessary changes in the monetary policy. The domestic economy is at a crucial juncture with respect to the balance between inflation, industrial growth and the monetary policy tightening. The Reserve Bank of India (RBI) has already tightened the monetary policy several times since last year and the interest rates have gone up to a level where they threaten to impact industrial growth. However, the headline inflation rate is still ruling quite high and is not under control . Due to several domestic as well as international factors the inflation rate calls for more measures and close monitoring by the policymakers. These are some of the major factors that will be under consideration during the forthcoming monetary policy review in the beginning of next month: The headline inflation rate in food articles has come down significantly over the last few weeks. However, the broader inflation rate is still ruling high. The Wholesale Price Index (WPI) based inflation rate stood at 8.98 percent for the month of March. This is much higher than the upward revised projection given by the RBI. Analysts believe there are several domestic as well as international factors fuelling the inflation rate. On the domestic front, demand is quite robust and as a result the price rise has spread to broader items that are fuelling the headline inflation rate. On the other hand, the soft monetary policy and other ongoing issues in the international markets are constantly pushing the prices of international commodities up. This is another significant factor contributing to the headline inflation rate. Analysts expect the RBI to maintain its hawkish stance in the forthcoming monetary policy review. The monsoon is another factor that can influence various macroeconomic parameters and investors should track the developments around it. Since the agriculture sector depends a lot on the monsoon, it's very important for the economy to have a normal and timely monsoon. A good monsoon can keep a check on food prices and helps the policymakers in fighting the headline inflation.
Provisioning norms for banks relaxed by RBI
In a move seen as a major relief for all commercial banks, the Reserve Bank of India (RBI) has tweaked its provisioning norms to enable banks as to how much they should set aside to cover bad debt and thereafter excess provisions made after September 2010 be used to cushion shocks 'during periods of system-wide downturn.' Currently, banks are required to set aside 70 per cent of their bad debt as per the provision of coverage ratio (PCR). Simply put, for instance, if a Rs 100 loan has turned bad, setting aside 70 per cent as PCR means that the bank has to set aside Rs 70 as provision as it expects to recover Rs 30 of the loan. The notification issued by RBI on Friday wants the cushion -- known as “counter cyclical provisioning buffer” — to be set up out of any surplus available after complying with the stipulated 70 per cent PCR of the gross non-performing assets as of September 2010. The banking regulator made it clear that the surplus provisions under PCR should be segregated into an account, computation of which may be undertaken as per the format prescribed by it (RBI). However, to dip into this, banks will require approval from the regulator, it added. September 2010 onwards, RBI said, on incremental NPAs banks would have to set aside money based on the income recognition norms. This ranges from 10 per cent in the initial months when the asset is classified as substandard to 100 per cent when it is classified as a loss asset after a few years. Bankers have welcomed the RBI move. In this context, Indian Banks' Association (IBA) Chairman and also CMD of Bank of Baroda, M D Mallya said “Balance sheet planning will become easier. If a bank earns windfall profit, say from treasury operations, it can be set aside as a buffer and subsequently used during bad times.” It may be recalled that many banks including the country's premier lender State Bank of India have had complained in the past that this regulatory compliance is high and dented their profitability, while RBI was insisting that this is a part of prudential norms in tune with international banking practice.
Saturday, April 23, 2011
RBI begins cheque truncation system
SBI to bear loss arising out of termites eating currency notes
Lucknow: Though the exact amount of loss arising out of termites eating up currency notes inside a steel chest at a State Bank of India (SBI) branch in Barabanki district of Uttar Pradesh is yet to be quantified, it will be borne solely by the SBI itself and there would be no loss to the public at large. This was stated by Amarendra Sahoo, Regional Director of Reserve Bank of India, Uttar Pradesh and Uttaranchal. Talking to FE, Sahoo said that the joint team of senior RBI and SBI officials, which had visited the bank in Barabanki, has found that though mutilated, most of the notes eaten up by the termites had their numbers intact. “Those notes in which the numbers are intact, will be replicated by the RBI while the fate of those which have been mutilated beyond repair will be adjudicated once the investigation is complete,” said Sahoo, adding “there would be no loss to the public. The bank will bear the loss, if any.” It may be mentioned that in an almost outlandish case, aghast bank officials on Wednesday found termites to have made a hearty meal out of currency notes worth approximately Rs 1 crore kept inside the strong room at a SBI branch in Fatehpur block of Barabank district near Lucknow. A team of senior officials of the SBI and RBI visited the branch on Thursday to investigate the matter. SBI AGM Geeta Tripathi, who headed the inquiry team said after the visit prima facie it appeared that the notes in the currency chest had been damaged by termites as the branch was housed in a very old building which was ridden by termites. Cases of files and furniture being damaged due to this malice had already been brought to the notice of the management and efforts were on to relocate the bank at some other place. The SBI, had in a press release late on Thursday night clarified that “no discrepancy has been detected in the currency chest except that some notes have been found to be slightly damaged. We don't expect any loss arising out of this and all corrective measures have been taken”.
Infrastructure debt fund outline to be drawn up on Monday
New Delhi: The government and financial sector regulators such as RBI, Sebi and Irda will draw up the outline of the proposed infrastructure debt funds on Monday as the country prepares for raising $1 trillion for building ports, highways, power utilities and telecom infrastructure in the next five years. The finance ministry, which will co-ordinate the meeting, will also seek views from foreign pension funds on how to make the proposed infrastructure debt fund an attractive investment option for them, a senior ministry official told FE. By June, the government hopes to give final shape to the fund announced in budget 2011-12. Finance minister Pranab Mukherjee announced setting up debt funds through special purpose vehicles for attracting foreign investment in the infrastructure sector. “To attract foreign funds for financing of infrastructure, I propose to create special vehicles in the form of notified infrastructure debt funds,” he had stated. Last June, an expert panel headed by HDFC chief Deepak Parekh had recommended setting up such a fund with an initial corpus of R50,000 crore to meet the financial needs of the sector. According to sources, the proposed infra debt fund would have relaxed capital adequacy norms. In the budget for this fiscal, finance ministry had lowered the withholding tax rate from 20% to 5% and exempted the income of the fund from payment of income tax.
RBI grants relief to banks on NPAs
MUMBAI: In a move that will ease pressure on bank profits, Reserve Bank of India has said that an earlier guideline requiring additional funds to be set aside for bad loans will not apply to loans that turn bad after September 2010. This move will benefit all lenders as RBI has now specified the end point for setting aside additional provisions on bad loans. These guidelines on additional provisions were issued in October 2009 after banks turned in large profits following a bounce back from the global financial crisis. At that time, the central bank had said that the idea was to build up a capital buffer during good times so that it could be used ifthe outlook for the economy changes. suddenly State Bank of India will gain directly from this measure as RBI has said that even for those banks that have not achieved the prescribed provision coverage ratio, the target date continues to be September 30, 2010. SBI has been struggling to meet the 70% PCR and was expected to meet the target in the current fiscal. "Some of the banks that had been granted extension of time beyond the stipulated date for achieving the PCR of 70% on their request should calculate the required provisions for 70% PCR as on September 30, 2010 and compute the shortfall there from," said RBI "What this means is that after making provisions for NPAs as on September 2010, banks will only need to make the normal provisions for bad loans and the additional burden on the balance sheet will cease. But going forward, provision requirement could get stiffer as regulators move towards advanced accounting standards," said the chairman of a public sector bank. But banks that have already made a provision will need to keep it aside as an additional buffer. "The surplus of the provision under PCR vis-Ã -vis as required according to prudential norms should be segregated into an account styled as countercyclical provisioning buffer. This buffer will be allowed to be used by banks for making specific provisions for NPAs during periods of system-wide downturn with the prior approval of RBI," the central bank said. In a recent report on the banking sector, Care ratings had said that banks had improved its provision coverage ratio to 58.31% by end-December 2010 from 52.85% a year back. Private banks have already crossed RBI's prescriptions by achieving a PCR of 74% as against 70% mandated by RBI but public sector banks continued to lag with a PCR of 54.41%. "On an overall basis, provisioning expenses rose by 54.48% on y-o-y basis in 9MFY11 on back of higher NPA provisioning by banks to achieve the RBI mandated 70% NPA provision coverage," Care said.
Bank investments in mutual funds more than double
Investments made by banks in mutual funds soared in the fortnight ended April 8, on the back of improved liquidity. According to the data released by the Reserve Bank of India(RBI), bank investments in instruments issued by mutual funds had more than doubled compared to the previous fortnight. Bank investments in mutual funds were at Rs 111,279 crore on April 8 compared to Rs 47,638 crore as on March 25. “Liquidity had improved in the first week of April as year-end pressures came off,” said a banking analyst at a domestic brokerage. Liquidity had sharply turned into the surplus mode in the first week of April. According to analysts, excess funds that banks had picked up in order to dress their balance sheets towards the financial year end.
RBI Announces Limits for Ways and Means Advances for 2011-12
Mumbai (ABC Live): The RBI on Friday has decided in consultation with the Government of India that the limits for Ways and Means Advances (WMA) for the financial year 2011-12. Information to this effect was made by Alpana Killawala, Chief General Manager through Press Release: 2010-2011/1542 that the limits for Ways and Means Advances (WMA) for the financial year 2011-12 would be as under:
The Reserve Bank may trigger fresh floatation of market loans when the Government of India utilises 75 per cent of the WMA limit. The Reserve Bank would retain the flexibility to revise the limits at any time, in consultation with the Government of India, taking into consideration the prevailing circumstances. The interest rate on WMA/overdraft will be: a) Ways and Means Advances: Repo Rate b) Overdraft: Two percent above the Repo Rate The minimum balance required to be maintained by the Government of India with the Reserve Bank of India will not be less than Rs.100 crore on Fridays, on the date of closure of Government of India's financial year and on June 30, i.e., closure of the annual accounts of the Reserve Bank of India and not less than Rs.10 crore on other days. As per the provisions of the agreement dated March 26, 1997 between the Government of India and the Reserve Bank of India, overdrafts beyond ten consecutive working days will not be allowed.
Centre can borrow more till June 30
The Centre will get a little more headroom for borrowings under the ways and means advances (WMA) facility that the Reserve Bank of India operates. The Centre will now be able to borrow up to a maximum of Rs 45,000 crore through this window between April 21 and June 30 — which is a greater part of the first quarter. Last year, the government had been kept on a tight leash with WMA borrowings capped at Rs 30,000 in the first half of the year till September 30. This got tighter in the second half (October 1 to March 31) when borrowings were limited to Rs 10,000 crore. This year the limit will be bumped up to Rs 45,000 crore for a short period of 71 days. It will, however, be kept at Rs 30,000 crore between April 1 and April 20 and then again between July 1 and September 30. In the second half of the year, the limit will be scaled back to last year’s level of Rs 10,000 crore. As in the past, the RBI may trigger a fresh flotation of market loans when 75 per cent of the limit under WMA are utilised. Under the provisions of a 1997 agreement between the government and the RBI, the Centre will not be allowed an overdraft facility beyond 10 consecutive working days. The interest rate on the WMA advances will be pegged at the repo rate, which is currently pegged at 6.75 per cent. This could rise by 25 basis points when the RBI meets on May 3 to review its monetary policy. The interest rate on overdrafts will be capped at 2 percentage points above the repo rate. The government will have to maintain a minimum balance of not less than Rs 100 crore on all Fridays, the date of closure of the Government of India’s financial year, and on June 30 when the RBI closes its annual accounts. On all the other days, a minimum balance of Rs 10 crore will have to be maintained. The WMA facility was introduced in 1997 after the system of issuing ad hoc treasury bills was phased out. It provides temporary accommodation to the government — up to 90 days — and is subject to limits. The Fiscal Responsibility and Budget Management (FRBM) Act 2003 has prohibited direct borrowings by the Centre from the RBI with effect from April 2006 except by way of WMA or under exceptional circumstances.
To fine tag lane violators, operator writes to NHAI
DS Construction (DSC), the agency responsible for regulating movement through the toll gate on the Gurgaon-Delhi Expressway, has said that though they had written to the National Highways Authority of India (NHAI) proposing a penalty on motorists who violate traffic lanes, it is yet to get a response. According to the DSC, most of the traffic jams take place when non-tag commuters move into the tag lane and heavy vehicles move into ordinary lanes — causing confusion. Despite deploying marshals and requesting for change from the Reserve Bank of India, it has not been able to manage the situation.
Kadapa DCCB gets RBI licence for banking
The Reserve Bank of India has granted licence to Kadapa District Cooperative Central Bank (DCCB) to carry on banking business in India, Kadapa DCCB Chairman K. Brahmananda Reddy has said. RBI's Rural Planning and Credit Department regional office in Hyderabad sent a communiqué granting the licence under Section 22 read with Section 56 (o) of the Banking Regulation Act, 1949, Mr. Reddy told newsmen.
Friday, April 22, 2011
This auction has a banknote that even RBI will vie for
Walk into the Expo Center at Cuffe Parade's World Trade Centre and, if you are lucky, you may be able to pick up a gold coin weighing 1 tola (11.6 grams) for around Rs 50,000. We know the market price for a gold coin is close to Rs 24,000. But this ain't an ordinary coin. It's a rare piece of Indian history that will be yours to keep and cherish. Starting today, the World Trade Centre is hosting an exhibition that will be followed by an auction conducted by a leading numismatic firm, Todywalla Auctions. Among the collectibles that will be up for auction are a silver-punched coin belonging to Magadha Janapada, which flourished in central India 2,500 years ago. There are also 1,700-year-old gold coins from the Gupta and the Kushan empires. What should excite most history buffs is that the collection also includes coins from the era of one of India’s most well-known emperors - Jalal-ud-din Akbar. Malcolm Todywalla, of Todywalla Auctions, said, “Most of the Akbar gold mohurs weigh approximately 11.6 grams (1 tola). These used to have the name of the emperor, the place where it was minted and the date, etched in Urdu. Likewise, the square-shaped coins were typical of Akbar’s time… These rare artefacts are priced at nearly Rs 50, 000 each.” Perhaps in a sign of the deteriorating conditions of the Mughal dynasty, there are also coins in silver (a less valuable metal) on display from lesser-known emperors such as Jahandar Shah and Farukhsiyar. However, what sets Todywalla’s heartbeats racing is a not metal but paper. Neverthless do not underestimate it. This British Oriental Banknote from the 1840s is so rare that even the Reserve Bank of India’s museum doesn’t have one of its own. The bank note, expected to fetch anything between Rs 6 lakh to Rs 8 lakh, was printed only for the Indian market. In the centre of the note is Mumbai’s Town Hall (now the Asiatic Library), surrounded by open expanses of greenery and medieval Gothic buildings. But will Indians actually spend good money on such items? Todywalla believes so. “There’s a great demand for the Indian numismatics in the market. People are very keen to buy them because apart from its monitory value, these rare items speak volumes of India’s rich culture and heritage,” Todywalla said.
Baby steps cannot curb inflation - S. S. TARAPORE
In its first monetary policy review this fiscal, the RBI should jettison half-hearted measures and go for an unequivocal anti-inflationary thrust. There is scope to increase the cash reserve ratio and place limits on credit growth. The Reserve Bank of India (RBI) will, on May 3, 2011, announce its first Review of Monetary Policy for 2011-12. For the past two years, the spectre of inflation has loomed large, but RBI has consciously opted for ‘baby' steps in its monetary policy, ostensibly on the premise that nothing should be done to slow down economic growth. The year-on-year Wholesale Price Index (WPI) at the end of March 2011 is close to 9 per cent. The average WPI showed an increase of 9.4 per cent in 2010-11, as against 3.6 per cent in the previous year. The average food inflation in 2010-11 is uncomfortably high at 11 per cent. The government's policy was clearly tilted towards accelerating growth, and inflation was considered as an inevitable price for growth. The government now recognises that inflation is now strongly wedged into all sectors; there are strong compulsions to control inflation as it is impacting not only the poor, but also the vocal middle class. The Finance Minister, Mr Pranab Mukherjee, has, more recently, referred to a clear choice between controlling inflation and sacrificing some growth. The Deputy Chairman of the Planning Commission has admitted that a 9 per cent growth in 2011-12 is no longer in the realm of possibility and that we would have to settle for 8.5 per cent. While the RBI will be berated for not taking effective action to squelch inflation, it must, in fairness, be stressed that the overbearing tilt of the government towards growth has made life for the RBI rather difficult. The window of opportunity for strong monetary policy action is invariably short and the RBI would, in the current milieu, be well advised to jettison its ‘baby' steps and opt for stronger measures. It is the job of industry to shout from the roof-tops that any increase in interest rates would jeopardise growth. Banks will also argue that any increase in interest rates would reduce their net interest margins. The RBI should not be swayed by these seductive sirens. The RBI has to take a call on the monetary policy on May 3, 2011, and it would be best if its stance was in the nature of a strong, unequivocal and unswerving anti-inflationary policy. The present repo policy of 6.75 per cent is out of kilter and ‘baby' steps would not be in consonance with the difficult inflationary situation. The central bank would need to take note of its own Inflation Expectations Survey of Households which reflects an anticipated inflation rate of 13 per cent. The RBI should, on May 3, 2011, shift gears and move over to at least a one-half of one percentage point increase in the repo rate to 7.25 per cent; in actual fact the need of the hour is a full one percentage point increase, but this would not fit in with the prevailing RBI philosophy. The apex bank has rightly indicated that it would prefer the banking system to be in deficit mode, which would make the monetary transmission process more effective. It been reluctant to wield the cash reserve ratio (CRR) instrument lest it result in a cessation of credit. Banks are clearly over-extended with a year–on-year incremental credit deposit ratio of 99 per cent and as such there is no likelihood of any cessation of credit. The RBI should, therefore, increase the CRR by 0.50 percentage point which would impound Rs 25,000 crore and move banks into a deficit mode. The RBI should set a prudential limit of an incremental credit-deposit ratio of say 70 per cent; any bank exceeding the 70 per cent limit should be subject to a penal interest of 3 percentage points above the prevailing rate at which it seeks access under any RBI facility. Anticipating pressures on their net interest margins, banks have already started reducing their deposit rates, instead of increasing their lending rates. This reflects the clear bias of banks against depositors. The Discussion Paper on the Savings Bank Deposit Rate is showing no signs of life. Pending the comprehensive Discussion Paper, the least the RBI could do, in the present situation, is to immediately increase the Savings Bank Deposit rate from a fixed rate of 3.5 per cent to a fixed rate of 4.0 per cent. It is unconscionable that banks should borrow from the RBI and place these funds with mutual funds. Banks should not be allowed to pass on their funds management duties to mutual funds.If the RBI is committed to developing the gilt-edged securities market it should progressively increase the proportion of banks' holdings of these securities which should be marked-to-market. The draft guidelines for licensing of new private sector banks have been inordinately delayed and the RBI would be well advised to release these draft guidelines on May 3, 2011.
Termites eat up Rs 1 crore at SBI branch in Uttar Pradesh
Currency notes worth over Rs 1 crore were reduced to dust in the chest of State Bank of India (SBI) in Uttar Pradesh's Barabanki district, officials said on Thursday. The mutilated notes were found in the chest on Wednesday. Apparently, termites ate the stacks of notes. An SBI chest normally contains Rs 50 crore cash for disbursement. The officials at the bank remained non-committal about the amount of cash destroyed. However they estimated that the loss of currencies could be worth over Rs 1 crore. The Reserve Bank of India (RBI) has been informed about the incident and anti-termite treatment was underway at the branch. Branch Manager Sunil Dwivedi said, "I am not sure where the termites came from, but as you can see this building is quite old. Anti-termite treatment is now underway."
Fake currency worth Rs 2.8L detected at RBI
CHANDIGARH: The Reserve Bank of India (RBI) in Sector 17 is being haunted by fake currency notes. Fake currency totalling Rs 2.80 lakh, which includes notes in the denomination of Rs 50, Rs 100, Rs 500 and Rs 1,000 was detected by RBI officials in the last six months. The RBI officials have submitted the fake notes at the sector 17 police station for further investigation. Police sources said the maximum fake currency was detected on March 16, this year. It comprised 406 notes, including 7 notes of Rs 1,000 and 352 of Rs 100. The fake currency was detected while checking the notes through special machines installed at the RBI in sector 17. The latest tranche of fake currency was detected on April 19 and comprised 284 notes including 7 of Rs 1,000, 29 of Rs 500 and 219 of Rs 100. This fake currency has been submitted with the police station in sector 17 and a detailed development report (DDR) has also been lodged in this regard. A senior RBI official on condition of anonymity told TOI, 'It is very difficult to ascertain who is depositing the fake currency with the bank because money at the bank is received from different parts of India, especially from different branches situated in northern India'. The RBI official said, 'We can't destroy the seized fake currency without informing the area police and we have also sought help from cops to detect the source of these fake notes'. Inspector Hardeet Singh, SHO of the police station in sector 17 said, 'It is very difficult to ascertain the source of the fake currency because the RBI branch in sector 17 has a huge jurisdiction and currency is received from different parts of India'. He said after completing the formalities, the fake notes will be returned to the RBI authority, which is authorized to destroy it.
Got lottery mail? Report it: DM
NOIDA: If you get an email from the Reserve Bank of India (RBI) congratulating you on winning an international lottery prize worth several hundred dollars, beware! It's a fraud, delete it, ignore it and don't get tempted by it. This is the message conveyed by the district administration of Gautam Budh Nagar to warn its citizens regarding the menace of email fraud. Says Deepak Agarwal, District Magistrate, "The RBI has circulated a notice to create awareness amongst the public about this fraud. People should be careful and not believe these emails." He adds, "This is a good initiative by the RBI, as it will help save many an innocent from losing hard-earned money." In the last few years, there has been an increase in such instances of banking fraud through 'phishing'. Phishing is a fraud where criminals create emails and websites that closely resemble those of legitimate companies. Generally, the fraudsters lure people through these e-mails by promising an astronomical amount either for wining a lottery or for helping to secure a deceased person's wealth, or promising a job in a big corporate or even securing admission in a prestigious educational institute. "Unfortunately, not many people complain or even register a case on receiving such fraud emails," says Alok Kumar Singh, in-charge of the surveillance and cyber cell in Gautam Budh Nagar. He adds, "It is a cause for concern and needs to be addressed. Anyone who needs to register a complaint regarding cyber fraud can contact us at the senior superintendent of police's camp office, located at sector 27." As per the circular received by the administration, the RBI has clarified that remittance in any form towards participation in lottery schemes is prohibited under the Foreign Exchange Management Act, 1999. Further, these restrictions are applicable also to remittances for participation in lottery-like schemes functioning under different names, such as, money circulation scheme or remittances for the purpose of securing prize money or awards. Moreover, the RBI has clarified that it neither maintains any account in the name of individuals, companies or trusts in India to hold funds for disbursal nor does it allow individuals to open an account to deposit money with the Reserve Bank. It also does not issue any certificates or advices or confirmations, evidencing receipt and holding of money in these accounts.
Hit-a-jackpot offers may leave you cashless
ALLAHABAD: Have you recently received an email or a SMS declaring that you have won a prize or lottery and must send some security money to a particular address in some foreign destination. Well, beware of such offers as they are nothing but a new trick adopted by frauds to dupe people of their money. In fact, the Reserve Bank of India has launched a drive to make citizens aware of such fraudulent schemes and thus, protect them from being duped. The RBI officials explained the modus operandi of the tricksters. One may receive a phone call or congratulatory message relating to winning a lottery or remittance of cheap funds in foreign currency from abroad or a job\scholarship or easy ways to get emigration visas\admissions to reputed overseas universities etc. One may be issued certificates, letters, circulars etc that may look like authentic papers of the RBI and would be supposedly signed by its top executives. At times, the tricksters convince the victims by even impersonating as senior RBI officials and hand out wrong telephone numbers or fictitious email IDs. The fraudsters seek money from the gullible parties under different heads, such as processing fees, transaction fees, tax clearance charges, conversion charges, clearing fees etc. The potential victims of the fraud are persuaded to deposit the amount in accounts with various banks in the country. Once the initial amount demanded is deposited, the money is withdrawn immediately from the account and fresh demand is made for an even higher amount in the name of transaction tax, registration money, etc. Most of the times, the caller or mailer says that the money is held in RBI in an account in the name of an individual\company\trust and that RBI will disburse the fund only when the amount asked for is deposited in the bank. But, the fact is that the RBI does not maintain any accounts in these categories. Further, RBI does not open accounts for individuals to deposit money with the bank. It also does not issue certificates or confirmations or receipts evidencing the holding of money in these accounts. The RBI does not authorise any of its officials for such disbursals. If a person deposits the money in the account number mentioned in their mail, the amount is immediately withdrawn, thus the money is lost forever. However, more importantly, sending money abroad for lottery is a violation of the provisions of the Foreign Exchange Management Act, 1999. In terms of the current account rules framed under the FEMA, remittances in any form towards participation in lottery schemes or lottery-like schemes, functioning under different names like money circulation scheme or remittances for the purpose of securing prize money\awards etc, are prohibited. Accordingly, action can be taken against any resident of the country for collecting and effecting or remitting such payments directly or indirectly outside India.
RBI asks banks to implement 1% interest subsidy on home loans
The Reserve Bank on Thursday directed banks to implement the 1 per cent interest subsidy scheme on housing loans up to Rs 15 lakh announced in the Budget with immediate effect. To help increase the demand for low-cost housing, the Finance Minister, Mr Pranab Mukherjee, liberalised the existing scheme of 1 per cent interest subvention on housing loans up to Rs 15 lakh, where the cost of house does not exceed Rs 25 lakh. The RBI directed banks to issue necessary instructions to the controlling offices and branch offices to ensure that these guidelines are implemented immediately, it said. The other terms and conditions of the housing subvention scheme remain unchanged, it added. The implementation of the subvention scheme comes close on the heels of the country's largest bank SBI's withdrawal of teaser rates following a hike in its lending rate by 25 basis points, making loans across segments costlier.
RBI outlines initial brief of Central Registry
Mumbai, April 21: The Reserve Bank of India on Thursday said the newly established Central Registry will initially register transactions relating to mortgage by deposit of title deeds to secure any loan or advance from banks and financial institutions. It will also register transactions arising from securitisation and reconstruction of financial assets entered into by banks and financial institutions, as defined under the Securitisation Asset Reconstruction of Financial Assets and Security Interest Act, 2002. The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records from the Registry would prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property, the RBI said in a notification. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a Government company licensed under Section 25 of the Companies Act 1956, became operational on March 31, 2011.
RBI sets up cell to monitor 12 large banks
The Reserve Bank of India has formed a conglomerate cell within its supervisory set-up to keep a constant vigil on 12 large domestic and foreign banks. This is to prevent any systemic fallout in case one of them falters. The banks that have been identified for consolidated supervision are: State Bank of India, Punjab National Bank, Canara Bank, Bank of India, and Bank of Baroda (public sector banks); ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank (private sector banks); and Standard Chartered Bank, Citibank and HSBC (foreign banks). The cell will assess the risks that non-banking activities — insurance, asset/wealth management, broking, investment banking, housing finance, and primary dealership — could pose to the parent bank. It will also keep a watchful eye to prevent regulatory arbitrage, said a senior official with one of the conglomerate banks. To ensure that the safety and soundness of the banking system is not compromised, the cell will actively monitor these banks' exposure to financial markets — such as call money, foreign exchange (including currency futures), government securities (including interest rate futures), corporate bonds and equities — to pick up possible smoke signals. Onsite inspection and offsite surveillance have been streamlined to gather, among others, information on compliance with credit exposure limits, and assess risks (credit, operational, market, interest rate, liquidity, and country) and compliance with corrective actions suggested by the RBI, the official said. Further, quantitative and qualitative disclosures in balance-sheets, ownership structure, adherence to accounting policies and principles, compliance with anti-money laundering guidelines, and adherence to prudential prescriptions on capital adequacy will be taken into account to create a profile of each bank. Collectively, the 12 conglomerate banks are estimated to account for about half of the total assets of the banking system. They are considered systemically important as they have grown so large and are so interconnected that even if one bank goes belly up, the other banks will feel the adverse ripple effects and the stability of the financial system could get undermined. Besides the conglomerate cell, the central bank's supervisory architecture for banks now has three other verticals, each dedicated to the supervision of ‘other public sector banks', ‘other private sector banks' and ‘other foreign banks'.
RBI cancels Nashik ‘s Shri Balaji Co-operative Bank Licence on Bankruptcy
The Reserve Bank of India on Thursday cancelled licence issued to Shri Balaji Co-operative Bank Ltd, Nashik, Maharashtra. Information and confirmation to this effect was made by Ajit Prasad , Assistant General Manager through Press Release : 2010-2011/1532. The RBI has taken the decision in view of the fact that had ceased to be bankrupt, Shri Balaji Co-operative Bank Ltd, Nashik, Maharashtra all efforts to revive it in close consultation with the Government of Maharashtra had failed and the depositors were being inconvenienced by continued uncertainty, the Reserve Bank of India delivered the order cancelling its licence to the bank before commencement of business on April 07, 2011. The Registrar of Co-operative Societies, Maharashtra has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank. It may be highlighted that on liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of ` 1,00,000/- (Rupees One lakh only) from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under usual terms and conditions. The bank was granted a licence by Reserve Bank on October 14, 1996 to commence banking business. The statutory inspection of the bank with reference to its financial position as on March 31, 2009 assessed the CRAR at (-) 3.0%, negative networth of (-) ` 2.84 lakh and erosion in deposits to the extent of 1.6%. Gross and Net NPAs were 91.5% and 81.5% of Gross and Net Advances respectively on that date. The bank was also advised on January 22, 2010 to step up its recovery efforts and submit a concrete proposal for merger latest by March 31, 2010. The bank’s financial position deteriorated sharply with reference to its financial position as on March 31, 2010 wiping off not only owned funds of the bank but also eroding deposits to the extent of 31.4%. The CRAR of the bank was (-) 88.5% as against the prescribed minimum of 9%. The bank had also defaulted in maintaining of CRR and SLR. Inspite of giving sufficient time and opportunity, the bank had not been able to improve its financials or submit any concrete proposal for merger. Due to its precarious financial position, the bank was placed under directions under Section 35 A of the Banking Regulation Act, 1949 (AACS) vide Directive UBD CO BSD-I No. D- 19/12.22.378/2010-11 dated October 18, 2010. Serious deficiencies as mentioned above revealed that the affairs of the bank were being conducted in a manner detrimental to the interests of the depositors. The bank did not comply with the provisions of Sections 11(1), 18, 22(3)(a) & (b) and 24 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies). The bank had also not taken any initiative towards recovery of NPAs. In view of the aforesaid serious deficiencies/irregularities and the deteriorating financial position of the bank, it was issued a notice on December 03, 2010 to show cause (SCN) as to why the licence granted to the bank on October 14, 1996 to conduct banking business should not be cancelled. The bank submitted its reply to the SCN vide its letter dated December 30, 2010. The reply to the SCN was considered and examined but not found satisfactory. Further, no concrete proposal was received from the bank for merger. Therefore, Reserve Bank of India took the extreme measure of cancelling licence of the bank in the interest of bank's depositors. With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of the Shri Balaji Co-operative Bank Ltd, Nashik, Maharashtra will be set in motion subject to the terms and conditions of the Deposit Insurance Scheme. Consequent to the cancellation of its licence, Shri Balaji Co-operative Bank Ltd, Nashik, Maharashtra is prohibited from carrying on ‘banking business’ as defined in Section 5(b) of the Banking Regulation Act, 1949 (AACS) including acceptance and repayment of deposits. For any clarifications, depositors may approach Smt. K.S. Jyotsna, Deputy General Manager, Urban Banks Department, Mumbai Regional Office, Reserve Bank of India, Mumbai.
RuPay likely to be rolled out in 18 months
RuPay, an Indian payment gateway akin to Visa and MasterCard, is likely to be ready for rollout within 18 months. National Payments Corporation of India (NPCI), the umbrella organisation overseeing the project, has already started garnering global acceptance for the national card system. “Our consultant has just started working. It would review the strategy document that we had prepared internally, and is expected to take six-eight weeks. Much would depend on the timeline that it suggests and discuss with us and we will freeze that. But we would like it to happen as quickly as possible...it should not take more than 18 months for at least the debit and prepaid (cards) to come up,” NPCI Managing Director and Chief Executive Officer AP Hota told Business Standard. Creating a domestic payment gateway was spurred by the Reserve Bank of India’s (RBI), underlining the need for such a system. This , RBI said, was due to “the high cost borne by Indian banks for affiliation with international card associations, in the absence of a domestic price setter”. Affiliation with international card associations resulted “in the need for routing even domestic transactions, which account for more than 90 per cent of the total, through a switch located outside the country,” RBI had said in its Vision Document on Payment and Settlement Systems. China already has a payment gateway system in place, a benchmark against which RuPay may well be compared, although taking into account India’s banking environment, a different model would have to be adopted, said Hota. China UnionPay, a payment gateway for Chinese banks, was introduced in 2002 and is accepted in over 100 countries worldwide. However, in spite of its impressive growth, it experienced friction with global payment majors, notably Visa. With international acceptance of the card being a vital factor, NPCI too, is planning to work with global card associations. “We have expressed our intention of building international acceptance of the RuPay card. Obviously, for international acceptance, we need partners who can make it happen. The card associations can do this and it would be quicker this way. We can also talk to different large acquiring companies, but that would be a slow process. We are evaluating which is the right way. Aligning ourselves or working with international card associations would definitely be a simpler route,” Hota said. However, this may be easier said than done. After being scathed by China UnionPay, global payment firms may be wary of the Indian gateway. “International associations would definitely be on the guard, when dealing with the RuPay. In the long run, I feel there would have to be collaboration across associations. But in the short run, it would be a market-share grab,” said Nirmal Palaparthi, chief architect of Fractal Analytics. On the domestic front, NPCI claimed it had all the required tools at its disposal. “If the card is to be accepted only in the country, we don’t need anything, since we have a block of 500 IINs (issuer identification numbers). We can populate the IINs in over 550,000 POS (points of sale) terminals and can get going,” said Hota. “The real issue is how would this card be accepted abroad. Aspirations in the country are so high that if we give a purely domestic card, people might not accept it,” he said. The final decision would, however, be taken by the banks. “The banks would choose. If they feel there is a customer segment which would not use the global card, or the likelihood of using it is limited, they might issue a card which is domestic. It would also be cost-effective, since the assessment fee of an international card would definitely be higher than a domestic card,” he said. “The biggest benefit for banks is this would be cost-effective. Instead of many types of service charges, we would make it very simple. We would also make the dispute management more simple and straight-forward. Banks would have a bigger role in the governance of the (RuPay) scheme --- much more than what they have in international schemes,” Hota said.
RBI Quashes Banks’ SLR Plan
Bankers urged the Reserve Bank of India (RBI) to allow them to dip into 2% of their SLR, or statutory liquidity ratio, of the mandated 24% to meet short-term asset liability mismatch. This was conveyed by treasury heads of select banks at a meeting with senior RBI officials early this week. The meeting was called to discuss the Deepak Mohanty report on the operating procedure of the monetary policy, which was released last month. However, senior RBI officials turned it down on the grounds that banks had not even availed of 1% of the standing facility of net demand and time liabilities (NDTL) of the total SLR in the past. Bankers also discussed issues regarding RBI’s preference to maintain liquidity in a deficit mode of 1% of the NDTL. “During the meeting, RBI officials agreed that at times it would be difficult to maintain the liquidity deficit of 1% of NDTL, but efforts have to be made in that direction,” said a treasury head present in the meeting. RBI felt that the transmission of the monetary policy hinged on regulating the liquidity in the system, and liquidity in excess of 1% could thwart the process of policy transmission. “I do not see the possibility of liquidity getting into a surplus, but certainly we wanted to be less in a deficit than it is now because the deficit now is about 2% of NDTL and we thought that the more appropriate level would be 1%. That is where we would like to see it,” Subir Gokran had told research analysts soon after the January policy. However, bankers are sceptical on RBI’s desire to keep liquidity in a preferentially deficit mode. The meeting was also attended by primary dealers and mutual funds. RBI made a presentation on the report to market players. The objective was to place the report before them for their feedback and have an inclusive discussion there on the possible points of contention. The report proposes a single operational rate, which would be the repo rate and the reverse repo. It also suggests the repo-reverse repo rate corridor to be maintained at 100 bps and the base rate to be maintained at 50 bps below the repo rate. The banker also discussed how the base rate was no more operational, and therefore, needed to be scrapped.
Thursday, April 21, 2011
IMF race throws up two local names
New Delhi, April 20: Official circles are speculating on the Indian government nominating either Planning Commission deputy chairman Montek Singh Ahluwalia or Reserve Bank Governor Duvvuri Subbarao to the post of the managing director of the International Monetary Fund (IMF). The IMF’s current head, France’s Dominique Strauss Kahn, is scheduled to step down. Traditionally, an European holds the top position at the IMF while an American gets the top job at the World Bank. However, with India and China’s clout increasing in the two global multilateral institutions, the two nations are expected to play a bigger role in deciding on the top job. Officials said if China agreed to an Indian being made the IMF chief, India could nominate either of the economic mandarins to the top job. In case, China has its own ideas, India may go with South Africa’s former finance minister Trevor Manuel. The European-US lobby may put up its own candidate in Turkey’s Kemal Dervis, a former UNDP chief. Ahluwalia had a stint with the IMF as its first director of Independent Evaluation Office. Sources said if Ahluwalia was nominated for the IMF slot, it would also be a signal that Prime Minister Manmohan Singh felt he couldn’t be given the finance minister’s job. With three years left for the UPA to compete its term, sources said the government might not wish to put a technocrat in the finance minister’s job. The buzz over Ahluwalia and Subbarao grows at a time the full Planning Commission is meeting tomorrow. The Prime Minister wants to accelerate economic growth to 10 per cent during the Twelfth Five Year Plan, which starts next year, while Yojana Bhawan feels a 9-9.5 per cent expansion of the economy will be a good enough target.
RTI reveals RBI apathy over National Litigation Policy
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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