The New MFI Bill: Challenges before RBI

In the past two years the microfinance sector has witnessed an euphoric and unregulated growth as over-regulation and stoppage of lending in one state. The draft Microfinance Institutions (development and regulation) Bill 2011 seeks to bring some clarity and uniformity of rules to this sphere, reports Gopika Gopakumar of CNBC-TV18. The key feature of this Bill is that it will bring all microfinance services under one regulator – the Reserve Bank of India.  The Bill also proposes setting up of Centre and state level councils to advise the government on policies for the development of the sector. The central council will consists of officers from Finance and Rural Development Ministries, the RBI, SIDBI, NABARD and NHB besides six experts. The state advisory councils will have representatives from the state microfinance sector, the RBI and banks. They will advise on lending, recovery methods and grievance redressal mechanism.

What the New Microfinance Bill 2011 says?

> All microfinance companies must first register with the RBI before they begin operation.

> If activities of MFIs are found to be hurting the interest of clients, the regulator can issue 'cease and desist' order and can even cancel the registration.

> If the MFI is not satisfied with RBI's actions, then it can appeal to the central government, which will have the final say. The Bill also directs all MFIs to set up a reserve fund which cannot be used without RBI's permission. All MFIs will also be required submit their balance sheets to an RBI approved auditor. The bill gives sweeping powers to the RBI.  Among other things, the regulator will have a say on how much loans can be disbursed by the MFIs, the numbers of borrowers who can avail these loans and also the areas where they can operate. The RBI can also delegate an inspecting authority to look into the books of MFIs.

Will the Reserve Bank be able to handle such intricate details about hundreds of tiny companies working in far off villages?

Usha Thorat, Former Deputy Governor, RBI, said, "Consumer protection objective is most difficult areas of regulation to enforce because it requires various process. It is not like I go to a bank offsite and onsite inspection and look at their terms and procedures, look at the riskiness of assets or at their mismanagement." Reddy Subrahmanyam, Principal Secretary, Rural Devpt, AP, said, "Our understanding is that the existing RBI machinery or the proposed ombudsman may not be a solution. It may not be adequate to look at ground level realities. I think that's the fact which we need to discuss further." The new draft Bill says microfinance is not money lending and therefore not under the state governments' jurisdiction. But states like Andhra Pradesh are questioning the validity of this.  However, legal experts are dismissing this contention. HP Ranina, Central Board Member, RBI said, “What the Bill says is that money lending done by MFIs is not deemed to be money lending. But that is right and fair for the simple reason that even banks do money lending, even non-banking financial organizations do money lending."  "But yet they are in the purview of RBI, who is the regulator of all banks and banks necessarily lend money to the outside world. The Money Lenders Act which is covered by Constitution, which is part of state subject generally applies to unorganised sector were money lending is done." But RBI believes state government opposition could pose problems. There are many skeptics and it is yet to be seen what changes will happen before the bill becomes law.

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Andhra Pradesh lambasts microfinance bill, wants full rethink

In a 1200-word, aggressive response, the Andhra Pradesh government has called for a rethink on the microfinance bill introduced by the finance ministry. “Even if the Reserve Bank of India (RBI) becomes the sole regulator of the sector, the fallout of coercive recovery practices including suicides becomes a subject of state........

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Will he, won’t he? RBI chief waits for a call from North Block

It may amaze some readers that the man who is at the apex of the financial system should be kept hanging like this even as the press continues to speculate on who his successors might be. Subbarao, according to The Economic Times , may get an extension. But the paper is obviously not sure, for it also names Chief Economic Advisor Kaushik Basu and India’s Executive Director at Asian Development Bank Ashok Lahiri as potential candidates. The Indian Express on Thursday endorsed Subbarao for an extension citing support from former RBI governors Bimal Jalan, YV Reddy and C Rangarajan. Monetary policy needs a steady hand. It also needs autonomy from day-to-day political pressures. US central bank governors work for a decade or more. Alan Greenspan spent almost two decades as chairman of the Fed. Ben Bernanke, a Bush appointee, will remain even through the Obama years. Why should Subbarao be treated any different? The other problem with top appointments in the financial sector is that government officials have a tendency to speculate through the press. Unlike the US, there is no nomination from the executive and ratification by Parliament. Prime Minister Manmohan Singh, a former RBI Governor himself, will clear the appointment based on a short-list put up by the finance ministry. Even now, there are many key government appointments where speculation continues. The position of LIC chairman is yet to be filled. A PTI report in June said that the announcement would take more time as various government departments are scrutinising candidates. The chairman of the Insurance Regulatory Authority of India was quoted in the story. It is strange that the IRDA chairman is involved in the whole process. Imagine a test cricket umpire giving an opinion on who India should select as captain. There appears to be no method by which key appointments are made. There is also the tendency to continue influencing decision-making at state-owned companies or quasi-PSU companies. Agreed that the government is majority owner in public sector companies. However, the same ad-hoc policy seems to drive appointments in these entities. The government also seems to be exercising undue influence on organisations like UTI Mutual Fund, owned by LIC, SBI, PNB, and Bank of Baroda, according to T Rowe Price, a foreign institutional investor owning a 26% stake. When government is not the direct owner of UTI, why should it decide who runs the mutual fund? The shareholders’ agreement provides for the appointment of a CEO through the unanimous choice of all shareholders, according to a June 2011 report in The Economic Times.  The report states that T Rowe Price has been irked by the alleged attempt by the finance ministry to back the candidature of an IAS officer, Jitesh Khosla, over the claims of others shortlisted by a professional search firm. Quite clearly, the government needs to have a clear roadmap on how apointments at these levels should be made. First, the decisions must be taken at least three months before the term of an incumbent ends. Second, the length of tenures cannot be arbitrarily fixed at three years when five years is the norm. Manmohan Singh, here is your chance to set a good precedent.

http://www.firstpost.com/  

Mint-fresh: new series of coins launched with latest rupee symbol

Finance minister Pranab Mukherjee on Friday launched a new set of coins of 50 paise, Rs 1, 2, 5 and Rs 10 with the new rupee symbol embedded in them. The new series of coins have been introduced with features at the edge, which make it convenient for easy recognition and distinction. “The design has been adopted keeping in mind the difficulties faced by visually challenged people,” a finance ministry statement said. Last year the government had approved a symbol for the rupee that elegantly combines Devanagiri and Roman scripts to signify the rising strength, ambition and spread of the country’s currency in a fast globalising economy.  The rupee, introduced as a silver coin for transactions by emperor Sher Shah Suri — who built the Grand Trunk road in the 16th century — was only two decades ago largely unrecognised in global markets, but now joins an elite club of symbol-endowed national currencies that include the US dollar, the British pound, the euro and the Japanese yen. The symbol designed by D Udaya Kumar, who has just joined the faculty of the department of design at IIT Guwahati, was selected from more than 3,000 entries that were evaluated by a jury of experts, government and RBI officials. “The new coins will not only reduce the cost of moving materials but also are of user-friendly size and weight, Mukherjee said. Security Printing and Minting Corporation of India Ltd (SPMCIL) is minting the new series of coins of all denominations. As on date, approximately 100 million coins of all denominations have been minted.  The new coins will be lifted by the RBI for circulation to public very soon.Mukherjee had promised to launch the new series of coins in his budget speech in February.

Hinustan Times 

Regulating microfinance

If the Bill hopes to create an enabling environment for the microfinance sector, involving too many agencies may be counter-productive. If there is one area where the Government is acting with consistency, if not speed, it is in the microfinance sector that has, for the past year or more, taken a severe beating, especially in Andhra Pradesh, which accounts for almost 30 per cent of the total business. It was the State government's legislation against private MFI companies that exposed just how much the sector had grown without consistent oversight enforced by Central legislation. Private companies, once touted as the model for microfinance, and trudging a middle course between the Bangladesh Grameen Bank and commercial banks, were almost put out of business after the Andhra Pradesh government passed the MFI Act.  Now the Finance Ministry means to empower the RBI to regulate and fix what it calls the maximum annual percentage rate to be charged by any MFI. It was the interest rate charged by the private MFIs that had drawn the ire of the Andhra Pradesh Government. The private companies had countered that they did not charge exorbitant rates but what had added to the burden of the actual rate were other charges loaded on to the basic rate. The draft ‘Micro Finance Institutions (Development and Regulation) Bill, 2011' has taken this issue into account by defining the ‘annual percentage rate' to include interest, processing fees, service charges and any other charges or fees that MFI clients have to pay. Just to make sure that these charges are not excessive, the RBI will stipulate that the rates operate within the ‘percentage of margin' to be decided by the apex bank. The Bill attempts to create an overarching structure that would include Nabard, the agency that currently oversees the microfinance sector. Nabard was also a player through self-help groups, alongside private firms that it also refinanced. It could, therefore, oversee private firms only to a certain extent; once the latter began to source funds from equity they became answerable to their shareholders, and were thus obligated to maximise earnings. So the Bill proposes an umbrella-type structure with the RBI as regulator, which will delegate some powers to Nabard. The Bill also proposes a ‘ Micro-Finance Development Council' to frame policies, schemes and other measures for orderly growth of the sector. Questions arise at this point. What will the council do that the RBI cannot, with its vast experience and expertise? If the idea is to create an enabling environment for the troubled sector, loading on more agencies than may be required may have just the opposite effect.

Business Line

Dr Subbarao, does KYC stand for Kick Your Customer? - R Jagannathan

The Reserve Bank imposed a fine of Rs 25 lakh on Citibank on Monday for violating its so-called know-your-customer (KYC) and anti-money laundering laws. Reason: one of its employees in Gurgaon duped around 40 wealthy investors by promising them high returns from a bogus investment scheme. The fraud was perpetrated by Shivraj Puri, who took the money from gullible clients claiming Citibank was running a special Sebi-approved investment scheme and then routed the money for speculation in stocks. Even the Munjal-controlled Hero group managed to part with Rs 200 crore to invest in these bogus schemes. The total value of the fraud is estimated at Rs 400-plus crore. And the Sebi-documents were obviously forged. Is the RBI barking up the wrong tree? One wonders how the central bank hauled up Citi for failure to follow KYC norms, when the fraud was perpetrated by one of its own employees –possibly with a wink and a nod from bosses and other employees. The services of a few other Citi employees were terminated in the wake of the fraud. The truth is that the KYC requirements are fairly mindless – they are intended to trouble the honest customer, who will run from pillar to post to satisfy the norms, while the fraudsters simply fake the documents to get around the law. If I were the Reserve Bank of India, I would impose a Rs 25 lakh fine on the person who invented the KYC rules – for some of them are simply not possible to comply with. The key problem for urban residents is the address proof one requires under KYC to do anything – whether it is to open a bank account or apply for a PAN card or a driving licence or a demat account or even a mutual fund account. Proof of address usually comes from passport, driving licence, demat account, electricity bill, telephone bill, or even a bank account statement. But since passport, driving licence, bank account and demat account require the same address proof, it is like chasing your own tail. You can prove your address only if you already have a document saying this is your address. And you can’t get that document without already having another document which says this is your address. Smart, really smart. At the fundamental level, an address proof basically comes only from buying or renting a house in your name. But then, this means your spouse or adult children living with you are stuck for their KYC. This circular nature of proof amounts to a stupidity in the KYC requirement and the RBI surely should have thought about it a bit before mandating it. Nandan Nilekani’s Unique ID project will not solve this problem, for it is about ID, not address proof. I know the kind of problems I have had trying to prove my wife and daughters live with me. Though recent changes in rules allow banks to accept blood relatives on the basis of the same address proof as their parents or spouses, this message has not really percolated among staff – who continue to slavishly demand passports and driving licences. The rule relaxation, of course, is not enough. For it still leaves paying guests or relatives staying with you—a not uncommon phenomenon in Indian families—without documentation to open a bank account. I know a senior journalist who receives all his communications and bank statements at the office address because he does not have address proof where he stays. Not surprisingly, many people have dubbed KYC as “Kick your customer”, given the kind of run-around the public gets from this rule. As for Citibank, its problem was not KYC, but KYE – Know Your Employee. It ought to have been fined for not knowing what its employees were upto. Dr Subbarao, I know the Reserve Bank has loads of other worries—the government’s fiscal deficit, inflation, etc—but KYC is bugging many people too. Do something.

http://www.firstpost.com/business/dr-subbarao-does-kyc-stand-for-kick-your-customer-36841.html

RBI fines Kolhapur Dist Central Coop Bank

The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 5 lakh on Kolhapur District Central Co-operative Bank Ltd, Kolhapur, Maharashtra for violation of guidelines issued for Anti Money Laundering (AML). The apex bank on Friday issued a statement stating that the RBI in exercise of powers vested in it under the provisions of section 46 read with section 47A of the banking regulation act, 1949 (AACS) had imposed a monetary penalty to the Kolhapur District Central Co-operative Bank. In the letter issued today, the RBI observed that the cooperative bank had violated guidelines issued by the Reserve Bank on Know Your Customers (KYC) norms or AML standards. The RBI had issued a show cause notice to the bank, in response to which the bank had 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," the official statement said.

BS

SBI not to finance disputed projects

In a clear indication of banks pulling out their hand in the aftermath of the Supreme Court ruling in the Greater Noida land acquisition case, State Bank of India on Friday said it would not finance real estate projects that were mired in disputes over land acquisition. “If in a particular area where there has been a difficulty, those will not be financed,'' bank Chairman Pratip Chaudhuri told reporters on the sidelines of a conference here. Mr. Chaudhri's remarks come two days after the Supreme Court asked the U.P. Government to return the land acquired in Greater Nodia for realty projects. “How can we give a loan when there is no land, where there are no land rights,'' Mr. Chaudhuri said when asked about the bank's position on funding projects in disputed areas. “Due diligence is important while advancing credit to the commercial real estate sector as the high interest regime is pushing up project costs and hence greater chances of default,'' National Housing Bank Chairman and Managing Director R. V. Verma said. The Reserve Bank of India has already asked banks to be cautious while extending loans to commercial real estate projects in view of increasing bad assets. On Wednesday, the Supreme Court had upheld the Allahabad High Court order quashing the acquisition of over 156 hectares from farmers in Greater Noida by the Greater Noida Industrial Development Authority and its allotment to builders.

Business Line

FM cautions state banks, FIs on NPAs

The finance minister asked banks to pursue financial inclusion through the business correspondent (BC) model and stressed that there should be transactions in the no-frill accounts....

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Gaddafi bait in sham RBI site nets gullible

NEW DELHI: The next time you receive an SMS or email informing you that you have been chosen by Libyan premier Muamar Gaddafi to partake of a share of his riches, or that you have won millions of dollars/pounds in a lucky draw held by a cola giant, ignore it completely. For years, the city police have had to deal with a slew of rackets that when investigated always have a Nigerian link. But the latest racket has left even the cops dumbfounded.  To give it a stamp of authenticity, fraudsters have set up a sham RBI website that shows money actually being deposited into the 'winners' account. A Nigerian national, Nosakhare Edwin, has been arrested for running such a racket and conning people to the tune of Rs 1 crore. The accused, who was living in New Delhi's Safdarjung Enclave, had opened five accounts with a private bank. "We have asked for detailed statements of these accounts from the bank, as all details and papers submitted so far were found to be forged," said DCP (crime) Ashok Chand. The crime branch was alerted after one Surender Kumar received an SMS on April 20 from an unidentified number informing him that he had won a lottery and the prize amounted to about Rs 2.86 crore. "The SMS also demanded he submit his bank account details, on a cola major's fake e-mail ID, to claim the prize. Accordingly, Kumar emailed his particulars and ID proof to claim the winning amount," said additional DCP (crime) Sanjay Bhatia. On May 3, Surender received another e-mail, informing him that his prize money was being sent by demand draft and that a Nigerian diplomat named Edward William (Nosakhare) would contact him regarding a parcel containing a demand draft, a laptop and a cellphone. Edward contacted him on May 16 and asked him to deposit Rs 18,700 in a bank account for customs clearance. Two weeks later, the victim received a call from an Indian woman, who identified herself as a RBI representative. She directed him to deposit Rs 49,000 more as a transaction tax. "After depositing the said amount, Surender again received an e-mail that had the url of the fake RBI website (rbinet.co.cc). There, he saw that the money had been deposited into his account, but the transaction was only 98% complete and that he was required to deposit more money," said Bhatia. Surender deposited Rs 2,75,000 to complete the transaction and another Rs 17,75,600 towards taxes. Again, he received an email, asking him to deposit Rs 8,95,000 more.  "As Surender had already borrowed a lot of money, he couldn't pay such a big sum. So, he requested Edward to meet him. They met on May 27 at Chanakyapuri and Surender paid Rs 3 lakh more. The same day, he received another email, asking for Rs 5,95,000. He finally smelled a rat and contacted the cops," said Chand. Police arrested Edward when he came to meet Surender on July 2. During interrogation, he said that he and a friend had duped others too.

TOI

RBI for insurance, pension funds in infrastructure

NEW DELHI: The government may be repeatedly asking banks to increase loan flow to the infrastructure sector but the Reserve Bank of India has a different take on the issue. During finance minister Pranab Mukherjee's meeting with bank chiefs on Friday, RBI Deputy Governor K.C.Chakrabarty flagged the issue of lenders nearing capacity as far as loans for road, port, airport and power sector projects were concerned . Besides, he is learnt to have pointed to asset-liability mismatch issues – 80% of the bank deposits mature in less than five years, while infrastructure loans are typically provided for over 10 years. Instead, Chakrabarty, himself a former bank chairman, suggested that the government clears policy impediments to enable life insurance companies and pension funds, which have funds for 20-30 years at their disposal, to invest in the infrastructure sector.  Though it is not known what the reaction of the finance ministry was, a bank chief told TOI after the meeting that bankers came up with the same set of solutions to deal with the issue of mismatch and reaching the exposure limit. One of the suggestions was to seek permission to issue tax-free infrastructure bonds, something that the government is unwilling to do.  At the meeting, the government once again made a pitch for the Takeout Finance Scheme, which is aimed at providing further lending space to banks. Under the scheme, relaunched by India Infrastructure Finance Company last year, banks financing infrastructure projects can enter into arrangements with another entity to transfer the outstanding loans. But till May this year, only nine infrastructure projects, involving a takeout amount of Rs 1,600 crore, have been cleared.

TOI

RBI: Inflation is a significant near term macro challenge for India

“To contain inflationary pressures without disrupting recovery” has been the challenge for the Indian Reserve Bank's monetary policy over the past year and a half. The Indian economy recovered relatively quickly from the financial crisis of 2008, but inflationary pressures emerged even in the early stages of the recovery in late 2009, stated RBI Deputy Governor, Dr. Subir Gokarn in a presentation on Striking the Balance between Growth and Inflation in India. The economy grew by 8.5% in the fiscal year 2010-11, which is close to the five-year average pre-crisis, but year-end headline inflation was over 9%, well above tolerance limits.  There are some factors affecting inflation, global and domestic, that is clearly outside the purview of monetary influence, the deputy governor said. But, that doesn't mean that monetary policy does not have a role in addressing factors that it does influence - demand pressures and the risks of inflation becoming generalized through expectations and price-setting actions. The domestic growth scenario suggests that the growth rate will moderate somewhat in the coming year. However, he said that even though growth could be impacted, it must be understood as a short-term tradeoff with positive consequences for long-term performance. The Reserve Bank of India projects growth during 2011-12 to be 8% in its baseline scenario. The current cycle of contractionary monetary policy was initiated in the context of two important factors. First, there was an enormous volume of liquidity in the domestic financial system, as a result of policy responses to the crisis, which also took policy rates to very low levels. Second, even as the early signs of recovery were visible, inflationary tendencies had also begun to show. All this was happening in a global environment which was still quite turbulent and uncertain in late 2009 and early 2010. In the early phase of the cycle, surplus liquidity conditions persisted, which, clearly made transmission of policy rates through to transaction rates very sluggish. From this perspective, the early actions were essentially a signaling effort, accompanied by steady moves to eliminate the liquidity surplus through CRR increases. By the middle of the 2010, the liquidity scenario had moved to a deficit and transmission became much stronger. The immediate impact was shown on the call rate, which is effectively the operating target of monetary policy, of a change in the liquidity situation. The call rate has moved up by about 450 basis points over a little more than a year which is likely to soften both growth and inflation in the second half of 2011-12.  According to the central banker, the persistence and recent acceleration of inflation has clearly increased the risk of expectations becoming unanchored. Global developments have implications for both growth and inflation trajectory in India. The inflationary situation is India's most significant near-term macroeconomic challenge. The RBI monitors short-term expectations through household surveys that have reinforced the perception that household expectations are moving up. However, the relative stability of long-term (10-year) yields on government securities suggest that expectations over this horizon remain anchored.

IIFL 

Banks are Special

They impact the larger economy and so it is wise to ring-fence the banking sector

At first glance, the RBI’s move to cap banks’ holding in non-financial service companies that are not their subsidiaries at a low 10% (of the company’s paid-up capital or the bank’s paid up capital and reserves, whichever is lower) might smack of paranoia. That first impression quickly evaporates under closer scrutiny. As the financial crisis, especially the role of shadow banks, has shown, one can never be too careful when it comes to financial stability. The consequences of bank failure are not confined to the banking system but affect the entire economy. Two, given the scope for multilayering of share-holding in companies, it is entirely possible for banks to exercise control or have significant influence even over companies that are not their subsidiaries and thereby engage indirectly in activities that are otherwise out-of-bounds. Therefore, it is only logical that the RBI, as banking regulator, should want to limit such investments by banks. In any case, the 10% cap is not absolute, but can be breached where the additional holding stems from corporate debt restructuring or where the company is engaged in activities permitted under the Banking Regulation Act and the RBI’s prior approval has been obtained. Banks are also free to set up subsidiaries for activities that are conducive to the spread of banking in India or are useful or necessary in the public interest. The attempt is to ring-fence the banking system from risks that lie outside. From this perspective, the latest stricture is of a piece with the Bank’s keen pursuit of the ‘holding company model’ for large financial groups and its recent guidelines on registration of Core Investment Companies (CICs). The holding company model envisages banks as subsidiaries of the holding company rather than the other way round, thereby insulating banks from non-bank activities. Likewise, CICs, which do not carry on any trading activity and whose assets are predominantly shares in group companies, call for a regulatory treatment different from that of non-deposit taking, systemically important non-banking financial companies (NBFCs). The message, post the crisis, seems to be that ‘banks are special’. For now, few will disagree.

ET 

RBI staff stage protest

Employees of the Reserve Bank of India on Thursday held a demonstration on the RBI premises in Chennai. According to a press release, the convenor of the United Forum of Reserve Bank Officers and Employees Samir Ghosh was among the speakers. RBI Governor D.Subbarao met the representatives and assured them that the issues would be resolved soon. The call for demonstration was given by the All India United Forum of Reserve Bank Officers and Employees, the release said.

The Hindu

‘Devise strategies to contain NPAs'

Union Finance Minister Pranab Mukherjee on Friday exhorted chief executives of all public sector banks (PSBs) and financial institutions to contain the downward trend in asset quality by devising suitable strategies for curbing and rolling back their non performing assets............

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An insight into foreign exchange matters



Awareness drive

Collector V.N. Vishnu speaking at the inaugural of RBI's exhibition on foreign exchange matters in Guntur on Tuesday. RBI Regional Director A.S. Rao (second from left) looks on



District Collector V.N. Vishnu inaugurated a two-day public interface-cum-exhibition on foreign exchange matters organised at Siddhartha Gardens on the Ring Road here by the Reserve Bank of India (RBI) on Tuesday. The exhibition comprised stalls of the RBI, the Axis Bank, the HDFC, the SBI, the SBH, the Andhra Bank, the Syndicate Bank, and the Indian Overseas Bank. Publicity material on foreign investment in India, fictitious offers, e-mails and SMSs, Foreign Exchange Management Act, 1999, overseas direct investments, and a basic guidebook titled ‘Foreign exchange for you' were made available. Addressing the gathering, Mr. Vishnu said it was a good initiative taken by the RBI to spread awareness on a variety of foreign exchange transactions taking place on a sizable scale in Guntur district on account of cultivation of major commercial crops, particularly cotton and chilli. The exponential growth in remittances across the borders required businessmen and the general public to be well informed of the procedures lest they should face legal consequences of failure to comply with the statutory norms due to ignorance. The RBI would do well to organise similar events in all major towns so that people would benefit from the apex bank's financial literacy campaign, he added. RBI Regional Director A.S. Rao said liberalisation policies triggered a substantial growth in the flow of foreign currencies into and out of India. The emphasis has shifted from ‘regulation' to ‘management' (the erstwhile Foreign Exchange Regulation Act was changed to Foreign Exchange Management Act). This simplified the procedures to a large extent and the concurrent banking reforms facilitated easier ways of dealing in foreign exchange. People continue to be cheated in the conduct of foreign exchange transactions in a myriad new ways. It was, therefore, imperative that the RBI took up their cause, he said. Andhra Bank General Manager Y. Prameela Rani, DGM P.S. Subba Rao, and RBI AGM K. Mahadeva Swamy were present on the occasion.

The Hindu

SBSA demands setting up of satellite centre of RBI

All India Secretary of Syndicate Bank Staff Association (SBSA) K.S. Bhat said on Wednesday that the Reserve Bank of India (RBI) should open its satellite centres either in Udupi or Mangalore to mitigate the acute shortage of fresh currency and coins.  He was speaking after inaugurating the regional meeting of the Syndicate Bank Staff Association, here. Mr. Bhat said at present the department of RBI issuing coins and fresh currencies was functioning from Bangalore. This department was supplying fresh currencies and coins to the needy banks of Dakshina Kannada, Udupi, Uttara Kannada, and northern part of Kerala.  But most of the times, either the Schedule Banks were not in the position to procure them when they needed it.

General public

Most of the ATMs were pooled with old and dilapidated currency notes. The ultimate sufferers were the general public. Besides, the grassroots level employees were facing problems at the bank counters. Hence the opening of a satellite centre at either Mangalore or Udupi would solve the problem. It would save time taken in transportation of coins and fresh currencies. Many public sector banks were facing acute staff shortage in the coastal districts. Due to high attrition rate in Syndicate Bank, the staff had to face a lot of problems. Campus recruitment was the only constructive and practical solution for the problem. The SSBA had urged the managements of the banks to recruit adequate staff before starting new branches, Mr. Bhat said.

The Hindu

RBI board meets in Chennai



RBI Governor D. Subbarao (centre) chaired the meeting of the Central Board of Directors of Reserve Bank of India in Chennai on Thursday. K. C. Chakrabarty (left) and Subir Gokarn, Deputy Governors, RBI, are in the picture



Reserve Bank of India (RBI) Governor D. Subbarao on Thursday met Tamil Nadu Chief Minister J. Jayalalithaa and apprised her of the macro economic situation and the growth-inflation dynamics in the country. The Governor was here to attend the board meeting of the RBI.  During his interaction with the Chief Minister, the Governor felt that the State government could focus on rural infrastructure to ease supply response. Further, he wanted the State government to beef up market access to farmers. During the meeting, the Chief Minister is also understood to have sought RBI support for the State government's initiative in delivering pension through bank accounts. The Governor, according to a release from the apex bank, has assured the Chief Minister of the RBI support for this initiative. He felt that the initiative could be launched on a pilot basis in two districts.  The Governor and the top management of the RBI also met with State government officials and bankers. They discussed the issue of routing National Rural Employment Guarantee Scheme and Old Age Pension payments through bank accounts.

The Hindu 

RBI assures support to TN in giving pension through bank a/c

Chennai, Jul 7 : The Reserve Bank today assured its support to Tamil Nadu in providing pension through bank accounts scheme. RBI Governor D Subbarao, who chaired the bank''s board meeting here today, stated this during a meeting with Chief Minister Jayalalithaa at the Secretariat. "The Chief Minister solicited Reserve Bank''s support for the state government''s initiative in delivering pensions through bank accounts and the governor assured the Chief Minister that he will do so", an official statement issued here said. Subbarao assured her that the bank would accede to her request to start the scheme in Tiruchirapalli and Kanyakumari districts on a pilot basis. Jayalalithaa also discussed with the RBI Governor the problems faced by textile units and Common Effluent Treatment Plants (CETP) in Tirupur. Besides, the Governor also invited Jayalalithaa to attend the State Level Bankers Committee meeting, the release said. Earlier, Subbarao and top RBI officers held talks with government officials and lauded Tamil Nadu''s achievement in having the highest Credit Deposit ratio in India at 114 per cent. Other issues discussed during the meeting include routing of National Rural Employment Guarantee Scheme (NREGS), low coverage of crop insurance and measures to increase lending to micro small and medium enterprises (MSME), it said.

Yahoo News

IBA likely to ask banks to provide for expected wage hike

Public sector banks are likely to start building up provisions for next wage revision starting December 2012. The Indian Banks Association has sent this proposal to the Reserve Bank of India (RBI) seeking the regulator's approval.  The RBI had asked banks to make advance provisions because bank P&Ls show too much volatility at times of wage revisions. CNBC-TV18's Gopika Gopakumar reports. Wage revisions in the past have led to a significant impact on public sector banks profitability. It is to avoid this that RBI in its Financial Stability Report said that banks should phase out the provisions due to the liabilities arising out of wage revision.  This will ensure that the burden is not concentrated in the year when the settlement is signed. The Indian Banks Association has now suggested that banks are building up advanced provisions starting December 2012. That’s when the new wage bipartite agreement will fall due. IBA has also suggested that each bank make an assumption of the expected wage revision and start providing for it over a period of six quarters. This will ensure that the banks profitability is not hit. IBA has already sent their proposal to the RBI for their approval. Sources in RBI say this is easier said that done because banks will have to disclose their expectation of wage hike and this may embolden the unions to bargain for higher wages in the next agreement.

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Banks thwart NIG bid to tap customer data

Banks have shot down a proposal from the National Intelligence Grid (Natgrid) to gain access to their confidential customer data.Their anxiety to guard customer information from the prying eyes of the Home Ministry's ambitious anti-terror project seems to have drawn the support of the Reserve Bank of India.

In an email, RBI Chief General Manager Alpana Killawala explained that “it is not a question of banks ‘opposing’ (Natgrid) to share customer details. They are not allowed to under the existing law.” Natgrid, partially approved by the Cabinet Committee on Security early last month, proposes to link several databases, including bank accounts, railways, airlines, stock exchanges, income tax, credit card, immigration records and telecom service providers. Experts say, Natgrid would allow security agencies to monitor a targeted individual across these databases in real time.  To track terror money, Natgrid also reportedly seeks to access individuals’ savings accounts through district magistrates. Information sourced through RTI by Venkatesh Nayak of Commonwealth Human Rights Initiative (CHRI), reveals that RBI held two meetings on the subject late last year. On October 1, 2010, four Natgrid officials led by CEO Raghu Raman, made a presentation to a high-powered audience comprising of top officials from the RBI and several banks at Mumbai.  On December 22, 2010, at another meeting with senior bank officials, the RBI conveyed a ‘request from Government of India’ to provide customer information to Natgrid. However, banks collectively declined to share information citing ‘customer confidentiality clause’ and ‘possibility of fraud’.  SBI Chairman Pratip Chaudhuri said banks were reluctant to share information with Natgrid as they were under obligation to protect customer confidentiality. “If the data becomes public, customers with large deposits could become vulnerable to extortion or kidnapping,” he said.  Chaudhuri also pointed out that with the linking of Pan cards with banks, a mechanism was already in place to alert Income Tax authorities on large and unusual transactions. Banking law consultant P R Kulkarni said banks were bound to maintain confidentiality by the contract they sign with customers. The secrecy condition has evolved through customs and received some recognition in the Banking Companies Act of 1970.  “If banks divulge information to third parties, customers can sue them for damages,” he said.  However, banks are also legally required to share information with different government agencies. The Parliament has passed several laws such as Income Tax act, FERA and Companies Act requiring banks to share customer information with designated government authorities.  So, if a new agency such as Natgrid is set up it would have to wait for the Parliament to pass the law before seeking information. During the December meeting with RBI, banks said they would share information with Natgrid if a ‘specific legislation’ was passed. Experts say Natgrid can also take another route by persuading the RBI to pass a directive for the banks to share information. However, this option also seems to be blocked, given the position taken by the central bank on the subject.  Nayak of CHRI said Natgrid had been set up with just an executive fiat and did not carry the authority of any law. “It cannot compel the banks to share sensitive information,” he added. “Natgrid’s attempt represents a trend of intelligence agencies trying to work outside the purview of Parliament or any independent oversight,” he said.  However, a top official of the Union Home Ministry told Deccan Herald that as Natgrid was sponsored by the government, it did not need any further legal backing. “Privacy laws of the land would be respected, but law themselves change with time in line with changing concept of security,” he added. Playing down the banks’ resistance, he said, “We are not dealing with banks but with the ministries here,” obviously referring to the finance ministry. However, escalating the issue to higher authorities may not be a cake walk, given the lack of trust between the finance and the home ministries.  Last week, Prime Minister Manmohan Singh confirmed that Finance Minister Pranab Mukherjee had complained to him directly, bypassing Home Minister R Chidambaram, about the suspected bugging in finance Ministry.  Making life more difficult for Natgrid, Mukherjee had reportedly opposed sharing of customer details in September 2010, noting that it would intrude into privacy of the bank depositors and discredit the banking system.Despite his reservation, Natgrid officials went ahead with their October 2010 presentation at RBI. But with the banks coming out strongly against Natgrid, the ball seems to be heading back to Mukherjee’s court.  

Deccan Herald

RBI team's visit

The Reserve Bank of India as part of its platinum jubilee celebrations sent a team to Goginenipalem in Krishna district to study and review the progress in providing banking services to the rural population. The aim of the spread of banking services to the nook and corner of the country was to achieve financial inclusion, RBI General Manager M. Sanjaya said on Wednesday.

The Hindu

Damodaran Committee submits report after HC threat to summon RBI Governor

The RBI has promised to present the Damodaran Committee report to the Karnataka High Court even as Mr Damodaran has failed to provide his “transmittal” as the chairman of the Committee

Under the threat of the Reserve Bank of India's (RBI) Governor being summoned by the Karnataka High Court, the apex bank will release the report by the M Damodaran committee on customer service—without the transmittance of Mr Damodaran himself.  Moneylife has been repeatedly reporting on how the report (despite being ready) was not being released by the Committee head, Mr Damodaran (please scroll down for the previous articles) for reasons best known to him.  Some members have informally informed Moneylife that the report was not released as it did not have transmittance of Mr Damodaran. But even Committee members were unaware, as also RBI officials, were completely in the dark as to why the release of the report was not being green-signalled by Mr Damodaran. However, the report will now see the light of day thanks to an accidental happening. Apparently, while hearing a public interest litigation (PIL) challenging the penalty levied on account holders by banks for not maintaining a minimum balance in their accounts, the Karnataka High Court was being repeatedly told that all the banking service related issues would soon to reviewed, after the Damodaran Committee submits its report. After a few such hearings, the Court impatiently wanted to know when would the committee report be released. A division bench comprising Chief Justice JS Khehar and Justice HG Ramesh came down heavily on the apex bank for not submitting the report, even after the Court had granted many adjournments for submitting the same. In fact, the High Court warned that it would not hesitate to summon the governor of the RBI, if the report was not placed before the next date of hearing.  According to a report dated 6th July in The Hindu, the RBI has been informed the Karnataka High Court that the report of the Damodaran Committee has finally been submitted on 4th July —sans Mr Damodaran's "transmittal". The Court has granted four weeks to the RBI to submit its report before it. Until recently, it was reliably learnt that the report was not released because it did not have transmittance of Mr Damodaran who has been mysteriously reluctant to write the letter (transmittal) which would have formally meant handing over the independent committee's report to the RBI. Recently, while replying to a Right to Information (RTI) application which inquired about the status of the report, the RBI said that the report is "yet to be transmitted." (See: RBI flip-flops on customer service report ). The RTI Act was evoked by Mumbai-based activist Nagesh Kini, with the RBI, to find out the status of the report, as it was over a year now that several people have submitted their recommendations to the Committee—but there is no sign of the report being finalised.  In its reply to Mr Kini's RTI application, the central bank had said that a "timeframe of four months from the date of the first meeting of the committee was set for submission of the report." This was extended by three months. Considering this, the report should have been out in the public domain by now. It's been over 12 months since the first meeting was held on 15 June 2010, but the report has been released only on 4th July.  The Committee was constituted in June last year to review the system of customer service and grievance redressal by banks. It was expected to undertake a strict review of the existing system of the Banking Ombudsman Scheme and customer service in banks, including the approach, attitude and fair treatment to customers in the retail, small and pensioner segments. Moneylife sent a message to Mr Damodaran, but no reply has been received till the time of writing this story.

Moneylife

Base rate methodology: Banks seek extension from RBI

Sources say that the Indian Banks Association (IBA) has written to the RBI seeking further extension to fine-tune this methodology of compounding the base rate.....

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RBI defends removing ‘priority sector' tag on loans to NBFCs

Chennai : Contrary to what non-banking finance companies (NBFCs) have been saying, the removal of the ‘priority sector' tag on bank loans given to NBFCs will actually help the end borrower, say, a small, commercial vehicle buyer to access loans cheaper. Speaking to Business Line today, Dr K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, said RBI had data to prove this and was “open to a debate” with anyone on the same. Banks have to lend to some specified sectors to meet the Government's social objectives. Banks that could not lend directly to these ‘priority sectors' would simply lend to NBFCs who would use the money to give loans to these sectors. Thus, banks met their ‘priority sector' obligation.  However, the RBI in May ruled that loans given by banks to NBFCs would no longer count towards meeting their priority sector obligation. The idea was to force banks to lend directly to those sectors, rather than indirectly through NBFCs. This made loans costlier to NBFCs, who bemoaned that their on-lending would consequently be at higher rates, and the end user would have to pay more — which goes against the grain of ‘inclusive growth'.This is what Dr Chakrabarty refuted today. The Deputy Governor was here in connection with a RBI board meeting.

The Hindu

Balaji co-op bank to merge with Visakhapatnam Co-Op Bank

Reserve Bank of India has granted permission for the merger of the Balaji Urban Co-Op Bank, Tirupati with the Visakhapatnam Co-Op Bank. According to the Chief Executive Officer of the Balaji Urban Co-op Bank, P. Krishnamurthy, consequent on the merger, the Visakhapatnam Co-Op Bank with about Rs.1000 crore deposits and 22 branches spread over the State would soon be operational in Tirupati.

The Hindu

Can't override powers of states on MFIs: RBI

Though the finance ministry proposes to make the Reserve Bank of India (RBI) the sole regulator for the country’s troubled micro finance institutions (MFIs), the central bank has said this will not override the decisions of state governments. The Andhra Pradesh government has its own law to regulate the MFIs. About one-fourth of the MFI industry is concentrated in this state. “RBI cannot override the sovereign powers of the state. We are regulating the segment and on that we have the right to impose restrictions. That does not mean states cannot do anything,” Deputy Governor K C Chakrabarty told reporters after attending a meeting of RBI’s Central Board of Directors here today. The central bank would have the powers to formulate policies for the sector and regulate it, the finance ministry said in the draft of the Micro Finance Institutions (Development and Regulation) Bill, released yesterday for public comments. The earlier Bill of 2007, which has lapsed, had sought to regulate only those MFIs not under the ambit of any law. So, banks and a few categories of non-banking finance companies (NBFCs) were kept outside the purview of the Bill.  Last year, the Andhra Pradesh government had issued an ordinance to regulate MFIs in the state in the backdrop of a number of suicides by borrowers following alleged harassment by recovery agents. When asked about implementing a cap on interest rates for MFIs, Chakrabarty said the central bank would take a decision once the matter came to it for consideration. The Malegam committee of RBI had recommended an average ‘margin cap’ of 10 per cent for MFIs having a loan portfolio of Rs 100 crore, of 12 per cent for smaller MFIs and a cap of 24 per cent for interest on individual loans. Currently, most MFIs are charging an interest rate over 24 per cent. Depending on the size of their operations and other relevant parameters, MFIs will be required to maintain the percentage of margin as may be specified by RBI from time to time. MFIs will have to convey to every borrower the annual percentage rate, comprising the annual interest rate, processing fees or any other charges or fees levied by them. The Bill says every micro lender must create reserve funds for loans and refinance to other micro-finance companies.

TOI

NABARD aid to help restart farm loan disbursement

Farm loan disbursal in Vidarbha, which was virtually at standstill for the last three weeks, may get kick started again, thanks to the decision of National Bank for Agriculture and Rural Development (NABARD) to bail out the troubled Maharashtra State Cooperative Bank.......

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Govt seeks details of NBFCs from RBI

PATNA: Disconcerted by reports about siphoning of deposits to the tune of Rs 1,000 crore by non-banking finance companies (NBFCs) in and around Indore in Madhya Pradesh, Nitish government has made a reality check of the situation in Bihar. Accordingly, it has sought details from the RBI about the board of directors of 267 NBFCs operating in Bihar. In this regard, deputy CM Sushil Kumar Modi said on Thursday that the RBI had so far furnished details about 35 NBFCs. "We do have instances of NBFCs siphoning off money deposited by investors with them in Bihar," Modi said, referring to the cases of three such companies, including JVG and Helius Group, whose cases surfaced in the late 1990s following which the then Rabri Devi government set up Nagendra Rai Commission to probe into the functioning and operations of the NBFCs active in Bihar, as well as to hear the complaints of depositors. According to Modi, the NBFCs, by rule, operate in a particular area after taking licence from the RBI. "The state government has no regulatory role on them. It does not have control on them and their activities," he added. Nonetheless, the Bihar government, after the submission of its report by the Rai Commission in 2000, took a slew of steps, so that the people who deposit their money in NBFCs are neither swindled nor fleeced off. It first enacted Bihar Protection of Interest of Depositors Act in 2002, and then followed it up by framing its rules two years later. "The state's finance department, thereafter, set up a Financial Institutions Directorate (FID) to invite and hear complaints of depositors whose money have been siphoned off," Modi said. As many as 13,596 depositors submitted claims pleading for the return of their principal amount amounting to Rs 19.07 crore for hearing and resolution. "Follow up action was done on the applications received by the FID," Modi said, adding that the government, in the meantime, also decided to set up two courts, one each at Patna and Muzaffarpur, to adjudicate on the cases after lodging of FIRs against the NBFCs by the depositors. "The courts will be set up soon. It will help in expeditious resolution of the cases," he added. Meanwhile, the FID started scrutinizing the claims lodged with it. Initial study revealed that 18 companies owed money to 1,231 depositors. So far, FID has received 798 cheques worth Rs 2.10 crore to be made available to the depositors concerned. The companies involved include seven cooperative societies, which owe Rs 1.87 crore to the depositors, and three other major NBFCs - Barl India, Escorts Finance Limited and Llyod Finance - that owed Rs 2.07 crore to 1,183 depositors.

TOI

‘State should be part of MFI regulation’

Pointing out to challenges in regulation of micro finance institutions (MFIs), Former Deputy Governor of RBI Usha Thorat said the task will be difficult and would require assistance of state governments. On decentralisation of the regulation she said, “States have a better reach to the MFIs which operate across boundaries. Hence, they should be made a part of the regulation process,” while speaking on the sidelines of an event in Mumbai today.”

BS

AP coldshoulders MFI draft Bill

The recently released draft Microfinance Bill, mooting Reserve Bank of India (RBI) as the sole regulator for the MFI sector, may have given beleaguered MFI players something to cheer about, but the Andhra Pradesh government seems to be in no mood to yield ground any time soon........

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MFIs, bankers cheer new Bill

The Finance Ministry on Wednesday unveiled the MFI (development & regulation) Bill, 2011, which proposes to override all other laws, including legislations passed by states like Andhra Pradesh, to protect consumers. ............

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Dissent over move to scale down small savings agents' commission

Dissent over the proposed move by Centre to scale down the commission of small savings agents is mounting as the agents fear that such a move would affect their livelihood besides seeing a reduction in small savings deposits being used to fund development works. Tirupur Small Savings Agents' Association (TSSAA) secretary A. Govindarajan toldThe Hindu that the recommendations of the former RBI governor Shyamala Gopinath headed committee on ‘Comprehensive review of National Small Savings Fund (NSSF)' did not take into effect the plight of five lakh agents in the country, predominantly women, who had been mopping by deposits for almost four decades. The committee in its report had recommended a reduction in the commission on recurring deposits from four per cent to one per cent over a period of three years starting 2012 and also abolishment of commission under Public Provident Fund scheme (PPF). Likewise, the committee had suggested that commission should be abolished on senior citizen savings scheme and further asked the government to bring down the commission rate to 0.5 percent in the case of other schemes under the Standardised Agency System. “The government should at least keep the commission rate intact instead of listening to the committee report as majority of the agents had been making a living solely out of the commissions for many decades ,” Mr Govindarajan pointed out. He added that the small savings agents were not given any hike in commissions during the last two decades. The Association was of the opinion that small saving deposits worth Rs. 80,000 crore had been lying idle only because that some State governments were refusing to take loans from the corpus for execution of infrastructure development projects at nine per cent interest as they were getting cheaper loans from agencies like World Bank.

The Hindu

Credit growth could clock 22%, says IOB chief

Credit growth could well clock a healthy 22 per cent during 2011-12 despite the drag effect of inflation worsened by a lacklustre industrial performance......

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Inflation still a serious concern

The debate has already started again on the inflation-growth trade-off and whether the RBI should let go of its strong anti-inflationary stance and stop hiking policy rates. Dr Y.V. Reddy, former governor of RBI, in an interview, sounded a cautious note on raising policy rates further, as the transmission of raised policy rates is still working through. .......

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I feel...................

Former Governors have done great service. The extension or otherwise of the Governor, RBI, should not depend on who is the FM but on some sound principles. Subba Rao is an intellectual with unimpeachable integrity which is proving to be a rare combination nowadays. I have been given to understand that he is a gentleman and does not wish to act tough when the situation demands it. While he should be fair and impartial, he should also make it clear as to who is the Boss when needed and when any of his subordinates acts arbitrarily.  

Couple pledge to donate body

CHANDIGARH: Born to parents who always taught them to give with open hands, Bharat  Bhushan Jain, 64, and his wife Kushal Bhushan Jain, 59, on Monday pleged to donate their bodies at Post Graduate Institute of Medical education and Research ( PGIMER). Sector-38 resident Jain, who retired as a Manager from Reserve Bank of India (RBI) and is currently working as a director in a private organization, believes that ''it is the right thing to do''.  Following the path of Mahaveer Jain this duo have already pleged to donate their eyes. Their inspiration includes a poem by Robert N. Test, 'To remember me'. Also his father's death at an early age, due to lack of blood, has inspired him to pledge his body so that it can be used by someone in need.  When asked about their children's response, Bharat said, ''I had told them that if you can preserve my body forever then keep it but if you decide to burn it, then it is better that I pledge it.''  When asked if their family would follow in their footsteps, Kushal said, ''We have set an example now it is their wish to follow or not to follow.''  For their well-settled children it is a matter of pride. ''Our parents have always been independent and taught us to be the same. We respect their decision and support them,'' said Nitin Bhushan Jain, their elder son. He also signed on the form filled by his parents.  The couple's Canada-based daughter, Jaya Oswal's first reaction was of shock. ''Even though the decision is emotionally disturbing, but I really appreciate the move.''

TOI

Audit deficiency not change of management root cause of distortion in SBI March quarter results

........ added to the woes of the Bank was the one-time hit of Rs500 crore provided during the last quarter, to meet the additional provisions stipulated by the RBI for the teaser home loans. According to media reports, this provision was discussed while finalising the third quarterly results, but the auditors did not insist upon this provision as the Bank expected a reprieve from the RBI in this regard and deferred making this provision too. .......

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Pranab for stable flow of statistics

A day after Reserve Bank Governor D. Subbarao’s raised questions over reliability of government data, Finance Minister Pranab Mukherjee on Wednesday said there is a need for stable flow of statistical data. “We shall have to make stable flow of these data from different sources,” Mr. Mukherjee said when asked for his reaction on Mr. Subbarao’s observation that the RBI was handicapped as questions have been raised regarding quality of the government data. Addressing a conference on statistics, Mr. Subbarao said on Tuesday, “In RBI, we are handicapped by the reliability of some of the basic data that we need to use in policy calculations. In particular, the data we get on unemployment and wages do not inspire confidence as regards quality“. Principal Advisor in the Planning Commission and former Chief Statistician of India Pronab Sen did not share RBI’s views. “I don’t have any doubt about reliability of data. However, there is always scope for improvement. We can put in more resources and there can be improvements“. However, he conceded there could be certain issues regarding the quality when the data is collected through voluntary submission. “I do not think much can be done,” he said. Chief Statistician T C A Anant talked about delays arising because of different reasons. “It is not possible for all information to be collected at the same time. Data gathering is about people going out to the field. Until we can strengthen data collection system, there will always be delays,” he said. Minister for Statistics and Programme Implementation M S Gill had last week said that his department is facing a talent crunch due to lack of incentives.

Business Line