RBI asks PSU banks to furnish business plan by July 20

Mumbai: Even as the government has launched austerity measures to cut down the fiscal deficit and delayed the decision on the R21,000 crore rights issue of the State Bank of India, the ministry of finance has asked the public sector banks (PSBs) to furnish their details on the capital requirement and other business plans till 2014 by July 20. “We have received communication from the ministry of finance asking about the details of our capital needs and other business plans like credit growth and capital adequacy ratio (CAR) for the next two years. The exercise is meant to keep the government ready for any kind of fund support we want from them. They want to know whether our capital plans are in tandem with the expansion plans or if there is any gap,” said a CMD of a prominent public sector bank. The R21,000 crore rights issue of the country’s largest bank State Bank of India (SBI) is being delayed as the government is yet to decide whether it wants to provide the cash to retain its existing stake holding at 59% in the bank. It is believed that though the government was keen earlier, its present fiscal constraints may come in the way in providing large amount of funds to the SBI. SBI is currently busy in preparing an alternative plan to mobilise the required capital so that it can go ahead with its expansion plans for next two years. While reviewing the financial performance of the PSBs in New Delhi on July 8, the finance minister Pranab Mukherjee, had in fact asked the PSB to do their capital planning much in advance, as it is difficult for the government to provide funds to the PSBs for their business growth, in case it comes at short notice. Though the Reserve Bank of India (RBI) norms require the banks to maintain capital adequacy ratio (CAR) of 8%, the government insists that the PSBs maintain it at 12% as a matter of extra caution. As the credit growth is happening at over 20 %, so it is quite obvious that the banks will require capital to fuel the credit growth. Alok Misra, CMD, Bank of India, said that the bank will go for capital mobilisation as its credit is likely to grow by 20-25% over a period of next three years. “Though government has already infused a capital of R1,000 crore in our bank earlier this year, it is not sufficient to take care of bank’s capital requirement for next three years,” said Misra. Bank of India is planning a follow-on public offer (FPO) later this year, said Misra. “But, we will have to wait until we get a good pricing for our shares,” he added. Currently, the government has a stake of 65.8% in the bank. Nagesh Pydah, CMD, Oriental Bank of Commerce (OBC), said that the bank is looking at a credit growth of 20% for next three years. “We are fine for next two years, when it comes to the capital requirement. However, we may need fund after two years from now, which we may do by diluting the government’s stake in the bank by 2-3%,” added Pydah. Currently, the government owns 58% of its stake in OBC. OBC holds a stake of 58% and has got a capital infusion of R1,740 crore from the government which is enough to take care of its business growth for the next two years. PK Anand, executive director, Punjab & Sind Bank, said that the bank has written to the government a fortnight ago requesting for a capital infusion of R990 crore.“If that happens, then it would take care of the capital requirement of our bank for next three years,” said Anand. The bank, which is projecting a credit growth of 23-25% during next three years is having a CAR of 12.9% as of now, and has got government stake of 82% post the IPO which hit the market late last year.

FE

SBI against savings rate deregulation

Kolkata : Country''s largest commercial bank State Bank of India (SBI) has said it was against deregulation of savings bank interest rates. "We are not in favour of savings interest rate deregulation," SBI Chairman Pratip Chaudhuri said. He said there was an impression that the banks were sitting on a huge pool of savings deposits. It is to be noted that RBI in its draft discussion paper floated in April favoured deregulation of the interest rate on savings banks accounts. Chaudhuri said the margins on interest rates were required to finance delinquencies and deregulation would create an upward pressure on the savings rates. This, he said, would lead to higher cost of credit which would be detrimental to industry. Contrary to SBI''s views, many private bankers like YES Bank were in favour of savings rates deregulation. To this, Chaudhuri said that unlike nationalised banks, the private banks'' presence in the rural areas were almost negligent. "They are not opening no-frills accounts unlike us and offering other benefits for which the bank has to take a substantial financial drag," he said.

MSN News

Trend continues to stay on the higher side: Kotak Mahindra Bank

Looking at the WPI numbers that have come out, the more crucial bit for the Reserve Bank would be what the ex-food manufactured which is the more preferred gauge for core inflation for the Reserve Bank.................

Read.....

New Executive Director of NHB

Shri Arnab Roy, Regional Director, Jammu  has moved on new assignment as Executive Director of National Housing Bank.  He has taken charge w.e..f July 11, 2011.

Striking it rich with pocket change !

HYDERABAD: If you are one of those who don’t often carry coins jingling in your pocket, you would have got frustrated looks from many a shopkeepers. “Change nahi hai, bhai,” they say glumly at the prospect of losing a customer. It was in such a situation that brokers came started selling coins of different denominations, pocketing a neat profit for themselves. There are more than 750 such brokers in the twin cities with each of them earning nearly Rs 1,000 a day. These people stand in queues at the Reserve Bank of India from 10 a.m. to 2 p.m every Monday to Friday and exchange money for coins. They then sell these coins to shopkeepers and charge Rs 5 for every Rs 100 they sell. In total, these brokers may withdraw up to Rs 1 crore from RBI in a single day! A broker K Nageswar says, “I supply the change I collect in shops and take a commission of Rs. 5 per Rs. 100. Everyday I supply coins worth Rs 20,000 and earn Rs 1,000.” He adds that his colleagues supply coins worth anywhere between Rs 15,000 to Rs 25,000 per day according to their capacity and contacts with shops in the city. “We have some threats from RBI officials and city policemen but manage to get away by offering them some money. After all, it is our profession and we have to do it everyday. We do the business in a group because of security problems,” he adds. But apart from giving warnings from time to time, RBI officials say they cannot do anything. “The brokers are like any other customers for us. It’s not our business to know what they do outside with the change,” says Shri S.V.Patil, Assistant General Manager of RBI. And sure enough, some brokers sell the coins immediately after stepping out of the RBI building. “Some brokers sell around the RBI to customers who do not want to stand in queue,” says R Anjappa, owner of a sugarcane juice shop in front of the RBI. When RBI officials warn them against it, they quickly go to the sides of the building and carry out their business, adds K Balaram, an RBI security guard. Saifabad police inspector V Umender also says they do not allow brokers to sell coins around the RBI building. Moreover, they have also received a complaint from State Bank of India officials that the brokers crowding the place make it difficult for genuine customers to get change from RBI. But shopkeepers in the city feel these brokers are a godsend. Y Kameswara Rao, a sweet shop owner says, “I cannot spend my time waiting in a queue to get coins. So I buy coins of Rs 1, Rs 2 and Rs 5 denominations and bundles of Rs 5, Rs 10 and Rs 20 notes from brokers. I have my personal brokers who I call up whenever I need change. They even supply it to me within two hours of my call.” The RBI General Manager adds that there are no rules that prevent the brokers from getting change at the bank. “If we find someone coming in everyday, we can only dissuade them verbally but cannot force them out.” He even adds that what the brokers do is not illegal. “It is a kind of service or self-employment. This business is found everywhere in the country,” says Patil. But it is the lack of rules that worry other bank officials like B Spandan, probationary officer at Syndicate Bank. He says, “In such a situation, genuine customers will have no choice but to leave in frustration.”

IBN Live

Nabard celebrates 30th foundation day in Pune

Commercial, agricultural and central banker meet to celebrate the NABARD Foundation Day

The Maharashtra Regional Office of National Bank for Agriculture and Rural Development (Nabard) celebrated its 30th foundation day on Tuesday. Bank of Maharashtra Executive Director, M.G.Sanghvi, was the chief guest and Kamla Rajan, Principal of the Reserve Bank of India’s College of Agricultural Banking, was the special invitee at the function. Rajan said the bank has been consistently meeting the challenges of rural India for 30 years. “India’s success depends largely on its rural infrastructure and development and Nabard has successfully been supporting this cause,” she said. Nabard had in fiscal 2010-11 extended financial support of Rs692.92 crore to the Maharashtra government for strengthening rural infrastructure. The bank also injected Rs2,843.52 crore into the state rural banking sector. Nabard Chief General Manager (Maharashtra Regional Office), M.V.Ashok said, “Refinance, loans to cooperative banks and the state government, apart from supervision were the three ways in which Nabard contributed.”

DNA 

SBI R-SETI initiatives, SKEWPY by JK Bank given wide publicity

Vijaypur : During second day of Baba Sidh Goria mela being held at Vijaypur, Reserve Bank of India Jammu actively participated with a team under the leadership of LDO -Kunal Dass and Banking knowledge was provided to numerous devotees visiting the Mela. Ladies visitors were separately sensitized by Sumitra Sodhi, an official from RBI Jammu and advised to use their ATM cards carefully while withdrawing money and ensure keeping their savings. While visiting the mela LDM-SBI Rohit Mehta along with Sumit Mahajan from Cluster office J&K Bank Zonal Office Jammu interacted with various visitors/Pilgrims and narrated different varied products of investment/Loans keeping in view recently changed interest structure in the Banking sector. Under the supervision of Cluster Head J&K Bank Adarsh Gupta, Uttar Kumar Sambyal, Branch Head Ramgarh distributed various pamphlets regarding recent products among the visitors in the mela. M K Bhat Director R-SETI Vijaypur along with LDM explained different training modules shortly going to be held and urged the young visitors to take maximum benefits of employment SBI R-SETI initiatives, SKEWPY by JK Bank given wide publicity generation initiatives of Banks. Among other who disseminated Financial Literacy during the mela were Ravi Kumar and Rattan Singh, RBI Officals, Asstt. LBO Vikram Singh, Somnath, Balbir, Sandeep Singh Rep. SBI Vijaypur and others.

Jammu Kashmir Newspoint

Indian banks not for savings rate deregulation now

Bankers seek charges for services provided if savings rate deregulated; banks’ cost of funds up after savings rate increase in May; deregulation seen aiding deposit mobilization of new banks more

Mumbai: Indian lenders are not in favour of the Reserve Bank of India’s (RBI) proposal to deregulate savings deposit rate--the only regulated one in the system now--citing the current volatile market environment. Savings deposits that are a source of low-cost funds for banks form 22% of banks’ total deposit base, the RBI had said in late April.  The Indian Banks’ Association (IBA), the apex banking body, has conveyed banks’ stance to the RBI ahead of its quarterly monetary policy review on 26 July. “Given the conditions in which we are today, the bankers felt it will not be appropriate for actually not going in for deregulation at this point of time,” K. Ramakrishnan, chief executive officer of IBA told the news agency on Wednesday.  Already banks’ cost of funds have gone up after the RBI mandated that banks calculate interest paid on savings deposits on a daily basis and later in May raised rates on such deposits by 50 basis points to 4%, he said.  Echoing the view, state-run Corporation Bank’s chairman and managing director Ramnath Pradeep said it was “not the right time to go for deregulation”.  “They (RBI) must consider not to deregulate the interest rate,” he said.  In late April, the central bank had argued in a discussion paper savings rate deregulation will aid in monetary policy transmission, and it cannot be regulated for all times to come when all other interest rates have already been deregulated.  Bankers feels if the savings deposit rate has to be deregulated, they must be allowed to charge for services provided.  “We can’t have a situation where we give free ATM transactions, free transfers and there is no cost for cheque books,” said Ramakrishnan. “This is broadly what we have communicated to the RBI - should the deregulation happens, the deregulation must be in totality.”  Of late, banks have witnessed their credit growth easing due to the rise in interest rates, and higher deposit rates would add to the pressure on margins.  Banks’ credit grew 1.6% to Rs40,01,521 crore as of 17 June from Rs39,38,659 crore as of 25 March, while deposits were up 2.7% at Rs53,44,701 crore from Rs52,04,703 crore. Right now, the liquidity is really tight and in this kind of an environment you can’t deregulate a product which can potentially throw nasty surprises to bankers on how to manage their deposit base,” said an analyst with a local brokerage who did not wish to be named.  However, savings rate deregulation would have helped newer banks to increase their share of savings deposit by offering more attractive rates.  “Established banks will be against it and new banks be in favour because if I have rate as a tool to compete in the market, it makes it that bit easier,” said a banker with a new private sector bank. 

Mint

Inflation may go up further; no respite in interest rate

RBI has hiked its key policy rates ten times since March last year to curb demand and tame inflation. However, increase in rates has led to a fall in investments and the industry has blamed this for slowdown in factory output........

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RBI wants all PSBs to have uniform pension provision

After coming down heavily on banks for not making adequate provision for increased pension liabilities arising out of wage revision, the Reserve Bank of India (RBI) now wants all public sector banks to have uniform pension liabilities. According to sources in the banking industry, the central bank sees no reason why each public sector bank should have different pension liabilities, since the inputs which go into calculation of pension provision are nearly the same. “RBI says the salary structure is same, the mortality rate is similar and the attrition rate is almost the same for all government-owned banks—at around 0.5 per cent. There is no reason for different actuarial estimates for banks. It feels all public sector banks should have similar actuarial estimates,” said a banker after discussing the matter with RBI officials. The basic pension of retirees from all government banks is 50 per cent of the last salary drawn. Bankers said actuaries of different banks have different estimates, particularly on parameters like the discount rate and the attrition rate for calculating pension liability, which has led to a variation in the burden. As far as the mortality rate is concerned, most banks follow Life Insurance Corporation of India's estimates. The pension provision issue cropped up in the last quarter of the previous financial year, when State Bank of India (SBI) had sought the regulator's approval for pension provision from the bank's capital reserve for wage increases. As a prudential practice, banks make provision out of their profit and loss account. To use capital reserves for provision, banks need RBI's approval. After RBI’s approval, SBI charged nearly Rs 8,000 crore from its reserves to provide for pension liabilities. As a result, SBI’s capital eroded, with Tier-I capital falling below eight per cent. Though RBI had allowed SBI to make provisions from reserves for pension liabilities, the regulator had made it clear that such requests would not be entertained in the future. The central bank had come down heavily on the bank’s chairman and managing directors at an interaction. The regulator had also made it clear such practices were non-compliant with International Financial Reporting Standards. In 2010-11, provisioning had increased sharply because of the pay revisions agreed during the ninth bipartite settlement. Wages were raised 17.5 per cent and a second pension option was given to both current and retired employees. Gratuity limits were also increased from Rs 3.5 lakh to Rs 10 lakh. According to RBI's financial stability report, the expected additional liability for 24 public sector banks was Rs 30,366 crore, which constituted 81.9 per cent of their net profit for 2009-10. Indian Banks' Association has been mandated by RBI to prepare a pension scheme to facilitate the assessment by banks and help provide adequate provisions for such liabilities.

BS 

Banks want RBI to hold fire on savings rate decontrol

Mumbai: Indian lenders are not in favour of the Reserve Bank of India’s proposal to deregulate savings deposit rate — the only regulated one in the system now — citing the current volatile market environment. Savings deposits that are a source of low-cost funds for banks form 22 percent of banks’ total deposit base, the Reserve Bank of India had said in late April. The Indian Banks’ Association (IBA), the apex banking body, has conveyed banks’ stance to the RBI ahead of its quarterly monetary policy review on July 26. “Given the conditions in which we are today, the bankers felt it will not be appropriate for actually not going in for deregulation at this point of time,” K Ramakrishnan, Chief Executive Officer of IBA, told Reuters on Wednesday. Already banks’ cost of funds have gone up after the RBI mandated that banks calculate interest paid on savings deposits on a daily basis and later in May raised rates on such deposits by 50 basis points to 4 percent, he said. Echoing the view, state-run Corporation Bank’s Chairman and Managing Director Ramnath Pradeep said it was “not the right time to go for deregulation”. “They (RBI) must consider not to deregulate the interest rate,” he said. In late April, the central bank had argued in a discussion paper savings rate deregulation will aid in monetary policy transmission, and it cannot be regulated for all times to come when all other interest rates have already been deregulated. Bankers feel if the savings deposit rate has to be deregulated, they must be allowed to charge for services provided. “We can’t have a situation where we give free ATM transactions, free transfers and there is no cost for cheque books,” said Ramakrishnan. “This is broadly what we have communicated to the RBI – should the deregulation happens, the deregulation must be in totality.” Of late, banks have witnessed their credit growth easing due to the rise in interest rates, and higher deposit rates would add to the pressure on margins. Banks’ credit grew 1.6 percent to Rs 40,01521 crore as of June 17 from Rs 39,38659 crore as of March 25, while deposits were up 2.7 percent at Rs 53,44701 crore from Rs 52,04703 crore. “Right now, the liquidity is really tight and in this kind of an environment you can’t deregulate a product which can potentially throw nasty surprises to bankers on how to manage their deposit base,” said an analyst with a local brokerage who did not wish to be named. However, savings rate deregulation would have helped newer banks to increase their share of savings deposit by offering more attractive rates. “Established banks will be against it and new banks be in favour because if I have rate as a tool to compete in the market, it makes it that bit easier,” said a banker with a new private sector bank.

First Post

RBI, bankers to meet on Monday

Top officials of the Reserve Bank of India (RBI) would meet the chiefs of both public as well as private sector banks on Monday to take stock of the business environment before announcement of the first quarter policy review. RBI is scheduled to review the monetary and credit policy on July 26. In the pre-policy meet, RBI would review factors like the liquidity condition, banks' performance on loan growth and deposit accretion in the first quarter. RBI had raised key policy rates by 25 basis points in the mid-quarter review in June, after which most banks, including State Bank of India, ICICI Bank and HDFC Bank, had raised their respective lending rates. The Indian Banks' Association would also present its view on further policy actions. At a recent meeting, economists had concluded RBI should continue the rate increase cycle to control inflationary expectations. “Everyone felt RBI should continue to tighten monetary policy to bring down inflationary expectations, though there were differences in opinion on how much more the central bank needed to raise the rates. Some of us felt there could be a further rise of 50 basis points in two policy reviews, before RBI takes a pause,” said an economist who attended the meeting. RBI had raised policy rates 10 times since March 2010 but inflation continues to stay high. “Inflation is expected to remain in double digits till August, as the impact of recent fuel price rises fully sets in,” said Rupa Rege-Nitsure, economist, Bank of Baroda. The Wholesale Price Index stood at 9.06 per cent in May. Growth in bank advances has showed signs of a slowdown because of the impact of rising interest rates. As on July 2, bank advances grew 20 per cent, compared with 21 per cent a month ago. On the other hand bank, deposits grew 18.4 per cent as on July 2, compared with a growth of 18.2 per cent a month ago.

BS

Smart ID Appoints Mahendra Pratap as the CTO

Mahendra Pratap received Gold Medal from Lokheed Martin under its India Innovation Growth Programme in 2007. iMFAST also received the most innovative application award in Vertical Domain by GSMA in 2007.The concept has been also widely appreciated by Former president APJ Abdul Kalam, Home Minister P Chidambaram, Dr. C Rangarajan, V Leeladhar and Usha Thorat, former Deputy Governors RBI and CMDs of several banks. Various State Governors, Chief Ministers and other officials have seen and liked the device. This innovation is currently being used by 13 national banks all over the country..........

Read more.........

Workshops on central bank rules for bankers

AHMEDABAD: The number of co-op banks in Gujarat being penalized for flouting norms has left bank trustees and directors on shaky ground. Gujarat Urban Co-operative Banks Federation (GUCBF) has now started conducting workshops and seminars in various parts of the state to educate bank officials about RBI guidelines and various banking norms.  Veterans in the industry believe that ignorance among bank officials is costing the cooperative bank sector in the state dear. RBI issued notices to 36 banks in the state and penalized them for lapses in implementing customer identification norms and various other violations.  GUCBF has already conducted five seminars in place like Ahmedabad, Mehsana and Godhra for co-operative bank officials. "We have submitted a memorandum to RBI stating the erring banks have found themselves on the wrong side of regulations due to ignorance of various guidelines. To iron out the problem we have are conducting workshops and seminars, where RBI officials educate bank employees about different banking norms," saids GUCBF chairman Jyotindra Mehta.  In the coming days, GUCBF will organize such workshops in several rural towns and villages to save co-operative banks from penal action. Officials also said that small banks cannot afford to spend a lot on IT infrastructure and this could be one of the reasons that they fail to adhere to various RBI guidelines. "More than 50 per cent of the Gujarat's 280 co-operative banks are in small rural centres where transactions above Rs 10 lakh don't happen. So many of these banks officials feel that they don't fall under the AML guideline and with this ignorance don't send their weekly transaction information and get a notice," said Mehta.

TOI

RBI cracks whip on co-operative banks

AHMEDABAD: With different government agencies tracking black money in the country, in the last six months Reserve Bank of India (RBI) has cracked the whip on several cooperative banks in the country.  Since January this year, RBI fined 48 co-op banks for flouting Know Your Customer (KYC) norms and Anti-Money Laundering (AML) guidelines. At least 36 of these erring banks are from Gujarat and have been slapped penalties between Rs 1 lakh and Rs 5 lakh. Last year, RBI had fined just 15 banks in the country for flouting banking and various other guidelines issued by RBI.  While there are over 1,700 big and small co-op banks in the country, Gujarat is among the top five with 280 banks, the majority of which are located in rural areas. The main complaint against co-operative banks has been that they allow multiple accounts of a single person or company and have been accused of hiding higher value transactions.  RBI had in 2002 have made it mandatory for banks to share monthly details of all accounts where cash transaction of more than Rs 10 lakh have taken place with the Financial Intelligence Unit (FIU), India. But on several occasions, state co-operative banks have fallen short of complying with the RBI guidelines.  "RBI is sending out the right signal as KYC has been a problem not only with co-operative banks but other private scheduled banks as well. In Gujarat, around 50 cent of banking transactions happen through co-operative banks and it's a serious concern that such a large number of banks have been found flouting KYC norms and AML guidelines in Gujarat," said a senior RBI official. However, co-op bank officials maintain that it's not the strict stand but banks in Gujarat are bearing the brunt of over-regulation by RBI officials in Gujarat. "RBI inspections have been done in co-operative banks just a few days before they stopped honouring cheques but no indication of the wrongdoing was found. Now, they are penalizing unit co-operative banks located in remote corners which are hardly aware of the banking regulation act," said a co-operative bank manager.

TOI 

RBI Penalizes Mehsana Urban Co-operative Bank for Violating Banking Laws

The Reserve Bank of India on Wednesday has imposed penalty of Rupees one lakh on Mehsana Urban Co-operative Bank Ltd., Mehsana for violation of Reserve Bank of India directives/guidelines relating to admission of co-operative societies as nominal members in violation of provisions, bank's exposure to real estate beyond the permissible limit, violation of Know Your Customer (KYC) norms and violation in respect of waiving of interest on a director related advance.  Information to this effect was made through RBI official statement on Wednesday.

ABC Live 

Cabinet may discuss SBI-arm merger today

The Cabinet is likely to take up the issue of merging State Bank of India Commercial and International Bank Ltd (SBICI) with parent SBI tomorrow. SBICI, a wholly owned subsidiary of SBI, functions as a private sector bank. The board of SBI had cleared the merger in 2008. As of March 2011, the paid-up capital of subsidiary of SBI stood at Rs 100 crore while it earned a net profit of Rs 4.21 crore. SBICI’s capital adequacy ratio (CAR) stood at 28.16 per cent at the end of March 2011.

BS

Mobile money transactions fail to gain confidence of customers

The Reserve Bank of India, five mobile phone companies, 40 banks, five payment-tech companies, the largest mobile handset maker and some retail giants... That is a mighty army to push mobile money, the newest service to achieve financial inclusion, a dream that began with the nationalisation of banks by Indira Gandhi in 1969. There's a lot of promise in a country dominated by cash transactions and half the population unbanked. Obstacles are many, but not insurmountable.  

Click to read..... 

Banks now want you to use your credit cards more

Indian banks are pushing plastic again, hoping that credit card sales will lift profits in a market where the competition is tough, the opportunity large, and the risks high............

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Exec's transfer not under regulatory pressure: StanC

MUMBAI: Standard Chartered Bank has denied that a senior executive was moved out from its Indian unit due to regulatory pressure over lending irregularities. The statement comes at a time when there is a fresh buzz that the senior executive is on his way out in a bid to mollify regulators. In recent weeks banking circles have been rife with rumours that Standard Chartered was asked by the Reserve Bank of India to take action against the executive following certain irregularities in lending. Speculation centered around certain loans extended to Indian corporates overseas against local guarantees. On Wednesday, there was fresh speculation regarding the future role of Hemant Mishr, global markets head, within Standard Chartered. This was a couple of weeks after the bank had said that Mishr was stepping down to move to Singapore. "He (Mishr) has moved out of his role and is awaiting his next assignment which is yet to be identified," said sources who said Standard Chartered was "right-sizing" its markets team due multiple reasons, including the tightening regulatory environment. There has been talks about further exits from Standard Chartered 's markets business in the coming days. But Standard Chartered said the news "is totally baseless and completely untrue," said a spokesperson, who added that Mishr was very much with the bank and was taking up a new and bigger role in the bank. Last year, RBI had fined Standard Chartered Bank Rs 5 lakh for not submitting in time information on a foreign currency loan facility arranged by the bank for an offshore special purpose vehicle. Earlier this year, the bank was again caught on the wrong foot after some relationship managers sold rich customers corporate bonds with the promise that the bank would buy them back.  In a written statement, Neeraj Swaroop, regional CEO, India & South Asia, said: "We want to place on record that these rumours are motivated, totally unfounded and completely baseless and there has been no direction, either in writing or verbal, from any of the regulators."  that rumours have been doing the rounds involving Standard Chartered and some senior people moves which have been linked to regulatory pressure on the bank to effect these changes. Swaroop pointed out that the movement of people was a natural career progression. "In the first half of 2008, four members of the India management committee moved out of India into bigger roles in the group. It is the turn of their successors to move into bigger roles," the statement added. Standard Chartered had consolidated its prime position among foreign banks in India after rivals Citi and HSBC were affected by the global financial crisis. Last year, India became the largest profit centre for Standard Chartered with the bank generating over $1 billion of pre-tax profits from India.

TOI

Dodgy data

The RBI Governor, Dr D. Subbarao, was right in observing a week ago that the quality of macroeconomic data left much to be desired. Estimates of GDP, industrial output and inflation, on the basis of which the RBI formulates monetary policy, are subject to constant and major changes. This adds to the risk of the RBI and the government making the wrong moves......

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The journey of a microfinance industry that has gone horribly wrong

"The Journey of Indian Micro-Finance-Lessons for the Future", by Prof Ramesh S Arunachalam (published by Aapti Publications, Chennai, Price Rs960) is an extremely timely addition to this debate. Prof Arunachalam, a self-confessed, flag-waving supporter of this industry, takes a very close and unbiased look at every aspect of the business in an extremely comprehensive book that was released by YM Malegam in Mumbai on 4th July.

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Banks swoop on wilful defaults

According to RBI’s definition, any entity that defaults on payments of loans worth more than R25 lakh despite having the repayment capacity may be deemed a wilful defaulter. “The lenders may initiate criminal proceedings against wilful defaulters, wherever necessary,” said a RBI “master-circular” issued this month....

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Centre in poor light on RBI leadership issue

In less than two months from now, Duuvri Subbarao, Governor of the Reserve Bank of India (RBI) will demit office. The silence of the government over what intends to do - whether his term would be extended or whether it would opt for a new incumbent to don the mantle of responsibility at the central bank- even at this late hour only serves to add to the suspense. In this milieu, rumours are rife that the choice may fall on an outsider. All this shows the official decision-making process in a very poor light. It is, therefore, all to the good that three former governors of the RBI — C Rangarajan, Bimal Jalan and Y V Reddy — have interceded with the Prime Minister Manmohan Singh — who had also worked in this capacity — not to disrupt the present arrangement for the sake of stability and continuity of policy. An extension for Subbarao would therefore be a step in the right direction. Far from lobbying, their intention was that discretionary powers in appointments to posts like these should be exercised with caution, especially in the current environment. Certainly, their timing is right as the department of financial services has prepared an internal note seeking the nod of the finance minister for setting up a search committee. It is common knowledge that the governorship of RBI will fall vacant in the first week of September and yet the department woke up to the fact only now. This apart, other things being equal, why this hesitancy of the part of the government to do the most logical thing - extend the tenure of Subbarao for another two years. His stewardship of the RBI through troubled times has much to commend itself. He was barely in office for a fortnight when the Lehman Brothers had collapsed, the tsunami-like effect of which was felt across the global financial markets. At home, economy was in serious trouble, with the real GDP growth and industrial growth sharply down while the monthly inflation rate had topped 11%. This crisis lingered through part of 2009 as well. In retrospect, he was equal to the challenges and economy soon rebounded. Of course, inflation is still a problem but RBI has been doing its best to tame this monster by tackling the demand pressures; if success is still elusive, it is because inflation arises from a complex interplay of factors such as global commodity and crude prices and supply-side deficiencies. Of course, the RBI governor had his differences with the government on certain issues, most notably in regard to the establishment of the Financial Stability and Development Council — where both have now arrived at a compromise - and the divestment of the debt management function from the central bank and vesting it with the Centre. But, his dissent was voiced with reasoned arguments and was from free from polemical overtones. From being a top bureaucrat in the finance ministry to the helm of affairs at the central bank, Subbarao made the transition with ease and speed and if his three-year stint proves anything, it is this: the case for his extension is strong. If the government thinks otherwise, let it announce its decision without delay. This is not the way to treat a high functionary. Another point needs underscoring here: for global investors and for the economy itself, long-term regulatory stability is a necessary condition.

DNA 

The New Bond Man on Mint Street

Bond house officials and bank treasurers used to rue the fact that informal guidance from a central banker such as Usha Thorat, was no longer available. Once Thorat, a former central bank deputy governor known for her understanding of the bond and forex markets, was moved out of RBI's internal debt market department, all such lines of communication had snapped. A revival of that may be in sight with the appointment of Harun Rashid Khan , a career central banker who worked with Thorat for years, as the new deputy governor of RBI.  Mr Khan, who succeeds Shyamala Gopinath who retired last month, has superseded three executive directors and has been appointed for term of three years. In his new avatar, Mr Khan would be in charge of external investment, internal debt management, foreign exchange and payments and settlement systems.  Bankers say Mr Khan is the most approachable deputy governor among the current lot. "Among career central bankers, he is one person who is open to reasoning," say several senior bankers and a few bank CEOs . They reckon that most RBI officials are more steeped in theory rather than being tuned to market realities.  In a three-decade stint with RBI, Mr Khan has handled a wide range of assignments ranging across departments such as rural credit, currency management, banking supervision and regulation, debt management, reserve management, exchange control, personnel administration and internal accounts of RBI. Prior to becoming executive director in 2007, he was principal of the College of Agricultural Banking , based in Pune. That stint provided Mr Khan with an opportunity to mingle with RBI staffers across all cadres.  Mr Khan has been a familiar face for treasurers and bond houses. Many others in the financial sector started noticing him after a report on rural credit and microfinance was unveiled. A committee headed by Mr Khan had suggested measures to expand banking in rural India. Based on its recommendations, RBI expanded the list of business facilitators and business correspondence for achieving financial inclusion.  Those who have worked closely with Mr Khan say he is mild but sharp. "He may not be as articulate as Usha Thorat and KC Chakrabarty, but if needed, he is able to send across a message," said a senior RBI official. However, a lot has changed since the time Thorat was in charge of debt management and now. The money and forex markets are now far more integrated with the overseas markets now than in the past. Also, there are newer products and currency exchanges coming up in the country which was not the case a few years ago. Mr Khan's challenge will be to deal with growing inter-linkages not only between domestic and foreign markets, but also inter-linkages within different markets at home front.  Mr Khan, going against the stereotype, happens to be a pure vegetarian. Some of his closest friends call him 'vegetarian Khan.'

ET  

Pranab asks Nabard to create viablemodels of financial inclusion



Finance Minister Pranab Mukherjee is greeted by RBI Deputy Governor K C Chakrabarty and NABARD CMD Prakash Bakshi during the meeting of Board of Directors of NABARD in
New Delhi on Tuesday



Finance Minister Pranab Mukherjee on Tuesday exhorted the National Bank for Agriculture and Rural Development (Nabard) to deploy new technology, innovate and create financially viable models to take forward the process of financial inclusion.

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Much depends on mobile phone network

Financial inclusion has been a policy priority of late. The RBI has indicated the importance of involving all agents in the universal financial inclusion exercise by opening the space to business correspondents (BCs) and for-profit companies.Its insistence that banks should recognise the poor as a business opportunity calls for newer strategies from the banks. ..............

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Orissa Chief Secretary inaugurates MSME Summit , 2011

Bhubaneswar: Micro Small & Medium Enterprises (MSME) Summit , 2011 has been inaugurated by Chief Secretary Sri Bijaya Kumar Patnaik here today in Premises of Hostel Swosti Premium. In his inaugural address Patnaik held that Small & Medium Enterprises form a major portion of industrial activities in any growing economy like Odisha. Giving the sector a lead, he added that MSME should take up services and ancillary products that the large-scale industries require.  The Govt will do all that is possible to persuade the large scale industries to support MSME’s. The Chief Secretary has given a call to MSME’s to join hands with Govt in skill enhancement of youth. They have been asked to plan out their skill requirement in coming years so that youth can be trained and they can be absorbed in MSME sector. The opportunities in construction works are growing day by day and the MSME’s catering to different segments of construction sector can come together through collaborative efforts for developing single window delivery system. While addressing the summit as guests of honor Principal Secretary Industries T. Ramchandru and Steel & Mining Secretary Manoj Ahuja said that Govt has enabling policies and MSME’s are required to avail those in right perspective. Discussions in the Summit reveal that MSME’s contribute 8% of country’s GDP, 45% of manufactured output and 40% of exports. It provides employment to near about 6cr. people. Other major topics of deliberation included development of MSME clusters around different specific industrial and agro-based products, credit support, capacity enhancement, revival of sick units and increasing productivity of MSME’s through marketing support. A mini-exhibition was displayed on the occasion by Odi – Fab, a women SHG initiative and Jindal Community College, Angul. Visiting the stalls the Chief Sri Patnaik advised them to scale up their production. Regional Director Reserve Bank of India Sri B.K.Bhoi while addressing the participants told that they should should use grievance redressal mechanism and help line of RBI when they face any genuine problem with regard to credit linkage through banks. The Director General , Indian Chamber of Commerce Dr. Rajeev Singh gave the welcome address and Director , Industries K.Khatai presented the votes of thanks. The summit has been hoisted by Indian Chamber of Commerce.  

http://www.orissadiary.com/ShowBussinessNews.asp?id=27853

RBI calls for ‘forensic audit' of two Kolkata-based firms

Chennai : The Reserve Bank of India has called for a “forensic audit” (investigative audit) of Kolkata-based Prime Impex and Prime Pulses Pvt Ltd, importers and traders of pulses. Initial investigations by banks have, prima facie, shown irregularities and misuse of letters of credit by the two companies by colluding with suppliers and committing an alleged fraud to the tune of Rs 500 crore.  Six banks — Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, IDBI, Development Credit Bank and YES Bank — have been affected by the irregularities. According to sources close to the development, both the companies had “excellent financial track record” and had good rating from global rating agency, Fitch. Therefore, banks from time to time enhanced the L/C limit. “At one point Prime Impex seemed to have breached the L/C limit and, therefore, one bank stopped the payment which had snapped the chain of this kite-flying-operation,” said the source. Banks had roped in BDO India, formerly BDO Haribhakti Consulting Private Ltd, to do the initial investigation and found irregularities in letters of credit, and in many cases there was no genuine movement of goods.  However, the full extent of how the fraud was perpetrated will be known only when a forensic audit is done, said the source.  These companies have told banks that they have lost money in the forex and derivative markets and owing to fluctuations in the pulses market and were, therefore, unable to pay. The company did not respond to an email sent by Business Line. In April 2011, a press release from Fitch said it downgraded the rating of banks' Rs 115-crore L/C limit to Prime Pulses, noting that the banks had informed Fitch that the company has defaulted on its L/C in the previous quarter

The Hindu

RBI doubles bond purchases in june to stabilise yields

MUMBAI: Purchase of government bonds by RBI - the government's debt manager - doubled in the last week of June, signalling it won't hesitate to intervene in stabilising yields when the government borrowing for the fiscal year is forecast to surpass the budget target. The central bank bought government bonds worth Rs 1,143 crore in the secondary market, almost double of what it bought in the first two months of this fiscal, RBI data shows.  "The concern now is on risk of overshoot in budgeted fiscal deficit of 4.6% of the GDP," says Moses Harding, head of global markets, IndusInd bank. "The poor economic performance will put pressure on revenue collections and disinvestment plans may not go as per schedule. It seems that the government is worried on locking into higher coupon rate in the longer-tenor segment and the belief is that 10-year bonds above 8.25% are beyond their tolerance level," he said. Yields on the benchmark 10-year government bonds have remained above 8.3% since June as investors believe that the central bank may raise policy rates by at least another 50 basis points this year. Also, the rising subsidy bill of the government and slowing of revenue collections could force the government to borrow more than the budgeted Rs 4.17 lakh crore. Finance minister Pranab Mukherjee said on Tuesday the government would stick to its targeted borrowing programme and fiscal deficit aim of 4.6% despite rising subsidies. The reduction in customs duties to zero from 5% for crude oil, and to 2.5% from 7.5% for petroleum products, is expected to cost the exchequer Rs 49,000 crore. The government target of raising Rs 40,000 crore from sale of stakes in state-run companies may also fail for the second year if equity markets remain choppy. "I think the government and RBI are concerned about the unrelentingly high g-sec yields, which they would like to see at 8.10-8.20% levels," said the head of a bank treasury. "Whether or not the government overshoots its borrowing programme, yields have to come down to reduce its cost of borrowing. Even an increase of 20-30 basis points in yields would impact borrowing costs."  Even the RBI has been worried about the government's fiscal profligacy. "It would be very difficult to attain the fiscal deficit target unless there is adjustment on expenditure, or tax," Governor D Subbarao had said in a press conference on May 19. RBI would raise aboutRs 63,000 crore through g-sec auctions in July.

ET 

Bankers request RBI to defer deregulation of savings rate

Mumbai: Bugged by the current volatile environment the bankers have said no to the banking regulator-Reserve Bank of India’s proposal to deregulate the rate on savings account. The Indian Bank’s Association, the official representative body of bankers, has written to the RBI explaining the industry’s stand that the status quo be maintained for the time being. Based on the suggestions received from 24 banks , the consolidated feedback of the banking industry has been sent to the RBI for consideration. KR Kamath, CMD, Punjab National Bank, said, “It is not the appropriate time to go for deregulation of savings bank account. Particularly, at a time when the interest rates are going up and inflation is having an upward bias.’’ However, banks have said in case RBI preferred to decontrol the rate on savings rate, they should be allowed to charge adequately for the services that they are providing at no cost. The banks have argued that since the rate has now been revised upward to 4%, the depositors are getting compensated. “Also the rate is being calculated on a daily basis. Till the time there is some stability on inflation and other key rates, savings rate should not be deregulated in the interest of the industry,” bankers pointed out. The RBI had said it has to examine whether the deregulation can help bring more people into the formal banking system. The interest rate on savings bank deposits has remained unchanged at 3.5% (raised to 4% on May 3) since March 1, 2003. Keeping in view progressive deregulation of interest rates, RBI had prepared a discussion paper to delineate the pros and cons of deregulating the savings bank deposits interest rate. Interest rates on savings account in developed countries such as Canada, Japan, Australia, New Zealand, UK and USA are all deregulated and determined by the commercial banks themselves on the basis of market interest rates. However, most savings bank accounts may carry customer charges if the number of transactions exceeds the permissible level in these countries.

FE

Constitutional Validity of Micro Finance Bill - UMARJI

At the outset, it is worthwhile noting some factual statements in RBI reports in regard to micro finance activities: Alongside self help group, or SHG – bank linkage programme, micro finance institutions, or MFIs, such as non-government organisations, nonbanking finance companies (NBFCs) among others have emerged as important sources of micro finance delivery in India. Incentives have been provided for penetration of banking into unbanked areas and encouraging MFIs as intermediaries. Emerging role of MFIs as institutions other than banks engaged in providing financial services to the poor is being recognised and the banking sector has been extending loans to MFIs for on lending to SHGs. In 2009-10, around 691 MFIs were provided loans worth . 8,063 crore by banks. The growth under MFI-linkage programme in terms of both number of credit-linked institutions and the amount of loans was much higher than the corresponding growth under SHG–bank linkage programme. If one reads the pre-amble of the Micro Finance Institutions (Development and Regulation) Bill, 2011, it is clear that MFIs are being treated as extended arms of the banks and FIs and the above factual statements in RBI reports on Trend & Progress of Banking clearly support such treatment of MFIs. Further the expression “micro finance services” is defined in the Bill as providing micro credit, collection of thrift, remittance of funds, insurance and pension services. It is, thus, clear from the activities that can be undertaken by MFIs under the provisions of the Bill, that micro finance cannot be equated with money lending. Micro finance is much more than moneylending and, therefore, the proposed legislation for regulation of MFIs rightly equates the micro finance activity with banking and seeks to regulate activities of MFIs with the object of promoting financial inclusion. Assumption of such legislative power is clearly covered by entry 45 i.e. banking in the Union list in the 7th Schedule of the Constitution. The other ground on which legislative power of the Union is questioned is that the entities engaged in micro finance activities particularly non-corporates are clearly not within the legislative powers of the Union. This interpretation is not tenable for following reasons: Companies, including not-for-profit firms licensed under Section 25 of the Companies Act, 1956, are covered by Entry 44 in the Union list regarding incorporation and regulation of corporations including banking, insurance and financial corporations. Any company engaged in micro finance activity has to be registered as NBFC or seek exemption from such registration, under the provisions of RBI Act, 1934, which is a central law. Trusts and trustees are covered by entries 10 and 12 of the concurrent list. Charities and charitable institutions are included in Entry 28 of the concurrent list. It is clear from the above legislative powers that Parliament is well within its rights to enact a law on micro finance activities undertaken by companies’ trusts, charities and charitable institutions. The only entity not covered by the above list is co-operative society, which is included in entry 32 in the state list in the 7th Schedule. If one looks at the provisions contained in the Banking Regulation Act, 1949 applicable to co-operative banks, it is clear that to the extent a cooperative society undertakes banking business it is subject to regulatory powers of RBI as provided in the regulatory law enacted by Parliament. Such regulatory powers over co-operative societies are further proposed to be enhanced under the Banking Laws (Amendment) Bill, 2011 pending before Parliament. It is, therefore, clear that if a co-operative society undertakes micro finance activities that are treated as akin to banking, central law can regulate such activities.  Assumption of legislative powers of Parliament for enacting Micro Finance Institutions (Development & Regulation) Bill, 2011, on the ground that micro finance sector is engaged in providing credit and other financial services to the poor households and their micro enterprises, as an extended arm of the banking systems is constitutionally valid and free from objection.

The author is Chief Adviser, Legal, IBA.

ET 

Hackers may catch Indian banks napping

About two months ago, there was a major phishing attack on one of India's largest public sector banks. I too received a phishing mail even though I didn’t even have an account in that bank then. When I checked with the bank if account holders had lost money, they were not sure. Users, who enter their credentials in a phishing site and subsequently lose money, do not always admit what they have done. Instead, they blame the bank for losing money. The increasing incidents of online fraud and hacking have put banks in a difficult position. Phishers are becoming more and more sophisticated and phishing mails have begun to appear in Hindi too, targeting the growing numbers of regional language Internet users. Also, it seems that the law applying to the loss of money in an Internet banking transaction is tilted against the banks. A well-known legal expert says the liability of cyber crime, in which the customer is not a co-conspirator, is always on the banks. In other words, if a user loses her money, RBI may ask the concerned bank to compensate the user unless it can show that the user herself is involved in a conspiracy to steal the money.  So, even if there is no anti-virus on the user's computer or a key-logger is installed by a malicious hacker on the user's machine, banks would still be held responsible for the loss of money. To avoid these risks, experts say banks should come up with automated methods to ensure that the user's machine is secure before allowing her access to Internet banking. But not many banks have realised the gravity of the situation and life goes on as usual for them. But surely it won't be long before banks start to realise how vulnerable they are. A chief information security officer (CISO) of a well known bank retorted when confronted with a blatant security hole in the bank's procedure: “Has a fraud happened? If not, why worry?” This means that he will wake up only when the bank is swindled of significant money, and it may be too late then to plug the hole. The PSU banks usually do not reward performance adequately and hence, you can expect the bank personnel managing security to be not very highly motivated. Further, with their present salary structure, PSU banks fail to attract top security professionals. Fortunately, in India the major frauds in banks are still not the ones involving hacking. In most circumstances, it is an acquaintance, who defrauds the victim. Recently, in the US, large companies such as Sony and Citibank have been hacked and passwords of millions of users stolen. Why hasn’t such an incident happened in India? My take is that hacker-criminals in India are not sophisticated enough as yet. And international criminals haven’t turned their gaze towards India as yet. But the situation could change anytime. To be frank, not all security holes of Internet banking can be blamed on the banks. Today's Internet infrastructure is full of holes, and still, banks are moving at high speed introducing newer and newer services, without closing the holes that are found. To give a few examples, most of the home routers come with default passwords, which few users change. As a result, it is not difficult for a hacker to log into them. Wireless networks using WEP are vulnerable to WEP cracking, and software to do so is freely available on the net. And many of Indian payment gateways have security holes. Banks have to also worry about mobile transactions, which are becoming common. Vulnerabilities have been found in iphones and other mobiles. Mobiles are increasingly used on wireless hotspots also, and they are particularly vulnerable there. Along with banks, the government also needs to wake up to online security needs. Recently, Indian Institute of Science, Bangalore tied up with a major Chinese company Huawei Technologies, which has funded its center for testing security in telecom systems. It is inconceivable that our government exposes such a critical national security area to a foreign company. The UIDAI, another critical project for national security, is associated with the US companies with dubious credentials.  The government has also failed to act on cyber crime. Until a year ago, Bangalore had not had a single conviction in cyber crime. Having interacted with the cyber crime police, I can vouch for the good job the investigators are doing. However, if the grapevine is to be believed, the reason for the zero rate of conviction seems to be that the powers-that-be have a tough time distinguishing between the IT Act as in the Income Tax Act and the IT Act as in the Information Technology Act. There are also some bright sides. The two-factor authentication --- requiring a one-time password that is sent on a mobile --- is a much needed improvement that the RBI has mandated for banking transactions. The hacker’s task has got more difficult as he now has to hack the mobile of the victim too along with the desktop computer. However, two-factor authentication is not followed in case of transactions involving share purchase as the time factor is crucial there and one cannot wait for an SMS, which might take minutes or sometimes hours before making the transaction. What can a lay person do to protect his interest online? While the law favours the user as of now, it is an open question if banks would compensate users in case of a major breach. Thus, it would be surely a good idea for high-value depositors to spread their funds across different banks. ICICI Bank has introduced an insurance policy, which provides a cover of Rs one lakh if money is lost due to fraudulent use of an ATM card. This is a good start. Secondly, consumer forums should tie up with banks and security companies in educating the users about security of internet banking. After all, however difficult it may look, there is nothing better than taking the bull by the horns.

(Dr Kelekar, a cyber security expert, is managing director of Teknotrends, Bangalore.) – Deccan Herald 

Regulating microfinance

The Microfinance Institutions (Development and Regulation) Bill, unveiled recently, envisions a larger regulatory role for the Reserve Bank of India and proposes that all microfinance institutions with net-owned funds of over Rs.5 lakh register with it. The RBI will define and fix what the Bill calls “an annual percentage rate”, to be charged by private MFIs, and also set the range within which it can operate. That rate will include interest, processing fees, service charges and any other charges or fees that are payable by the borrowers. Although these stipulations seek to remove a serious lacuna in the regulation of microfinance, they are extremely cumbersome and will be difficult to enforce. In mainline financial sector regulation, the accent has been on laying down broad rules for banks and others to follow. Moreover, given the low threshold for registration envisaged under the Bill, the number of MFIs that will come under the regulatory scanner will be too large for any meaningful supervision. Neither self-regulation nor regulation by Nabard, which also lends to the MFIs, has been found viable. Hence the onus has fallen squarely on the RBI.  Evidently, the context in which the new legislation is proposed is as important as its substantive provisions. About a year ago, the government of Andhra Pradesh — the State that accounts for nearly a third of microfinance business in the country — introduced tough rules to clamp down on such practices as overcharging customers and employing coercive methods to recover loans. These stringent rules came in the wake of allegations that some MFIs were indulging in such wrongful and high-handed practices. As a consequence of the government's action, some high-profile MFIs were badly hit because banks pulled out their loans and this, in turn, snapped those institutions' loan recovery circle. If enacted, the new Bill, which empowers the central government to override existing laws, might give the MFIs some relief, but there is very little chance they will be allowed to go back to their old ways. For its part, the Andhra Pradesh government has voiced its opposition to several of the provisions and pointed out that, even if the RBI became the principal regulator, it would be well within the State government's jurisdiction to exercise control over money lenders and check usurious practices.

The Hindu

AP up in arms over Centre’s bill to shield MFIs

HYDERABAD: Alarm bells are ringing in the state government that the Union government is moving to protect micro-finance institutions (MFIs) and take them out of its regulatory purview. State government mandarins, who are hostile to the lending and recovery practices of MFIs, have compiled a long list of objections to the fine print in a bill the Centre is proposing to introduce in Parliament. The Micro-finance Institutions (Development and Regulation) Bill 2011, the draft of which was released last week, effectively seeks to place MFIs under the watch of the Reserve Bank of India rather than a stringent bill the state enacted last year reining in the lending companies. The AP government sought comprehensive amendments to the draft before the bill is introduced in Parliament. It questioned the move to put MFIs under RBI oversight while ignoring the borrower protection aspect of the problem.  Broadly, the state government objects to the bill’s treatment of MFIs as ‘extended arms of banks and financial institutions’ and would rather deal with them as moneylending agencies subject to the stern law it enacted last year.  The Andhra Pradesh MFIs (Regulation of Moneylending) Act 2010 was enacted after suicides by several borrowers were reported. “This is nothing but infringement of the powers of state governments. Considering the MFIs as arms of banks will give them privileges enjoyed by a bank without any related responsibilities,” fumed a senior official in the Law Department. Government officials say the Centere’s bill does nothing to protect borrowers’ interests.  Unlike the state law, the draft bill does not crack down on multiple lending and evergreening of loans. It also frees MFIs from having to do due diligence before lending. Much of the borrower distress reported last year was due to MFIs giving multiple loans to poor borrowers who had no capacity to repay. State officials are particularly sore that the draft bill deals only cursorily with the coercive recovery practices of MFIs. “We received scores of complaints against MFIs’ practices of lending and recovery including collection of high interest rates and use of coercion in recovery process. There is need to protect poor borrowers against such exploitation,” said an official in the Rural Development Department. As an example of the shielding of MFIs in the draft bill, officials said it proposes that only a person authorised by RBI can file a complaint against MFIs in courts. “The draft seems to have been prepared keeping the interests of MFIs in mind. Civil society, experts and millions of stakeholders from vulnerable sections of society must be consulted and their concerns incorporated in the bill,” said the official. 

http://expressbuzz.com/states/andhrapradesh/ap-up-in-arms-over-centre%E2%80%99s-bill-to-shield-mfis/293285.html

Handicapped by paraplegics : Rajeev Malik



Subbarao’s effectiveness has been compromised by a government that often appears to think of RBI as a vacuum cleaner



Reserve Bank of India Governor D Subbarao will complete his three-year term in early September. It remains to be seen if he will get an extension, but it is best to avoid the useless speculative zeal that some columnists and the local media have succumbed to. However, it is instructive to assess his hits and misses. He is the third consecutive RBI Governor who had to navigate the Indian economy through significant global financial and economic turbulence. Earlier, Bimal Jalan (1997-2003) had to deal with the fallout of the Asian financial crisis of 1997, and Y V Reddy (2003-08) had to check the build-up of the global liquidity-driven boom-bust cycle. The complexities were different in each case as the Indian economy continued to increase its integration with the rest of the world. However, each governor distinguished himself in dealing with the emerging challenges, and in limiting the subsequent economic, social and political costs, though Dr Subbarao probably had the worst cards dealt to him. It was a baptism of fire for Dr Subbarao. After all, he took over from Dr Reddy in early September 2008 and the Lehman bust occurred soon afterwards, pushing the world into uncharted dangerous waters. No one knew exactly how events and markets’ reaction would unfold. There was heightened uncertainty and most of the conventional policy-making tools seemed limited in their effectiveness. Policy makers cannot conduct experiments in such crises, and while everyone wants to be protected, the beast transforms itself suddenly and repeatedly, thus forcing policy makers to be quick on their feet but with no guarantee of success. Dr Subbarao deserves full marks for the aggressive policy response that cushioned the downside to growth following the global financial crisis, for the measures that prevented significant economic crippling, and for engineering a quick economic turnaround. The RBI announced several monetary and non-monetary measures, conventional and unconventional, to deal with the global financial crisis. More importantly, it reportedly resisted the calls for even bigger reduction in rates, and fought against a formal monetisation of the fiscal deficit, the latter being a hard-won battle by the RBI. Central banks are risk managers, not gamblers, and the RBI’s calculated approach paid off. People expect central banks to always have the right answers but it is often forgotten that central banks are run by people and, in the absence of perfect foresight, actions and solutions may not always be clear. This is particularly true when a new crisis erupts as financial innovation outsmarts financial regulation to change the nature of the next crisis. High inflation is where the RBI under Dr Subbarao will get brickbats, some of them undeserved, in my opinion. It goes without saying that the essential dharma of a central bank is to at least keep inflation in check. But India’s inflationary pressures are a complex mix of demand- and supply-side factors, cover food and non-food categories, and are structural and cyclical in nature, with global commodity prices also being a key driver. A lax fiscal policy undermined the effectiveness of monetary tightening, and poor RBI was left to clean up the mess while making sense of the embarrassingly inadequate and poor-quality economic data published by the government. The lasting solution for India’s inflation challenge lies with the government’s supply response and faster reforms, not just in higher interest rates. Dr Subbarao continued with the reform agenda of developing the local financial markets and sticking with the gradual liberalisation of the capital account. But his term should be best remembered for the path-breaking hands-off approach towards the rupee, partly owing to the compulsions of a tight monetary policy. The hike in the savings deposit rate was another important decision during his term, so was the move to a single policy rate (finally!).  He brought about some important changes in monetary policy communication, including the release of the minutes of the meetings of the technical committee on monetary policy. These matter less for the common person but play a crucial role in the transmission across the financial world, which in turn affects the real economy. The policy statement was shortened and policy reviews were moved to a six-week cycle, the latter being an important reform. However, the live telecast of monetary policy was an unnecessary overkill. A recent editorial in this paper unconvincingly argued about moving back to a quarterly frequency for policy reviews. Bad advice sometimes crops up in the most unexpected areas, as was the case with this suggestion. The need and importance of the six-week cycle arise because India is more integrated with the rest of the world, which is, in any case, in a topsy-turvy mode. There are quickly shifting global cross-currents and the high-frequency data allow for quicker reaction than waiting for once-a-quarter move. More importantly, high frequency of meetings does not mean that the RBI has to act at each meeting, but such a schedule anchors markets to expect any possible move as per the schedule rather than the old “anything, anytime” approach that added to policy uncertainty. Dr Subbarao, with his surprisingly disarming personality for a central banker, often explained things in a non-technical manner, and was refreshingly secure to avoid pretending to know more than he did. He often came across as a consensus builder but was not a pushover as initially feared. He spoke his mind on issues such as the Financial Stability Development Council and the setting up of the debt management office (DMO). Ironically, as finance secretary, Dr Subbarao had endorsed the DMO, but as RBI Governor, he has been right to advise not to rush into it. The DMO should eventually happen, but the government first needs to show fiscal responsibility by convincing investors that it can properly add and subtract on its fiscal accounts. In the final tally, the positives under Dr Subbarao’s tenure more than outweigh the negatives. High inflation is perhaps the biggest stigma but that outcome would have been there no matter who was leading the war. This is because the government’s irresponsible fiscal approach and the embarrassing inability to move on reform initiatives undermined the effectiveness of monetary tightening. Indeed, Dr Subbarao’s constructive record as RBI Governor does not warrant a place in history as the first of the four consecutive Governors to be denied less than five years in office. He surely deserves better, and has earned it.

The author is senior economist at CLSA, Singapore. The views expressed are personal

BS