CCSB recommends common bank call number

The RBI-constituted Committee on Customer Service in Banks has recommended creation of a toll free common bank call number for the convenience of the customers. In its report, which was placed by the RBI on its website today, the Committee has made a number of recommendations to ease work for the customers.

* Major recommendations

The major recommendations include: Creation of a toll free common bank call number; Providing plain vanilla savings account without prescription of minimum balance; Setting up of third party Know Your Customer (KYC) data bank; Prescription of service charges for basic services and Providing small remittances at reasonable price. The committee has also recommended providing floating rate housing loans on a non-discriminatory basis, compensation for delayed return / loss of title deeds in the custody of banks, zero liability against loss in ATM and online transactions, enhancement of DICGC cover up to Rs 5,00,000, prepaid instruments up to Rs 50,000/- for frequent travelers, and differential merchant discount / fee for debit cards. Other recommendations include: Self-personalisation of cards enabling customer to fix limits / area of operation / activation for international use; Instant blocking of ATM card through SMS -BLOCK for lost / misused cards; Transition to chip based card (EMV) with photograph; Chief customer service officer (CCSO) for grievance redressal in every bank; Submission of life certificate for pensioners in any Core Banking Solution (CBS) branch; Automatic updation of senior citizen status in CBS; Financial inclusion through branch expansions in the North –East; Moving towards paperless fund transfers and Ensure fulfillment of the tenets of customer service through inspections.

* Feedback sought

Meanwhile, the Reserve Bank has sought comments/feedback from members of the public/all stakeholders on the Committee’s recommendations.
The RBI in its website said the comments/feedback may latest by August 27, 2011, be emailed or may be sent by post/courier to the Chief General Manager, Customer Service Department, Reserve Bank of India, Central Office, Amar Building, First Floor, Sir P.M. Road, Mumbai-400001 or faxed to 91-22-22630482 / 22631744.

* Background

The Reserve Bank of India had constituted a Committee under the chairmanship of Shri M Damodaran, former Chairman, Securities and Exchange Board of India, to look into banking services rendered to retail and small customers, including pensioners. The Committee was also required to look into: The system of grievance redressal mechanism prevalent in banks, its structure and efficacy and suggest measures for expeditious resolution of complaints, and functioning of Banking Ombudsman Scheme, its structure, legal framework and recommend steps to make it more effective and responsive. The committee also looked into possible methods of leveraging technology for better customer service with proper safeguards, including legal aspects in the light of increasing use of Internet and information technology for bank products and services and to recommend measures to enhance consumer protection, and the role of the Board of Directors of banks and the role of regulators in customer service matters. The Committee interacted with various stakeholders across the country on all aspects of customer service - fair treatment, improvement in the service to pensioners, attitude of the bank staff towards the small and rural customers, service charges and fees, loans, transparency in operations, grievance redressal, promptness in service, education and information on new products, services, customer rights, expectations etc.

Greater Kashmir

RBI panel for raising deposit insurance

A Reserve Bank of India (RBI) panel on banking services to retail and small customers has recommended raising the deposit insurance cover five times from Rs. 1 lakh to Rs. 5 lakh.  The committee was formed under the chairmanship of former Securities and Exchange Board of India, or Sebi, chairman M. Damodaran in June 2010 to look into banking services rendered to retail and small customers, including pensioners. Besides increasing the deposit insur ance cover, the committee also recommended the creation of a toll free common bank call number for customer redressal and also asked banks to provide plain savings account without mini mum balance.

Mint

RBI panel moots customer-centric approach by banks

Damodaran Committee submits report on ‘Customer Service in Banks'

The Reserve Bank of India panel on Wednesday recommended an increased deposit insurance cover of Rs.5 lakh so as to encourage individuals to keep all their deposits in banks. “A possibility may be explored to enable full insurance cover for bank deposits by making necessary amendments in the relevant Acts,” said the report on Customer Service in Banks chaired by M. Damodaran, former Chairman of the Securities and Exchange Board of India (SEBI). “In case of sick banks, where the accounts are frozen, a possibility to enable customers to immediately avail themselves of a part of their insured deposits before the final fate of sick banks is decided may be explored,” it added.

Home loans

The panel also recommended that banks should not impose exorbitant penal rates towards foreclosure of home loans and a policy should be devised to ensure that customers are not denied of opportunity to enhance their economic welfare by making choices such as switching to other banks/financial entities to enjoy the benefits conferred by market competition. Further, measures to stop practices of discriminating between new and old customers with identical risk profiles on the basis of interest rate offers, must also be initiated. Banks should automatically provide annual account statement to home loan customers without request from them. Such statements must contain details of payments made towards principal and interest, including principal outstanding. All home loan customers should permit a switchover between fixed to floating or vice versa at least once during the loan tenure at an appropriate and reasonable fee. Home loans backed by insurance products, in any eventuality, should be automatically settled by the insurance amount with minimum inconvenience to the nominees and heirs. The procedure should be explained upfront to the customers. The title deeds should be returned to the customers within 15 days after the loan closure and the boards of banks should put in place a suitable compensatory policy to compensate the customers for delayed return of title deeds or where there is a loss of title deeds in the custody of banks. Banks should ensure through government subsidy or insurance that educational loans are properly priced so that no bright student would be denied an educational loan.  The criteria for giving such loans should well be publicised through websites or advertisements to ensure transparency and non-discrimination in sanction. The Board Approved Policy for educational loans should indicate the minimum percentage in value or number of such loans which will be disbursed to students from rural areas. Banks may bring the possibility of switch over to the Base Rate to the notice of all borrowers concerned as envisaged in RBI circulars in this matter and also explain the benefits of switchover.

Senior citizens

There should be prioritised service to senior citizens, physically handicapped persons by effective crowd/people management available at all branches. Provision of the SMS alerts service about balance in the account at periodic intervals and about due dates for submission of important documents should be introduced. Automatic updation of the customers to the senior citizen category based on the date of birth would be introduced. Pensioner may be allowed to submit the annual life certificate at any of the (linked) branches and not necessarily at the home branch. All the life certificates may be maintained in a centralised database.

Rural areas

Banks should ensure proper currency exchange facilities and also the quality of notes in circulation in rural areas. Branches should be made functioning at a time convenient to the customers (agricultural labourers, workers and artisans), that is, morning hours and late evening hours. Exchange facilities for soiled/torn notes is a right of every citizen using such facilities and the RBI, through its agents, should ensure that no holder of sovereign currency note is turned away at a bank counter when the exchange facility is desired, irrespective of the person tendering the note is a customer or not. All banks should implement the citizens' charter on exchange facilities of notes and coins adopted by the Department of Currency Management, RBI. The bank's approach to develop ‘Client First Attitude' by its employees needs to be documented.

HBL

Train business correspondents: RBI

Mumbai: As banks are beginning to implement financial inclusion programme in a major way through the business correspondent model, Reserve Bank of India (RBI) governor D Subbaro has emphasised that the banks should train their business correspondents (BCs) before undertaking their assignments in the unbanked areas.  While reviewing the financial inclusion programmes of south-based banks on Tuesday, Subbarao pointed out that without adequate training most of the BCs will not be able to gain confidence among the locals. “The financial inclusion programme through BCs has not picked up at the required level as they are yet to win confidence among the micro borrowers. Let the banks train these BCs first before sending them to prospective customers. The training can be imparted by the banks through institution like Indian Institute of Banking & Finance (IIBF) and the cost can be borne by the banks and Nabard,” Subbarao said, while talking to the senior officials of the banks. The course fee for such training is estimated to be R4,000 per person and Nabard can refinance 75% of the fee under a special scheme being run by the institution. Some of the other issues that came up for discussion during the interaction, include ensuring strong credit linkage so as to make the ongoing financial inclusion programme more meaningful and wholesome. He said, “Merely opening no-frills account will not do”, and asked the banks to emphasise on financial transactions too. Moreover, he stressed that the banks should think of going beyond FI by selling their micro insurance and micro investment products through their branches. Subbarao also talked about financial literacy programme for the customers, said officials who were present in the meeting. KC Chakrabarty, deputy governor, RBI, was also present during the meeting.

FE

Fiscal deficit

This is with reference to “No harm in govt managing its own debt: Rangarajan” (Business Line, August 3). The Chairman of the PM's Economic Advisory Council has said that under the Fiscal Responsibility and Budget Management Act (FRBMA) the RBI is not allowed to be in the primary market for government securities and it ensures against any conflict of interest in the central bank.  The primary objective of the legislation is to forestall the monetisation of fiscal deficit. But, however, through its buyback of securities under the name of Open Market Operations (OMO), the RBI made funds available to banks to subscribe to new ones.  I have called it Debt Management Operations (DMO), the purpose of which is fiscal, whereas it should be monetary, in the case of OMO.  There were two consequences. In DMO, the RBI incurred losses. Although the government didn't receive the funds, the procedure monetised fiscal deficit. There could be a specious argument that DMO is also OMO because it relieves the market of the scarcity of funds. I haven't come across DMO operated as OMO in any developed country. Wouldn't it be more transparent if the RBI takes the new loans on its books and then releases them in the market at appropriate times instead of playing a charade of indirect support? In fact, in the distant past, this was the practice when market conditions weren't favourable for new issues.

A. Seshan, Mumbai (HBL)

TMB launches smart cards for banking in rural areas

Unveils smart card; to start mobile banking soon

Madurai, Aug. 3: Not many business correspondents (BCs) in this country would probably be as fortunate as Tamilnad Mercantile Bank's (TMB) BCs Mr T Akni, representing Karadipatti village and Ms P Chinnammal of Keelakuil village near Madurai. When they were introduced by the Chief Executive and Managing Director, Mr A K Jagannathan, at the launch of the financial inclusion programme at Karadipatti in Thiruparankundram taluk in Madurai district, the RBI Deputy Governor, Dr K.C. Chakrabarty, greeted them, exchanged pleasantries and enquired about their understanding of the job of a BC. He told the gathering that they should not stop with just opening an account but continue operating it as well. “Akni and Chinnammal are familiar to all of you,” he said and urged BCs to work aggressively and strengthen their relationship. “The branch manager was known as an agent 50 years back. Today, the BC is your agent,” Dr Chakrabarty said.

Inclusive growth

He told the villagers that it would be the responsibility of every stakeholder – the bank officials, BCs and the people of the village to take this inclusive growth forward to reach all the people. “When an individual opens a bank account, he becomes a part of the growth process. The interest earned thereon is a saving and having an account would help when the person is in need of financial support,” he said, emphasising the value of operating a bank account. In a way, the launch of the financial inclusion programme at Karadipatti Village in Thiruparankundram Taluk located about 16 km from Madurai was supposedly different from many such programmes launched in the past. As part of the financial inclusion programme, TMB launched the smart card for doing banking transaction in rural centres.  This is TMB's first major financial inclusion project. The bank has proposed to replicate this model in 31 villages this fiscal. Mr Jagannthan said the bank has got the nod from the banking regulator to start mobile banking service and this would happen within a week or so.  

HBL

Salt dearer by 25 paise after RBI withdrew 25 paise

Ranchi : With the Reserve Bank of India recently withdrawing 25 paise coin from circulation, Jharkhand government has to revise its decision from selling salt at 25 paise to 50 paise per kg to BPL families. "Now that 25 paise is not in circulation we have decided to sell salt at 50 paise per kg to families under below poverty line," Public Distribution Minister, Mahtura Prasad Mahto told reporters here today. A month after the cabinet had approved to sell salt at 25 paise per kg, the Arjun Munda cabinet had yesterday revised it to 50 paise after the RBI last month withdrew 25 paise coin from circulation.

Moneycontrol

FM to clear merger of SBI, 2 associate banks

New Delhi: As part of its banking consolidation plans, the government plans to announce the merger of State Bank of Patiala (SBP) and State Bank of Hyderabad (SBH) with parent State Bank of India (SBI) soon. Finance minister Pranab Mukherjee is expected to give the go-ahead for merging the two unlisted associate banks with SBI when he meets the bank’s management on August 6 in Mumbai.

FE

Union Bank plans 100 financial inclusion branches this fiscal

......The bank is planning to open 400 branches during the fiscal. Of them, 100 branches will be financial inclusion branches, according to Mr M.V. Nair, Chairman and Managing Director of Union Bank of India. ......

Read................

Living in interesting times

......marketers and students of marketing should understand and appreciate the wide-ranging impact on consumers, of the change in a single economic variable — the interest rate. Any such significant change leads to consumers modifying their purchase behaviours, and throws up both challenges and opportunities which may vary across product categories. It is then up to us to leverage what works best for our markets...........

Read.............

RBI Governor asks banks to reach out to the masses

Governor also stresses on the importance of credit linkage to the no-frill account holders

Bangalore, Aug 2:  The Governor of the Reserve Bank of India, Dr Subbarao, and the Deputy Governor, Dr K.C. Chakraborty, held a meeting with top bankers in the State to review the pace of financial inclusion implementation in Karnataka. According to a top official of a Bangalore-based public sector bank, the RBI Governor emphasised on the need for training the business correspondents (BCs) who are appointed for reaching out to the hitherto unbanked segment.  The official said that the Governor also stressed on the importance of credit linkage to these no-frill account holders.  Currently, banks in the State offer an overdraft facility of Rs 500/account and also Rs 25,000-50,000 credit for every general credit card (GCC) or kisan credit card (KCC) depending on the account-holder's level of activity. “By and large, all banks are moving on the same lines, and the Governor was happy with the pace of implementation,” the bank official said. Under the financial inclusion initiative, banks have to provide services through an outlet in every village having a population of over 2,000 by March 2011. This will be done through brick and mortar branches and BCs with the help of technology. Bankers of Karnataka along with the Reserve Bank of India developed a concept paper on ‘meaningful and holistic financial inclusion' in May 2011, which was also reviewed at the meeting on Tuesday.

HBL

RBI may stop sending its officers to boards of govt-owned banks

The Reserve Bank of India is exploring the option of not appointing its serving officers on the boards of government-owned banks and financial institutions. According to central bank sources, this is being done for two reasons: to avoid conflict of interest and bring in transparency in the functioning of the banking regulator. There is a third reason, too. There is thinking on Mint Road that if a bank is involved in any wrong doing, all board members should equally be held responsible. Such a scenario can be embarrassing for the central bank if it has its own official on the board. All government-owned banks, including the State Bank of India and the Punjab National Bank, and financial institutions such as the National Bank for Agricultural and the Rural Development (Nabard) and the National Housing Bank have RBI-nominated independent directors. For large institutions such as the SBI and Nabard, Deputy Governors are appointed on the board as RBI representatives. For other banks, Chief General Managers are appointed.

RBI NOMINEES ON BANK BOARDS

SBI Subir Gokarn, Deputy Governor, RBI

PNB Jasbir Singh, CGM RBI (Regional Director, Chandigarh)

BANK OF BARODA Sudarsan Sen, CGM, RBI (Regional Director, Ahmedabad)

UNION BANK OF INDIA Meena Hemchandra, CGM, RBI

*NABARD HR Khan, Deputy Governor, RBI

*NATIONAL HOUSING BANK HR Khan, Deputy Governor, RBI

* Govt is yet to issue a notification

Sources say the RBI is of the view while it will not appoint any of its serving officers on the boards of government-owned institutions, it may recommend retired officers or other professionals. The RBI usually does not send its representatives to the boards of private sector banks but can appoint observers if the need arises. The latest RBI move has been triggered by the issue of under-provisioning by the SBI. The matter came to light only when the bank announced its quarterly earnings in April. The SBI, which deferred its provisioning requirement for pensions, had requested the regulator to allow provisioning to be made from capital reserves, which is not considered a prudent practice. While the RBI entertained the SBI’s request as the provisioning burden was huge, at Rs 8,000 crore, it asked smaller banks to take a one-time hit. RBI sources say public sector bank chairmen and managing directors also insist that the RBI have a representative on their boards, mainly to counter the pressure from government nominees.

BS

JK Bank flags off RSETI Islamabad

Srinagar, Aug 2: In line with the RBI guidelines, the J&K Bank, state’s only listed company, today flagged off a Rural Self Employment Training Institute (RSETI) at Reshi Complex, Bijbehara in district Islamabad (Anantnag). Riyaz Ahmed Sofi, Project Officer DRDA inaugurated the RSETI in presence of an  impressive gathering comprising government employees, bank officials and local youth.  Among others present on the occasion were Muhammad Iqbal, Director RSETI Islamabad (Anantnag), Shadi Lal Dhar, Lead District Manager and branch heads of the business units Bijbehara, Zirpora and Zablipora. The inauguration also marked the start of a week-long training programme on Rural Artisanship for 30 local youth. Meanwhile, a week long training programme on Dairy Development conducted by RSETI Kulgam concluded on Monday. The programme sponsored by DRDA and organized by RSETI Kulgam saw participation of 25 youth. The valedictory function, among others was attended by R.K.Meena, Assistant General Manager, RBI, A U Tak, Project Officer, DRDA Kulgam and M Shafi Aiyaz, Director RSETI Kulgam. Meena on the occasion said: “The idea behind the programme is to provide various trainings to unemployed youth so as to help them in establishing their own income generating units.”

http://www.greaterkashmir.comcom/

Bank employees to strike work on Friday against privatisation

United Forum of Bank Unions announces strike as conciliation talks fail. Protest will involve employees of all public and private banks

About 10 lakh employees of public sector, private sector, foreign, co-operative and rural banks will go on strike on 5th August to protest against a range of issues from privatisation of nationalised banks, disinvestment in public sector banks and mergers and acquisitions in the banking sector, to the outsourcing of routine activities. The strike has been called by the United Forum of Bank Unions (UFBU), an umbrella organisation of nine bank unions, after conciliation talks at the office of the chief labour commissioner failed today. There will be another round of talks on Wednesday. ATMs could also be affected, bringing all banking activities across the country to a complete halt. “We are opposing banking sector reforms. This is not for bank employees alone, but for the sake of the country,” Ravindra Shetty, convener, UFBU, said at a news conference in Mumbai today.  The issues are listed in a 21-point charter that was drafted at an all-India convention in the national capital in May. The issues of all sections of bank employees and officers, even retired employees, are contained in the charter. The strike action appears to have been prompted by the plan of the government to table bills in the current session of parliament to amend the Banking Regulations Act and Banking Companies (Acquisition and Transfer of Undertakings) Act.  “Through these amendments, banks will be exempted from competition and any merger of banks will become easier for the government,” Mr Shetty said. The charter of issues has been put before the Indian Banks Association (IBA).  Mr Shetty criticised the government’s move to allow private investors (corporates) to invest more than 5% in private sector banks, saying, “There is a move to remove the 10% cap of voting rights in private sector banks. They are giving the Reserve Bank of India (RBI) sweeping powers to supersede the codes of banks and appoint administrators to run the banking industry.”  He said UFBU is opposed to such reforms and would struggle to protect and strengthen public sector banks. The union are demanding the expansion of public sector banks into villages, in line with the announcement the finance minister made in the Union Budget.  Mr Shetty referred to the fact that Indian banks had withstood the global financial  crisis of 2008. He said that even the government had acknowledged that Indian banks were able to tide over the crisis because of “our public character”, and today the same government was looking to change the character of the banking industry. The unions have also opposed the outsourcing and contractualisation of permanent bank jobs. While they had agreed to certain specialised IT-related being outsourced, they say that the government was trying to bring in various non-core jobs into the ambit of outsourcing. “The government wants to bring in business correspondents and facilitators that will take away the jobs of citizens who are seeking employment in banks,” Mr Shetty said.  He also referred to the attempt by the government to implement some clauses of the Khandelwal Committee report through the backdoor. Urging the government to revive the banking services recruitment board, as nearly five lakh employees will retire in the next five years, Milind Nadkarni, president of the National Confederation of Bank Employees, said, “Banks are going for clerical recruitment to campuses. We object to this as every boy and girl with the minimum required qualification should be allowed to apply for recruitment.”  Lalita Joshi, joint secetary of the All India Bank Employees Association, said that the families of many employees who have passed away were struggling in these days of high inflation and many of them were in a poor condition, but no effort had been made to employ any of the family members on compassionate grounds.  Mr Shetty hoped that the government would lend a more sympathetic ear to these issues and not push the unions into an indefinite strike.

Moneylife

No harm in govt managing its own debt: Rangarajan

No conflict of interest in RBI's twin roles

Chennai, Aug. 2:  Dr C Rangarajan, Chairman, Prime Minister's Economic Advisory Council, said on Tuesday that he saw “no harm” in government taking over the management of public debt, but at the appropriate time. “It is the responsibility of the government and the government might as well do it,” Dr Rangarajan said, but hastened to add that if the public debt management function is taken away from the Reserve Bank of India “prematurely”, it would not be wise. Dr Rangarajan was responding to a question after his lecture on ‘Economic Growth and Inflation', organised by the Indian Overseas Bank, as to whether the RBI's role as the debt manager of the government of India interfered in the transmission of its monetary policies into the desired effect.  (There is a view that the RBI's role as government of India's debt manager — it issues bonds and manages them on behalf of the government — gets in the way of its efforts to tackle inflation. This is because, according to the proponents of the view, it is in the RBI's interest to keep interest rates under check so that government does not end up paying a high interest, but on the other hand, its monetary policy measures of raising repo rates has to translate into higher interest rates in the economy, to check inflation. Some experts see a conflict of interest here.) In his response to this question, Dr Rangarajan noted that the question had been debated in many countries. While in many countries governments raise their own debt and manage it, in certain other countries (such as India) the management of public debt has been with the central bank. “To me, it is a matter of convenience,” he said, stressing that at least two major steps had been taken to ensure that there was no conflict of interest between the RBI's twin roles as the monetary authority and manager of government's debt. First, in 1996, the ad hoc treasury bills were abolished. Prior to that, government would simply raise the bills in favour of the RBI, which would print currency notes and pay the government. That is now gone. Second, under the Fiscal Responsibility and Budget Management Act, “the RBI is not allowed to be in the primary market” — i.e., it cannot buy government's bonds. With these two measures, the RBI is insulated from being influenced by its role as government's debt manager, Dr Rangarajan said. Later, on the sidelines of the function, when asked if RBI's raising of interest rates had actually helped tame inflation, Dr Rangarajan said, “yes, it has. You see, inflation will come down.” In his speech he said that inflation might be expected to come down to 6.5 per cent by March 2012.

HBL

RBI official begins inspection of vaults

The representative of the Reserve Bank of India, on the five-member committee set up by the Supreme Court to decide on the security, inventory and preservation of the articles inside the vaults of the Sree Padmanabhaswamy temple here, began work on Tuesday. A safety audit was conducted.  Assets, worth hundreds of crores of rupees, were recently discovered in the vaults. The audit is not from a security angle — that job has been taken over by the Kerala police — but one from the perspective of preservation.  At the end of this study, the committee is expected to find out whether these vaults need to be refurbished so that the articles inside are not damaged. The decision to go ahead with such an inspection was taken at a joint meeting of the five-member committee headed by C.V. Ananda Bose, director general of the National Museum, New Delhi, and the three-member committee headed by the former judge of the Kerala High Court, M.N. Krishnan, held here on Monday. It was on July 21 that a Supreme Court Bench comprising Justices R.V. Raveendran and A.K. Patnaik appointed two committees, one with five members and the other with three.

HBL

RBI to test inflation indexed bonds in market

The Reserve Bank of India (RBI) is all eager to test inflation indexed bonds in the market. CNBC-TV18’s Gopika Gopakumar finds out whether this product will be feasible. D Subbarao, Governor, RBI says, “Banks told us that there is not much of an appetite for floating rate deposits and by extension there may not be much of an appetite for inflation indexed bond. But our view is that we have to test this once again. There may be a tipping that did not work in the past.” Governor Subbarao's keenness to launch inflation indexed bonds is quite obvious. With inflation touching nearly double digits, he expects good demand for these bonds. Unlike government securities or fixed deposits, inflation index bonds give real returns as its coupon and principal payments are linked to the current wholesale price index. Experts say this move will benefit retail investors. Anjan Barua, Deputy MD, SBI says, “Historically in India inflation has been an issue. If you look at deposit rate structure for the last 15-20 years and also credit interest rate structure. Over the years even the present times, depositors are compensating the corporate as far as interest rates are concerned. So they are subject to inflation. Real rate of return over a period of time has been negative.” However, experts say inflation indexed bonds will not make much difference to institutional investors. Liabilities of banks and insurance companies are not linked to inflation and therefore don't feel the need to hedge these liabilities. But experts say this could inspire investors to launch innovative inflation linked products.  B Prasanna , MD, I-Sec Primary Dealership adds, “You have an asset which gives you a return based on inflation, this will encourage commercial banks to encourage them to borrow in the retail liability space using inflation or floating rate liability or insurance companies to look at inflation linked annuity plan. When these are launched if they are able to garner money, come and hedge these liabilities in the inflation index bond. From that perspective it helps commercial banks and institutions to look at different kind of liabilities.” The proposal to launch inflation indexed bonds comes at a time when RBI and government have been criticised for their poor inflation management. Experts say inflation indexed bonds form a big market in developing countries which face the crisis of rising inflation. Out of the USD 1.4 trillion outstanding in the government debt, USD 400 million account for inflation indexed bonds. But experts say it will be a while before it becomes a success in India.

Moneycontrol

MSME credit task force asks RBI to put pressure on lenders

Expressing concern over state-run banks, including SBI , not fulfilling their MSME credit disbursement targets, a task force under the Prime Minister's Office has asked the RBI to mount pressure on lenders to provide sufficient funds for growth of the sector. At a meeting presided over by T K A Nair, the Principal Secretary to the Prime Minister, it was decided that the "pressure must continue" on SBI and its associates like State Bank of Bikaner and Jaipur and other PSU banks to fulfill their targets, a highly placed source told PTI. As per the targets given to the public sector banks, they have to achieve 20% growth in credit disbursement to micro, small and medium enterprises (MSMEs), of which half must go to the micro units. The country's largest lender, SBI, did not achieve its target for ramping up disbursements to micro enterprises out of the total amount allocated to the MSME sector, according to the source. "Against a target for 50% growth in credit disbursement, the bank only registered 32% in terms of credit disbursement to the micro enterprises, out of the total amount to the given to the MSME sector," he said. "We will continue to put pressure.... The RBI has been asked to go into it," the source said. MSME Secretary Uday Kumar Verma, Planning Commission Member Arun Maira and senior officials of the departments of expenditure and financial services attended the meeting. A senior representative of the Reserve Bank of India was also present at the meeting of the PM-appointed task force, which was convened to review the status of implementation of its recommendations. Besides SBI and its associates -- State Bank of Patiala and State Bank of Travancore -- banks like IDBI and Union Bank of India, Vijaya Bank, Allahabad Bank and the Central Bank of India fell short of their MSME credit disbursement targets. The task force, which was appointed during the 2009 global financial crisis, had given several recommendations for ensuring credit availability to this vital sector. The MSME sector provides employment to 60 million people through 26 million enterprises. It contributes 40% to India's exports and 45% to total manufacturing output.

Moneycontrol

India’s Microfinance Bill: A major step forward for financial inclusion?

If the RBI takes direct responsibility for supervising NBFCs (which are the largest MFIs) and delegates the supervision of NGOs to NABARD, this provision is reasonable and positive but greater clarity on the matter would be enlightening and more specific drafting, useful. M-CRIL welcomes the draft bill as a means of transforming the microfinance sector into a beacon of hope for the financial and economic inclusion of millions of low income families across the country.

Read......

Three things to worry about

I understand that since the RBI has to pick up the slack left behind by a loose fiscal policy, it has taken on its new aggressive avatar. It also claims that it needs to compensate for the lack of policy initiatives on the supply side. Thus, the RBI’s tack is to restrain demand so that it does not run ahead of current capacity. This could do the trick in the short term and bring inflation down. But isn’t it risky to raise interest rates continuously?....

Read........ 

RBI wants companies to report MTM loss in derivative deals to banks

MUMBAI: Companies cutting derivative deals with banks will have to spell out their mark-to-market loss at regular intervals and submit a detailed board resolution to the bank selling the product. According to a Reserve Bank of India circular issued on Monday evening, banks offering derivative products to companies will now have to obtain resolutions from the boards of corporates.  In a step that is aimed at minimising risk for banks and disputes between banks and companies, the resolution to be submitted by a company's board should be signed by a person other than persons authorised to undertake the transactions.  Besides, the resolution should "be specific and should articulate specific products that can be transacted, mention the person(s) authorised to sign similar agreements, explicitly mention the limits assigned to a particular person and specify the names of the people to whom transactions should be reported by the bank."  In the past few years, several companies have entered into cross-currency and other derivative deals to improve export earnings through favourable foreign exchange rates, and also swap high-cost rupee loans into dollar and yen loans with significantly lower interest charge.  In 2007-08, as the currency bets taken by companies backfired, buyers of derivative and structured products moved courts, claiming that banks indulged in mis-selling as the contracts were complex and illegal.  Banks, on the other hand, argued that while companies never complained when exchange and interest rates moved in their favour, they took legal refuge to wriggle out of financial commitments.  Amid several disputes and a constant media glare, RBI last year brought in severe restrictions that virtually took the fizz out of the derivatives market. The fresh set of instructions issued on Monday will bring in certain safeguards in the deals.  "This is a good thing. It brings about proper risk management and will stop a lot of speculative positions being taken without people thinking it through," says Kumar Dasgupta, partner at PricewaterhouseCoopers. "Companies need to think about the benefits and risks involved in a complex derivative," he added.  In its circular, RBI further said "no bank can be a market-maker in a product it cannot price independently, which is applicable also to back-to-back deals." Foreign banks in India can be market makers for specific products only if they can price the products locally; and the regulator can ask for evidence of such pricing to be demonstrated at any time.

ET

Farmers denied loan waiver, move Gujarat high court

A division bench of the Gujarat high court on Monday issued notices to the State Bank of India (SBI), Reserve Bank of India (RBI) and the Union government in the matter of giving some farmers the benefit of agricultural loan waiver. A group of farmers from Idar taluka of Sabarkantha district had approached the high court because the local SBI branch had issued them notices for payment of their loan with interest. In their petition, the farmers had alleged that the bank was charging them high interest despite the fact that they were eligible for loan waiver under a scheme for farmers introduced by the Centre in 2008. The petitioner farmers had taken agricultural loan from2004 to 2007.

DNA

Parliamentary committee expreses concern on claims rejected by insurers

NEW DELHI :A Parliamentary standing committee on finance has expressed concern over the increase in the number of claims rejected by the insurers. The Parliamentary committee in its 33rd report has also pulled up the insurance regulator for not maintaining any data base on the same, vital for protection of policyholder's interest. As per the information furnished by insurance firms, around 19,284 claims were rejected by life insurers, the most by country's largest life insurer Life Insurance Corporation. In the general insurance sector over 4 lakh claims were rejected, with ICICI Lombard General Insurance alone rejecting around 2 lakh claims.  The committee headed by former finance minister Yashwant Sinha has asked the regulator to carry out an analysis of such policies and establish the reason to take remedial measures to reduce such instances. The committee has also asked the government and the banking sector regulator, Reserve Bank of India to critically review the performance of business correspondent model and develop them as a viable source of expanding banking network in remote and inaccessible area. The committee observed that banks should not look at business correspondents as 'cost centres' but treat them as 'service centres'. The committee has also directed the government to conduct a thorough review of the functioning of the debt recovery tribunals and report to it within 30 days. The committee noted that debt recovery tribunals have not been very effective in speedy disposal of cases and need a complete overhaul.  Expressing concern over low lending towards the agriculture sector, the committee pointed out that banks have shown greater propensity to disburse indirect agriculture credit and requested RBI to ensure that private sector banks also fulfil their social mandate.  The committee observed that the government's disinvestment policy is not rational and is principally governed by motive of revenue generation. It further asked the government to develop a clear disinvestment policy which also include sick central public sector enterprises.  

ET

IT department very lenient to BCCI: Parliamentary panel

Accusing the Income Tax Department of being "very lenient" to the Board of Control for Cricket in India (BCCI), a Parliamentary panel on Tuesday said it allowed the cricketing body to "enrich its coffers at the expense of the exchequer". Headed by former Finance Minister and senior BJP leader Yashwant Sinha, the Standing Committee on Finance has asked the IT department, Reserve Bank of India and Corporate Affairs Ministry to expedite their investigations into the affairs of the BCCI and the Indian Premier League (IPL). The report of the Committee, which was tabled in Parliament, also regretted that the much-loved cricket -- a gentleman's game -- is getting "sullied and embroiled in transgressions of law off the field".

NDTV

Banking sector: Limited upside

RBI’s recent stress tests show while banks seem reasonably resilient, profitability may be affected. Rising interest rates, sticky inflation and flagging competitiveness of the corporate sector are taking a toll on Indian banks. Since May this year, banking stocks have traded sideways for a variety of reasons. The first quarter results indicate that policy tightening has adversely affected credit growth, with banks curbing their exposure to several sectors. Even as many believe that inflation and interest rates are close to their peaks, analysts believe earnings could well remain under pressure on lower margins and rising non-performing loans. The Reserve Bank of India’s Financial Stability Report, released in June, says: “A series of stress testing in respect of credit, liquidity and interest rate risks showed that banks remained reasonably resilient though their profitability could be affected significantly. Under severe stress scenarios, banks may face liquidity constraints. Banks need to remain vigilant to the headwinds from the prevailing inflation and interest rate situation which may affect their asset quality as changes in interest rate were found to have the most significant (negative) impact on slippage ratio of the banks.” In order to avoid risks, banks are shrinking loan books, which is indicative of lower loan growth rate of 18 per cent to 20 per cent, compared to last year’s 21 per cent. Most banks will also find it difficult to maintain net interest margin levels of December 2010, which are slated to decline by 50-100 basis points. Combined with these operational issues, the investment portfolio of most banks are also not yielding gains and lack of treasury gains will lead to muted profit growth in 2011-12. According to an analysis done by Goldman Sachs, the financial sector displays a high correlation with inflation, interest rates, GDP and IIP. Past trends show that banking stocks tend to peak/bottom four-six months ahead of inflation levels peaking/ bottoming. While investor holdings in the banking sector remain high, current valuations are not at their peak compared to the previous cycle, and hence the Street is not expecting a sharp adjustment. However, since earnings and credit growth will remain under pressure, Goldman Sachs expects stocks to trade in a narrow range. While the sector is not overvalued, select sector defensives, some private bank stocks are trading at expensive valuations, claim analysts. Despite expensive valuations the market has a bias towards such stocks as they are better equipped to handle spreads compared to their PSU counterparts.

BS 

RBI mulls tighter FDI norms, seeks ED help

New Delhi: The government and the Reserve Bank of India (RBI) want to strengthen the FDI policy framework so that the enforcement agencies are able to scrutinise the sources of foreign funds more effectively. The move comes in the backdrop of the RBI’s ongoing probe into the allegation that “dubious funds” have been routed through US-based marquee hedge fund DE Shaw ‘s Mauritius subsidiary to various Indian entities, including Amar Ujala Group. DE Shaw has affirmative voting rights in Amar Ujala which are tantamount to breach of sectoral cap of 26% in media sector, it is felt. According to sources, the RBI feels that the extant FDI policy is not fully equipped to capture any additional details on source of funding by non-residents apart from regular reporting norms like identification and overseas account particulars, which is used for balance of payments (BoP) statistics. The central bank and the finance ministry have directed the Enforcement Directorate to suggest ways to frame a policy that allows a closer vigil on the funding sources as well as the end use of funds. In its reply to the government, DE Shaw has dragged big media companies like Jagran Prakashan, DB Corp (Dainik Bhaskar) and HT Media into the muck saying these Indian companies had also given such rights to foreign funds before coming out with respective IPOs. It argued that there is nothing unusual or special about these rights. These rights are commonly provided to private equity and financial investors, the hedge fund has said in a written communique to the government. Now, the RBI has directed ED to run an investigation into the proposed funding by DE Shaw into Indian company and also help framing new FDI rules incorporating various ways of scrutiny on source of foreign funds. “The issue may require a thorough investigation by the ED,” the RBI has observed. “The suspicious transactions are reported by the banks to the RBI and finance ministry. Only thing that can be done is to enforce better know your customers norms and anti-money laundering rules. There are provisions in the law for KYC and AML norms of the foreign investors,” Ernst and Young partner Hiresh Wadhwani said.  Amar Ujala in its plea claimed that the agreement was entered into fraudulently between the erstwhile management of Amar Ujala Publications and DE Shaw on the basis of false representations made by the global fund house. The deal was approved by FIPB way back in 2007, but Amar Ujala earlier this year complained that the deal was illegal and in violation of foreign investment rules. Amar Ujala also claimed that DE Shaw misled the FIPB by not informing them about certain conditions of the deal. Subsequently, FIPB had sought clarifications from DE Shaw on whether the deal was in conformity with all the terms and conditions specified in its approval. Both Amar Ujala and DE Shaw have filed petitions against each other in the High Court. The case is coming up for hearing on Wednesday.

FE

Policy paralysis bites

In its latest monetary policy statement, the Reserve Bank of India has already pointed out that its battle against inflation would be a limited success unless the government acted to increase the productive potential of the economy.....

Read...........

RBI hints at using ‘Aadhaar’ for authentication in banking




G Padmanabhan, Executive Director, RBI

 The Reserve Bank of India is considering the use of biometric data captured for Unique Identification issued under the government’s ambitious ‘Aadhaar’ scheme. According to G Padmanabhan, Executive Director at RBI, a working group looking into enhancing security of present card transactions has noted that Aadhaar biometric data would serve as a secure second factor of authentication even for magnetic stripe cards obviating the need mandating a switch over to chip and pin card regime, which has cost implications for the industry. He spoke at length on frauds and authentication issues at an event in Mumbai last Friday. He highlighted the type of frauds and ways to deal with them. “While the challenges to security are stiff and increasing by the day, being alive to threats is more important,” Padmanabhan said in his speech. RBI has introduced certain measures like one-time password (OTP) and confidential data confirmation. This measure has ensured greater security in online card transactions and instances of online frauds has considerably dropped, he added. More importantly, this has resulted in a significant growth in card transactions in this mode, reflecting the enhanced level of customer confidence.

Here is some key feedback RBI has received on the secondary authentication process from customers:

* One time password or two factor authentication is one of the methods in securing transactions. However, the essential requirement of such OTP being sent to the registered mobile of the customer leads to several issues or inconvenience due to factors like network availability, restriction to a particular phone number, non-availability of the service when customer travels abroad, timing out of online transactions due to slow speed of OTP transmission etc. It also has cost implications for the customer as he has to pay for charges at international data transmission tariffs..

* Multi-layer security by way of log-in password, transaction password and some confidential data confirmation make online transactions more secure, and in a better manner. But, there are issues like memorising of multiple passwords, slogans, pictures and answers to questions. Some transaction of urgent nature getting stuck due to these problems and even online access getting blocked some times. This, coupled with the time taken for access re-activation, password generation,which is sometimes a time taking process, causes irritation and inconvenience to the customer.

* In mobile banking, the challenge is to decide the transaction value limits up to which unencrypted data can be transmitted for payments or funds transfer. If the limits are set too tight, there can be cost and efficiency implications while making it too lax may invite the risk of information getting compromised.

* Surveillance cameras help in making ATM transactions more secure, but there are issues about privacy and more so, customer discomfort with the same.

All the above factors make it necessary for RBI to look at other credible options. Unique Identification number with its biometric database could ensure that the person with the right identity is accessing personal financial data. In April 2011, UIDAI (Unique Identification Development Authority) discussed possibilities of the number usage in the banking sector with a section of banks. They were looking to allow customers to operate ATMs armed with only their 12-digit Aadhaar number where the access will be facilitated by a biometric scan, said a report in the Mint newspaper.

Firstpost

Follow norms on issuing DDs: RBI to banks

The Reserve Bank of India (RBI) today said some banks had breched guidelines by issuing demand drafts of Rs 50,000 and above on deposit of cash and asked the lenders to stick to the rules. According to the existing guidelines, demand drafts and other such intruments such as mail transfers, telegraphic transfers and travellers cheques for Rs 50,000 and above should be issued by banks only by debit to the customer's account or against cheques and not against cash payment. "It has been brought to our notice that some banks have recently issued demand drafts of Rs 50,000 and above on deposit of cash and not against debit to the customer's account or against cheques or other instruments tendered by the customer," the RBI said in a notification. It asked the banks to comply with thr rules which were laid down back in 1991. "Any violation of these instructions will be viewed seriously," the RBI said, without disclosing the identity of the concerned banks. The apex bank termed the breach of the guidelines as a matter of serious regulatory concern and said such practices could have wide ranging ramifications.

BS

Saraswat Bank readies for conversion into commercial bank

At a time when scheduled urban banks are facing constraints in meeting strict norms for capital adequacy and limitations in raising funds, Saraswat Cooperative Bank has initiated steps to become a commercial bank. “A slew of initiatives have already changed the bank’s status quoist culture to a modern-day banking solution provider. The bank has already embarked upon an ambitious target of achieving a business level of Rs 1 lakh crore by 2021. Against this backdrop, converting it into a commercial bank is being seriously looked into. However, the issue is at a preliminary level,” Chairman Eknath Thakur told Business Standard. The city-headquartered lender, which has a total business of Rs 27,313 crore, is working out a detailed plan in this regard. This is not the first time that a cooperative bank would be converted into a scheduled commercial lender. In May 1995, Development Credit Bank (DCB) was converted into a Scheduled Commercial Bank in the wake of the country’s economic liberalisation, according to the DCB website. The Reserve Bank of India’s assessment of the bank’s financial health, operations and systems will be among the key factors in considering its proposal for conversion. Saraswat Bank is yet to submit a proposal to the banking regulator. “As an urban cooperative bank (UCB), we face two challenges in building our capital base to support credit growth. First, present legal norms allow UCBs to only issue shares at face value (say at Rs 10 per share) even though its the book value, which reflects financial strength of bank may be strong. In other other words, the bank is not able to issue shares at premium despite better standing. Another aspect is despite being a cooperative body, bank pays tax on the profits, limiting ability to recoup resources for capital,” Thakur added. “The Reserve Bank of India treats us on par with commercial banks when it comes to meeting regulatory norms. However, urban cooperative banks are not allowed to do some business which commercial banks are permitted to operate in,” he said. The UCBs also face the challenge of grooming human resources. Thakur said that over a period, ticket size of assets (loans) and liabilities (deposits) have grown, especially for industry and business accounts. Bank staff and directors should be capable to handle larger proposals. That needs grooming in project appraisal, day-to-day monitoring and documentation. As on March 31, the bank’s deposits grew to Rs 15,800.96 crore from Rs 14,266.73 crore a year ago, while its profit surged to Rs 212.27 crore from Rs 119.67 crore. Ashok Pandit, former chairman of the bank, said, “Over the years, the Saraswat Cooperative Bank has not only increased its presence across the country but outnumbered some of the public sector banks on some of the parameters. There is no need to over fear. This bank has the potential to become a commercial bank, as we have seen similar cases including that of Development Credit Bank.”

BS