RBI-FM agree to keep corporates out of banking

The Reserve Bank of India (RBI) and the finance ministry have agreed to keep corporates out of the banking business. Share prices of bank licence aspirants like SREI and Indiabulls Financial Services reacted and fell amidst a broader positive trend in the stock market. “The ministry and RBI have come to an understanding that big corporate houses ought not to be allowed to enter the banking business at this juncture,” said a report in The Financial Express. The central bank has highlighted the risk to the integrity of the banking system from other business interests of corporate houses. This is, in effect, a rap for corporates as they have not maintained high corporate governance standards. It appears that the central bank is not convinced that the so-called promoters of businesses would keep an arm’s length from the money in the banking system. The corporate governance issues involved in managing business have often been highlighted in the past. The independence of corporate boards is critical to ensure that the interests of not just promoters but also of minority shareholders are protected. The banking system has the additional burden of protecting the integrity of the financial system. Any collapse in the banking system due to poor governance could spread like a contagion. At the same time, RBI also needs to focus on the financial inclusion agenda. It needs to take banking to remote parts of the country. There are a few things that the RBI needs to take action on quickly. It needs to allow non-banking finance companies to convert themselves into banks if they have a good financial management record. RBI could also clarify the stance on foreign ownership in banks. At the same time, the central bank should not shun corporate houses that follow high standards of corporate governance. New banks promoted by industry houses could have majority independent directors on boards and a professional management. RBI has the responsibility to ensure compliance. Corporate houses need to pull up their socks and show that they are willing to delegate power to boards of individual companies that have more independent directors than family members. The central bank would keenly watch how companies work towards making their boards powerful and independent. Corporate houses that step back and allow their company boards to function independently in a consistent manner would find favour. For now, it appears that regulators are convinced that makers of cars, engineering and other companies are good in their businesses but not good enough to run a bank.

Firstpost

Some Delhi bank branches can accept advance IT: RBI

To make it convenient for the corporate tax assessees, the Reserve Bank today extended the facility for payment of advance income tax to branches of all state-owned and select private banks in Delhi. "State Bank of India branches, public sector bank branches, HDFC Bank, ICICI Bank, Axis Bank and IDBI Bank branches at Delhi/New Delhi are authorised to accept payment of income tax dues in cash or cheques," the RBI said in a statement. Hitherto the central bank alone used to collect the quarter-end income tax dues from the assessees. "It is observed that the rush for remitting income tax dues into the RBI has been far too heavy... and it becomes difficult for the RBI to cope up with the pressure of receipts although additional counters are provided for the purpose," it said. The move was taken for the convenience of the assessees in Delhi and New Delhi, so that they could utilise the services being made available at the authorised banks. The apex bank also advised people to remit their income tax dues sufficiently in advance of the due date to avoid last minute rush. 

Moneycontrol

Private-sector banks less exposed to stressed assets

What is mentioned in annual reports is just as important as what is not, especially in the case of banks. In a report on the banking sector entitled ‘Forensic Accounting Scores’, Ambit Capital has ranked Indian banks based on their on-and off-balance sheet risks and the extent of discretion they exercise on their balance sheet.......

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Nagpurians admit to paying bribes due to helplessness

NAGPUR: With emotions running high, support for Anna Hazare continues to swell in the city. Driven by a deep angst against corruption, people are joining Hazare's drive for a strong and effective Lokpal bill. A large number of Nagpurians protesting at RBI square, were at pains to admit that they too, at some point of time, paid bribes to get a work done. And they succumbed to bribe-seekers only because the culprits exploited there helplessness.

TOI

Ombudsman addresses SBT officials

Thiruvananthapuram  : The Banking Ombudsman, Kerala, Mr F. R. Joseph, addressed the executives of State Bank of Travancore at the bank's head office here on Friday last on various issues pertaining to customer grievances redressal. A spokesman said here on Tuesday that Mr Joseph gave a detailed presentation on the Damodaran Committee Report on Customer Service, which is now placed in the public domain for response from banks.  The recommendations are intended to guide banks towards a more customer-centric approach keeping in view the tremendous changes in the industry in the last decade. Mr S. Balachandran, Managing Director in-charge, SBT, presided over the function. 

HBL

Banking on performance

Hyderabad : The rules of the game are changing for public sector bank staff. A number of banks are rolling out performance-based incentives for their officers and clerical staff numbering about 10 lakh.  This, feel experts, would to ‘better' the performance of the PSBs. “We are in the process of formulating a scientific system to encourage performance by structured incentives which will be implemented soon,” Ms Archana Bhargava, Executive Director, Canara Bank, told Business Line. Banks can spend at least one per cent of their profits on performance incentives, she added. The incentives can be for better recoveries, augmenting fee-based income by selling products, such as insurance, and meeting targets in credit growth and mobilisation of deposits, said Mr M. Narendra, CMD, Indian Overseas Bank. Mr R. Ramchandran, Chairman and Managing Director, Andhra Bank, said it would be for the board to decide on the form and scope of performance-linked incentives. “We do have a system in place already. Any changes will be decided by the board,” he added. The reasons for the focus on performance are the ‘challenging' environment for the banking industry which faces the possibility of rising bad loans and the need to retain young talent with a large number set to retire over the in the next couple of years. Last year, the Anil Khandelwal Committee had suggested that banks do away with wage boards and focus more on performance.  According to a senior State Bank of India official, the ‘performance boosters' might, for the moment, run alongside the existing system of wage boards that recommend salary increases across the system. Bank unions are against a wholesale switch to performance-based hikes. “Public sector bank employees are engaged in social banking and also make some sacrifices in the process. It is not correct to completely link incentives/salary hikes to profits. We support a common system for everybody,” Mr Peddi Sudhakar, Joint General-Secretary, All India Bank Officers' Confederation, said.

HBL

Do not issue DDs above Rs 50K against cash: RBI to rural banks

MUMBAI: Taking a serious note of some rural regional banks issuing demand drafts or travellers cheques of Rs 50,000 and more against cash payments, the RBI on Tuesday asked all such lenders to refrain from the practice to ensure integrity of financial system.  Regional rural banks (RRBs) can issue demand drafts, mail transfers, telegraphic transfers and travellers cheques for Rs 50,000 and above only by debit to the customer's account or against cheques or other instruments and not against cash payment.  The Reserve Bank had issued a circular in this regard to RRBs in 1991.  "In the current scenario where the integrity of the financial system in general and the banking channels in particular is of paramount importance, breach of these guidelines is a matter of serious regulatory concern in view of the wide ranging ramifications," RBI said.  "Any violation of these instructions will be viewed seriously," the central bank said in a communication to RRBs after it was brought to its notice that some banks have recently violated the norms.  

ET

No bank licences for corporates: RBI

New Delhi: Notwithstanding the finance ministry’s initial prodding to go big on new bank licensing, the Reserve Bank of India (RBI) has got the ministry to toe its cautious line on how to expand the banking sector in India. The ministry and RBI have come to an understanding that big corporate houses ought not to be allowed to enter the banking business at this juncture. The move is in recognition of the risk to banks’ integrity from the corporates’ other business interests and the paramountcy of maintaining domestic financial stability in times of global crisis. Official sources said a maximum of four new banks would be allowed and these would be promoted by pure-play NBFCs subject to the central bank's strict eligibility criteria. There would also be a condition that promoter holding in the bank, to be set at 40% initially, would be reduced within a rather tight time-frame.  The move dashes the banking hopes of corporate majors like Tatas, M&M, ADAG, AV Birla Group and L&T. As the definition of “big industrial/business house” is ambiguous, the fate of even other aspirants such as Indiabulls, Shriram Finance, Religare and Srei is rather uncertain because they too have significant cross-holdings in group firms. The new licences would likely be available for institutions like IFCI. “It (deciding if any applicant has significant interests in other group businesses which may impact the integrity of the bank) should be an objective test, rather than one of perception,” said Hiresh Wadhwani, partner (financial services), Ernst & Young. Currently, banks are allowed to have an aggregate 74% foreign holding with a cap of 5% for a single investor. For the new licensees, the policy will be stricter, with aggregate foreign holding cap (including FDI, NRI and FII) at 49%, with a condition that a non-resident won’t hold than more than 5% of the paid-up capital. The minimum paid-up capital could be set at R500 crore, compared to R300 crore for existing banks, sources said. The new banks will have to mandatorily open a certain number of branches in rural and semi-urban areas. This is to honour the government’s objective of financial inclusion, even as the country’s banking system grows in size and sophistication to meet the needs of a modern economy.  A top source said the finance ministry has formally conveyed to the RBI its willingness to accept the central bank's views on having a calibrated, rather than sudden, expansion of India's private banking sector. The RBI will soon announce its guidelines for new banking licences.  The RBI's move to not let “promoter groups” (read big industrial and business houses) into banking would look like a climb-down from the position it took in a recent note to the finance ministry. In the note, the central bank had summarised its views on new bank licences and foreign shareholding in Indian banks, following the August 2010 discussion paper and comments received on the same. RBI had spoken in favour of allowing big corporate groups to set up banks through the wholly-owned non-operative holding company (NOHC) route with the rider that the NOHC would hold a minimum of 40% of the paid-up capital of the bank with a five-year lock-in. The NOHC as well as other companies of the group would be subject to RBI's “consolidated supervision” to avoid any contagion risk to the bank. The NOHC's stake in the bank, the RBI had said, would have to be reduced to 15% in 10 years. In March this year, the Cabinet had approved a proposal to amend the Banking Regulations Act to make voting rights in private sector banks proportionate to the shareholding, which led to speculation that corporates might finally be allowed to set up banks. The voting right is currently capped at 10%, and this is seen by the industry as a huge disincentive. Thanks to the cap, promoters of private banks like Kotak Mahindra Bank, YES Bank and IndusInd Bank are required to go through the shareholder resolution route to make any business decision of significance.

FE

RBI penalises BNSBL for violating norms

Ahmedabad: The Reserve Bank of India (RBI) today imposed a penalty of Rs 1 lakh on a co-operative bank in Mehsana district of Gujarat for violation of anti money laundering (AML) guidelines and know your customer (KYC) norms. The RBI has imposed penalty of Rs 1 lakh on Becharji Nagarik Sahakari Bank Limited (BNSBL) in Mehsana district of Gujarat, for violation of central bank's instructions on KYC and AML guidelines, an official statement stated. The central bank had issued a show cause notice to the bank in response to which the bank had submitted a written reply. fter considering the facts of the case and the bank's reply as also personal submissions in the matter, the RBI concluded that the violations were substantiated and warranted imposition of the penalty, it stated.

FE

India’s Top Private Banks See Mixed Results on Retail Lending

The long run of interest rate increases is hurting the loans business of banks harder than before, with consumer demand expectedly declining for personal, home and auto loans as well as for credit cards.Three of India’s top five private banks, including the largest ICICI Bank Ltd, made losses in their retail banking business in the June quarter. Only HDFC Bank Ltd and Kotak Mahindra Bank Ltd made money in the business, data from the banks show......

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Banks ask Reserve Bank of India for more time to become compliant

Last week, the Reserve Bank of India, the country's central bank, announced that its rules on derivatives selling will be tightened in an aim to prevent sales of complex currency derivatives to local businesses and mid-sized companies that complained they had not been warned of the risk of the financial tools, The Wall Street Journal reports. In response to these tighter rules on derivatives, Indian banks have asked the central bank for more time to become compliant, according to the Journal report, citing individuals "familiar with the matter." The Reserve Bank didn't specify an implementation date and instead suggested the rules took effect immediately. In asking for more time, banks are largely seeking to sidestep a trading volume pinch in the currency-derivatives market. The rules, which were announced on August 2, also keep banks from selling products they can't price independently and also demand company executives be completely supported by their boards before they complete derivatives transactions. Speaking to the Journal, one individual noted that "companies need time to go to their boards and secure authorization for their finance people to execute derivatives trades, which was one of the new rules." Another source, also anonymous, noted that "immediate implementation as implied in the circular could kill the market."

FinCad

NBFC to tap parent LIC's infrastructure for setting up bank

MUMBAI: LIC Housing Finance, a subsidiary of state-run Life Insurance Corporation, has worked out a roadmap to apply for banking licence and has completed the basic paperwork. The housing finance company, like many corporates, is awaiting the central bank's final guidelines to start a bank. "We have appointed an ex-banker for the paperwork. Our basic framework is in place. We are awaiting the final guidelines to apply," said a senior executive from LIC.  The Reserve Bank of India is expected to come out with the final guidelines for private firms and non-banking finance companies to set up banks. The banking regulator has already laid down norms in a discussion paper, where it talks about the pros and cons of minimum capital requirements for new banks, promoters' contribution, and caps on promoters' shareholding and other shareholders and foreign shareholding.

ET

July inflation numbers harden case for RBI rate hike in September

Headline inflation in July was 9.22 per cent, largely in line with market expectations. Moving beyond the headline number to disaggregated data showed Reserve Bank of India's (RBI's) reading of the situation in the recent past has been spot on and there could be another increase in interest rates next month. "I would see one more round of interest rate hikes, given the current information," said NR Bhanumurthy, a professor at the National Institute of Public Finance and Policy (NIPFP). The information that may play a critical role in RBI next monetary policy announcement on 16 September is the trend and magnitude of non-food manufacturing, or core inflation. Core inflation in July was 7.5 per cent, higher by 30 basis points in relation to the previous month. Monetary policy's biggest impact tends to be on core inflation by compressing demand, and the upward movement over the last few months in core inflation is what RBI has been trying to check through interest increases.  "RBI is still odds on to raise the policy rate by 25 bps (basis points) during its September 16 policy meeting, in our view," Taimur Baig and Kaushik Das of Deutsche Bank, said in a research note on July inflation data. Since March 2010, RBI has raised its policy rate, or repo rate (the rate at which banks borrow from RBI), 11 times to the current level of 8%. RBI has emphatically reiterated in its recent policy statements that fighting inflation is its foremost priority. To be more specific, anchoring inflation expectations has been the aim of monetary policy as stable expectations are expected to create the right environment for sustainable economic growth. "Poorly anchored inflation expectations make long-term financial planning more complex with potential adverse effects on investment and growth," Deepak Mohanty, executive director of RBI, said at a speech in Allahabad on 13 August.  The aim of monetary policy is to restrict perceptions of inflation to 4% to 4.5%, Mohanty added. With inflation prevailing above 9 per cent for most part of 2011, the direction of monetary policy is unlikely to change in September. Subsequently, developments in Europe and US, particularly the steps taken by their central banks to boost economic growth, may begin to significantly influence the course of monetary policy in India.

Business Today

August inflation to be close to double-digit: Kaushik Basu

NEW DELHI: Inflation in August may touch the double digit mark, Chief Economic Advisor Kaushik Basu said today, adding that any reprieve from high prices was unlikely in coming months.  "By our calculation there are still a couple of more months of relatively same level of inflation (as in July). Infact, inflation could climb a little bit next month... it could be going to close to 10 per cent inflation for the month of August," Basu told reporters here. His comments came after the headline inflation for July declined to an eight-month low of 9.22 per cent as the rate of price rise in food articles and petro-products eased, though pressure remained on manufactured items. Basu said that inflation would remain at an elevated level till December before showing any signs of moderation.  "By our calculation there are still a couple of more months of relatively same level of inflation," he said, adding, "...it will be roughly where we are, we are expecting, till December. After that we do expect some sharp decline in inflation".  RBI has been hiking interest rates in its bid to tame inflation since March 2010. The high interest rate regime, experts said, was hurting the industrial growth. However, the industrial growth (IIP) for June stood at a better-than- expected 8.8 per cent.  When asked if the RBI is likely to further raise its key policy rates considering the IIP numbers, Basu said: "The IIP news was better news than what we had expected... But RBI will have to take a call."  Basu said that both the government and the RBI would work together and analyse the economic situation. "We are expecting that we will get together and do an analysis of where we stand... otherwise the news is not good. On a couple of sectors we have done well," Basu said.  He cited good performance of exports and pick up in Foreign Direct Investments as positive factors.  "Exports have been doing well for several months and there is also some indication that FDI, after a year of not doing well, is actually picking up very very nicely," Basu said.

ET

Rate hikes sans comfort

The RBI has cut demand and curbed growth in the hope that inflation will exhaust itself. But, so far, all we have are signs of growth slowing. As another monetary policy intervention by the Reserve Bank of India looms, there is growing evidence that the central bank's tightening of screws has begun to have its effect, although not quite in the way one would have liked it. The question to ask, however, is: What exactly have the central bank's persistent increases in its key rates influenced? Certainly not food inflation, that though has abated somewhat, still reigns at disconcertingly high levels despite the drop in global commodity prices. It is the stubbornness of food prices which feeds the growing impression that the central bank will, in its September policy, continue with its hawkish stance on monetary policy. Where the RBI has succeeded for now, is in reducing the pace of overall demand. In its last monetary policy review, the RBI had singled out overheating as the prime reason for raising repo rates. As a result, interest costs are rising and will soon hit car sales, feel auto manufacturers. If that happens, one of the drivers of consumption expenditure will get affected, as will retail and personal loans over a wider spectrum of consumables. With the two biggest banks and largest lenders, SBI and ICICI Bank, announcing a 50-basis-point increase in their rates, borrowing costs are moving up to levels that were last seen nearly a decade and a half ago. Export growth is already feeling the pinch of high interest costs, as the Commerce Ministry Secretary recently confessed. When borrowers begin to shy away, waiting for another day for rates to become attractive once again, the banks, on their part, begin to get sticky fingers as a general mood of risk aversion sets in. That is what is happening right now, as banks flush with funds are finding few takers. Last year, they were crying for liquidity; in the first four months of the current fiscal, fresh flow of deposits into the banking system has shot up 50 per cent over the same period of the previous fiscal, while credit is slowing. The problem, as one bank official put it, will be felt in the second half, since fresh sanctions are decelerating. On the other side of the balance sheet, as it were, banks are likely to face mounting NPAs from SMEs and vulnerable sectors such as airlines and agriculture, setting in motion a fresh round of cautious behaviour on the part of banks. In short, where the RBI is succeeding is in cutting demand and curbing growth in the hope that inflation in sectors that matters most to the common man too will, in the bargain, exhaust itself. But, so far, the relationship between the first two and the last is rather tenuous and all we are left with are definitive signs of growth slowing.

HBL

RBI rate hikes, monsoon to tame inflation: Pranab

The government is hopeful that the series of rate hikes by the Reserve Bank of India (RBI) and good monsoon would help moderate inflationary pressures in the country, Finance Minister Pranab Mukherjee said Tuesday. "The measures taken to remove supply constraints in some of the agricultural products and the monetary policy adopted by the RBI will help bring about moderation of inflationary pressure," Mukherjee told reporters in New Delhi. He said the government was working in tandem with the RBI to bring down inflation to a comfortable level. The minister said good monsoon would ease the supply-demand gap and help bring down inflation, particularly food inflation. "I am quite confident that good monsoon will ensure moderation of inflationary pressure," said Mukherjee while reacting to the monthly data on inflation. The headline inflation based on wholesale price index declined marginally to 9.22 percent in July from 9.44 percent in the previous month, official data showed Tuesday. The minister said decline in monthly inflation was "good news". Reacting to the monthly inflation figure, Planning Commission Deputy Chairman Montek Singh Ahluwalia said the decline was along expected lines and the government would remain vigilant as the figure was still much above the comfort level. "It's good that it is declining but it is still high. We have to be vigilant," Ahluwalia said. The RBI has hiked its policy rates 11 times since March 2010 to curb inflation. Despite the consecutive rate hikes, inflation has remained stubbornly high, almost near double-digit, much above the central bank's comfort level of 4-5 percent during the last one and half year.

SME Times

Draft Microfinance Bill is ‘an enabler for the future'

Bangalore : The Draft Microfinance Bill is a welcome step, said industry members at the round-table discussion held on Tuesday.  The sector, which is facing serious concerns in the wake of the crisis in Andhra Pradesh, now believes that full compliance of the guidelines provided by the Bill will ensure flow of funds. Despite issues that need to be sorted out, the Bill will help, stakeholders said at the round-table organised by the Federation of Karnataka Chambers of Commerce and Industry (FKCCI) and the Association of Karnataka Microfinance Institutions (AKMI). Welcoming the Bill, Ms Achla Savyasaachi, Vice-President, Sa-Dhan, pointed out that the Bill is forward looking as “the legislations would be an enabler for the future, as it also looks at including customer savings/deposits in the future”.  Unlike the Malegam Committee, which had no industry representation, the Microfinance Bill Drafting Committee had representatives from the sector, she said. “Similarly, the sector would be benefited if the industry is represented at other Central and State committees too.” The RBI will now be responsible for developing sector-specific laws, she explained, while regulation could be given to another independent body.  Another important issue that was discussed is the flow of funds into the sector, which is now strapped for cash.  Mr Aloysius Fernandez, Chairman, AKMI, said that finance must flow into the sector, and should not be stopped for regulations to be formulated. Much of the problems faced by the sector today was due to a lack of regulation, he said. “If guidelines are not complied with fully, funding will not be available to the sector. Banks have now started providing fresh loans to us,” said Mr Samit Ghosh, Managing Director, Ujjivan Financial Services, a Bangalore-based MFI. According to Mr K.R. Ramamoorthy, former CMD, Corporation Bank and ING Vysya Bank, it is important to have regulatory and supervisory preparedness. He stressed the need for getting ready a regulatory preparedness document. While thrift was welcome, consumer protection in the sector was also important, he said. Speaking at the event, Mr Venkatraman, General Manager, Syndicate Bank, said that established bodies in the sector should start self-regulatory initiative, “which will help banks to be a little more pragmatic”. It was multiple lending that led customers to a debt trap, which has to be seriously looked into. The idea of the Bill was prudential regulation, he pointed out.

HBL

RBI revises operational guidelines for smart card-linked financial inclusion plan

The Reserve Bank of India (RBI) has issued revised operational guidelines on implementation of Electronic Benefit Transfer (EBT) and its convergence with the government's financial inclusion plan. Under the revised guidelines, state governments will select the leader bank for EBT implementation in respect of a particular district and designate a nodal department for coordination at district level.  The state government will also sign a memorandum of understanding (MoU) with the leader bank in respect of a particular district. The leader bank will make arrangements with other participating banks in the district, on revenue sharing contract. The nodal department will give a list of all beneficiaries to the leader bank, which in turn will distribute the list of beneficiaries among all participating banks. Participating banks will select and appoint the technology provider and deploy BC/CSPs in all villages. BC/CSPs will, in turn, enroll all beneficiaries and participating banks to open accounts and issue smart cards. The nodal department will open a savings bank account with the leader bank and provide files electronically containing details of beneficiaries each month and arrange for crediting the required amount into the saving bank account with the leader bank. The leader bank will arrange for crediting the amount electronically to other participating banks. Participating banks will credit the beneficiary accounts on the same day and send confirmation to the leader bank, which will, in turn, confirm credit to the nodal department. The funds are then at the disposal of beneficiaries for use as per their requirements. Participating banks should provide MIS reports to the leader bank which in turn to should submit reports to the nodal department. Leader banks should make reconciliations with the nodal department, preferably, on daily basis, but at least on weekly basis. The leader bank should mail developments in the implementation of EBT to the DCC/BLBC levels every month. Any policy or structural issues in the implementation should be discussed at SLBC level. EBT or `Smart card' meant for servicing low-value accounts and extending banking infrastructure to underserved low income areas has been implemented in the states such as Andhra Pradesh, Haryana, Karnataka, Orissa, Chhattisgarh, Himachal Pradesh, Uttarakhand, Bihar, Punjab, etc on pilot basis in select districts under the `One District - One Bank' model. However, stakeholders have expressed difficulty in scaling the model and the scheme has not been able to achieve the objective of financial inclusion. The financial inclusion plan aims at providing banking services to all villages with population above 2,000, on the basis of the service area approach. However, there has been a mismatch of the designated bank for EBT and FIP in the same village, which complicated the scheme. The new operational guidelines on implementation of EBT and its convergence with FIP has been formulated for clearer conceptual understanding and based on detailed consultative meetings and interface with stakeholders, RBI said.

http://www.domain-b.com/

Bank customers can select between RTGS and NEFT

RBI has asked all the participating banks to provide the option to the originating customer to choose between RTGS and NEFT modes of fund transfer. "The option should be made available to all the customers who may originate remittance either at the branch or through internet or any other means. The funds are to be transferred necessarily through the option chosen by the customer," RBI said in its directive to banks. RTGS and NEFT are two important pan-India payment systems introduced by the RBI keeping in mind the requirements of various customers in the wholesale and retail payment systems segment. Both these systems have distinct objectives and unique features in terms of the time criticality of payments, threshold value of transactions, mode of settlement etc. As such, the charges levied for transactions in the two systems are also different. The customers in turn, should be empowered to exercise the choice between these two systems depending upon their requirements, RBI noted.

http://www.domain-b.com/

Nagpurians support Anna's movement against corruption

NAGPUR: The effect of the anti-corruption movement spearheaded by Anna Hazare in the national Capital was felt in the city as a number of social activists and organisations spontaneously joined a peaceful demonstration at the RBI Square, the protest hotspot in the city, on Tuesday. Meanwhile, a similar agitation in support of Hazare will be organised at RBI Square on Wednesday at 10am.

TOI

FSDC panel discusses risk of global events on Indian economy

NEW DELHI: Financial sector regulators, including the Reserve Bank, on Tuesday discussed with finance ministry officials the recent global developments and the possible risk posed by them on the Indian economy. The meeting of the Financial Stability and Development Council (FSDC) sub-committee chaired by RBI Governor D Subbarao also discussed ways to deepen the corporate bond market and introduction of infrastructure debt funds (IDFs).  "The sub-committee reviewed the recent developments in the global macro-economic and financial sector scenario, focusing on issues relating to potential systemic risk for India," the RBI said in a statement issued after the meeting here.  Issues concerning inter-regulatory coordination and regulatory gaps, too, came up for discussions. The meeting took place in the backdrop of Standard and Poor's downgrading the US sovereign debt rating, sluggish global recovery and volatility in commodity prices.  "...regulation of investment advisory services and the conflict of interest in the distribution of financial products (also came up for review," the central bank said.  The meeting was attended by Sebi Chairman U K Sinha, PFRDA Chairman Yogesh Agrawal, Finance Secretary R S Gujaral, Economic Affairs Secretary R Gopalan and Financial Services Secretary D K Mittal. Besides, Deputy Governors of RBI K C Chakrabarty, Subir Gokarn, Anand Sinha and H R Khan were also present.  The financial sector regulators and government officials also deliberated on issues relating to progress in achieving financial inclusion and highlighted the need for a coordinated national strategy for financial literacy.  The government has set up FSDC under chairmanship of Finance Minister Pranab Mukherjee to strengthen and institutionalise the mechanism for maintaining financial stability, development and inter-regulatory coordination.

ET

A candid assessment of the Indian economy

What has not been specifically stated is that decision makers in government are unable or unwilling to take decisions; that there is a big drift in policy making; ......

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‘Humour meets act as stress busters'



A pat for hard work:

Class X students of RBI Staff Quarters School being felicitated by the Besant Nagar Humour Club



The Besant Nagar Humour Club, in association with RBI Residents' Welfare Association, Besant Nagar, conducted its monthly meeting recently.  The chief guest for the occasion was Bhaskara Bharati, social thinker and speaker. The meeting began with a prayer by Visalakshi. Chairman of the club A. Kumar, in his welcome address said that humour plays an important role in our day-to-day life. By attending the monthly humour meetings, the members not only forget their worries but also get energised, which will help them to be free from stress. He said the successful running of the club was possible only because of the unequivocal support of the RBI Residents Welfare Association and the encouragement given by the members and well wishers.  He requested the members to canvass among their friends and relatives about the activities of the club and get them enrolled as members, for which the annual membership fee is only Rs.150. G. Swaminathan, secretary of the club, conducted a lively open jokes session, in which children and elders participated in large numbers. The jokes were received by the members with loud cheers and applause.  Mr. Bhaskara Bharathi, gave an interesting talk on the topic "Humour in Public Life". He narrated the behaviour of different types of people and also from his day to day observations of his surroundings. His speech, which was laced with humour, was well appreciated by the audience which cheered him with thunderous applause. He concluded his speech by saying that if one wished to be free from worries, they should always be cheerful and should not think about their past failures or future problems. The club honoured five Class X students of RBI Staff Quarters School — M.B. Vignesh Karthick, M. Nirmal Karthick, S. Prakashika, P. Supriya and A.S. Rajavel, who were the school toppers and scored 9.6 to 10 points in the recent CBSE examinations.  V.K. Krishnamurthy, secretary of RBI Residents Welfare Association, spoke about the achievements of the school, which had 100 per cent result in the Class X exams and wished the students that they should come out in flying colours in the Plus 2 Public Exams as well.  D. Munusamy, president of RBI Residents Welfare Association, proposed the vote of thanks. For more details about the club, contact 94447 55430 or 94446 09467.

HBL  

Hello, RBI…..

The revelation made by a Member of Parliament that Indian coins are being smuggled out of the country to Bangladesh at prices higher than their face value to be melted and moulded into stuff like jewellery and pen-nibs is shocking. The Union Government and the Reserve Bank of India should take immediate measures before this practice of melting five and ten-rupee coins starts in India itself. The best way out would be to have coins of just three denominations – one rupee, five rupees and ten rupees apart from a limited quantity of 50-paise coins – in different shapes and thickness for easy recognition but only in stainless steel. This will largely reduce minting costs and prevent misuse.

Madhu Agrawal, Delhi (HBL)

Not in your Interest - RBI monetary tightening continues, loan interest rate up

As the tussle between stubborn inflation and the Reserve Bank of India (RBI) continues, be prepared for a double whammy. You can expect another round of increase in bank lending and deposit rates when the RBI continues with its calibrated monetary tightening in its quarterly policy review on 26 July 2011.  As the RBI squeezes liquidity from the system, your monthly out-go towards loan repayments will go up along with increase in household expenses. If the RBI increases the repo rate in its coming quarterly policy review, it will be the 11th hike since March 2010. After taking the market by surprise with a repo rate (at which it lends to banks) hike of 50 basis points (bps) in May 2011, the central bank had raised the repo rate by 25 bps in its June mid-quarter review. The RBI has been unsuccessful in reining in inflation despite repeated hikes in the repo rate. In June 2011, the Wholesale Price Index (WPI)-based inflation was at 9.4%, up from 9.1% in May 2011 and 8.66% in April 2011. One basis point is one-hundredth of a percentage point. The repo rate still does not fully account for the fuel price hike done on 26 June 2011-diesel prices were raised by 9% and prices of LPG (liquefied petroleum gas) and kerosene by 14.8%. According to a Citi Group report, with diesel, LPG and kerosene accounting for 6.3% of the WPI, the price hikes would push inflation by around 70 bps. Analysts say inflation is likely to average 9-9.5% in the current financial year. According to Ajay Parmar, head of research at Emkay Global Financial Services, the policy rate can go up by additional 50-75 bps in the current fiscal if the RBI continues with its anti-inflation stance. "If the repo rate goes up, bank deposit and lending rates are likely to go up since banks will pass on the increased rates to customers as liquidity conditions are tight and credit demand continues to be good," says V.K. Vijaykumar, investment strategist, Geojit BNP Paribas. Banks have already hiked their lending and deposit rates to reflect the past increase in policy rates. State Bank of India, the country's largest lender, increased its base rate (the benchmark interest rate which is the minimum lending rate of a bank) by 25 bps to 9.5%. The bank also increased its fixed deposit rates up to 100 bps across various maturity tenures. ICICI Bank and HDFC Bank have also hiked their base rates by 25 bps to 9.5%. Oriental Bank of Commerce increased it base rate from 10% to 10.25%.

Business Today  

Refinance charges for banks may rise

Commercial banks that aren’t keen on lending in the country’s unbanked areas may find themselves having to pay as much as one percentage point more for refinance from the National Bank for Agriculture and Rural Development (Nabard).........

Read............ 

Poor roads cost Rs 35,000 cr a year: Report

NEW DELHI: Poor maintenance of roads costs the country about Rs 35,000 crore annually and erodes some 40,000 km of rural roads and 10,000 km of secondary roads, a report prepared for the National Transport Development Policy Committee headed by former RBI Deputy Governor Rakesh Mohan says.

TOI

Would be better if rating agencies in public sector: Former RBI Governor Y V Reddy

MUMBAI: Former Reserve Bank Governor Y V Reddy has opined that it would be better if rating agencies are owned and managed by public funds, as it will improve their impartiality. Earlier this month, leading global ratings agency Standard & Poor's downgraded the sovereign rating of the US government from the top-notch AAA rating it had been enjoying for the past seven decades to AA+. The move invited scathing criticism from many a quarter, as it was S&P and other ratings agencies like Fitch and Moody's which had given the golden rating to banks that had been holding subprime debts, which in turn led to the worst global recession since the 1930s. When asked if there is a need to relook at the ownership nature of ratings agencies, especially following the unilateral downgrade of US debt by S&P, Reddy said, "There is merit in treating rating agencies as public utilities and hence managed and owned by public funds." Reddy further pointed out that there already is an attempt toward this, as in China, there is already a ratings agency owned by the state. Reddy further pointed out that though governments do not seek sovereign ratings, as ratings are given by private agencies, they are important, as many regulators and public and financial market intermediaries use them. Consultancy firm E&Y India National Leader Ashvin Parekh, too, opined that it would be better if multilateral agencies like the World Bank or the International Monetary Fund do the job, as such a move can render more sanctity to the process. However, an economist who has had a long stint in the ratings world, differed with this view, saying the highly skewed voting rights at the WB and IMF make it difficult. "In the World Bank and the IMF, the US and Europe have high voting rights... What can do you do in such situations? I think there is no alternative," the economist said on condition of anonymity. Many analysts and columnists have described the S&P decision to downgrade the US as a belated attempt by an organisation to reassert its relevance, which it lost following the 2008 crisis. The three leading global agencies - S&P, Moody's and Fitch - had given high ratings to the holders of subprime debt in the US, but these proved to be dubious, which in turn led to the collapse of the US economy, as well as other economies around the world. 

ET

Indian use of plastic money in strong surge

Spending through credit cards rose by 30% year-on-year to Rs22,128 crore during the April-June quarter of 2011-12 against Rs16,948 crore last year, according to data released by the Reserve Bank of India (RBI). Spending through debit or ATM cards, increased by 45% year-on-year to Rs11,691 crore during the April-June quarter compared to Rs8,065 crore last year. “It’s a natural progression for country like India, which is growing rapidly and more people availing banking facilities,” said Anand Selvakesari, country business manager, global consumer group, Citibank. “However, there is still much potential left as penetration of plastic money in India is less than countries such as the US and China.” However, the total number of credit cards in the country witnessed a marginal fall as total outstanding credit cards at the end of June 2011 declined 6% to 1.8 crore from 1.9 crore at the end of June 2010. On the contrary, the number of debit cards rose 25% to 24.0 crore at the end of June 2011 compared to 19.0 crore at the end of June 2010. “The growing number of point-of-sale terminals in the country have also helped in increasing payment through credit and debit cards,” said M Narendra, chairman, Indian Overseas Bank. However, bankers are likely to be cautious in selecting their customers for credit cards due to the uncertainty in the global economy. “We will continue expanding our cards base in India, but will select customers cautiously,” said Selvakesari.

HT

Financial Stability Development Council to discuss interest rates,US rating loss

MUMBAI: The sub-committee of the Financial Stability Development Council (FSDC) will meet in Mumbai on Tuesday to discuss issues related to interest rates and impact of the US rating loss on Indian markets, people with knowledge of the matter said. It will be the first such get-together of the country's financial regulators since the US lost its AAA credit rating from S&P.  On the agenda for the meet, an agency report quoted a finance ministry official: "We will discuss issues including review of financial stability, infrastructure debt funds, repo in corporate bonds, conflict of interest in distribution of financial products, financial literacy and financial inclusion by banks."  FSDC is a high-level organisation, headed by finance minister Pranab Mukherjee, set up last year to strengthen and institutionalise the mechanism for maintaining financial stability, financial sector development and inter-regulatory co-ordination. The sub-committee of FSDC is headed by RBI governor D Subbarao.  The meeting is likely to be attended by Sebi chairman UK Sinha, Irda chairman J Hari Narayan, and PFRDA chairman Yogesh Agrawal.  Senior officials from the finance ministry, including chief economic advisor Kaushik Basu and economic affairs secretary R Gopalan are also likely to be present.  The high-level congregation comes amid global financial nervousness following the US downgrade and Europe debt problems and rising interest rates in India to fight stubborn price pressures. The central bank has aggressively tightened rates since March last year and is expected to continue its stance despite global economic uncertainty. Reacting to the lowering of rating for the US, RBI said it is expected to have a "limited impact" on India's growth.  Headline inflation based on wholesale price index (WPI) rose to 9.44% in June from 9.10% in May, and well above the central bank's perceived comfort level of 6-7%.  

ET

Microfinance gets lending boost with RBI nod to crowdsourcing

India’s microlending sector has got a significant nudge with the central bank giving its first nod to a crowdsourcing company to attract small loans from abroad for the country’s poor. Following the Reserve Bank of India’s (RBI) approval, individuals or institutions from anywhere in the world can use Milaap’s online platform to identify whom they want to lend to, widely expanding the capital source for the company. They can extend as little as Rs.1,000 to fund someone’s education or solar stove business and Milaap will give the pooled money to the borrowers at interest rates of 8-15%. India has only a handful of these so-called crowdsourcing, or peer-to-peer (P2P), businesses—smaller cousins of microfinance institutions, or MFIs, which extend small loans at interest rates of 18-24%. The poor in India have to pay high interest when they borrow from MFIs as these, in turn, borrow from banks at commercial rates, said Milaap chief executive Sourabh Sharma. “This will open the doors to the entire world to be able to make loans to help India’s working poor. This exponentially increases the potential social capital which can be raised.”

Mint

No nation is an economic island

The Indian government has been blasé about the economic turmoil in the western world. There are some grounds for this attitude. The Indian economy has weathered, in quick succession, a global commodity price spike and a global financial crisis. It is now about to face the fallout of a global public debt crisis.  On closer examination, this view may be Panglossian. If the world economy does slip into a second recession, it will impact the Indian economy in three negative ways. One will be a fall in export demand. The present de-leveraging problems besetting the US and European economies will, if not managed, slash demand from two of the three biggest markets for Indian goods and services. Exports have been one of the success stories in the past several years, both in terms of growth and diversification. If they run aground, growth, job creation and India's current account deficit will pay a stiff price. Two, a double-dip will constrict capital flows. The sensex collapse that followed the sub-prime crisis was triggered by the flight of foreign investors needing to cover debts at home. The global corporate sector is far less leveraged today. This could moderate the scale of another ebb of capital. But in times of uncertainty, money seeks safety - a reputation that still evades India. Three, confidence, intangible but all-important in a modern economy, will go downhill. The pronouncements of Indian ministers failed to instill confidence in the post-Lehman Brothers period. Today, when New Delhi has run its political capital down to minimum balance, officialdom's ability to hold up market sentiment is even less likely. India's economy is sound if one goes by the numbers. But the beating heart of the economy is the corporate sector. This creates the bulk of new jobs, pays the most government taxes, carries out most of the country's investment and is the real source of India's dynamism. This sector is wholly globalised. The Tata group, India's largest conglomerate, earns half its revenues overseas. If the world falls to its knees, the legs which hold up India's prosperity will also buckle. The government can compensate - but India is already the most red-inked emerging economy.

Optimists hope a recession will tame domestic inflation - as happened in 2009. This would allow the Reserve Bank to relax its monetary policy, the primary dampener on the economy. This may be wishful thinking. The worst sources of inflation, like food prices, are unaffected by the swings of Wall Street. Inflation-adjusted, oil prices are already at unexceptional levels. And the central bank will probably ignore market whimsy and hold the line on rates.

HT

Rising NPAs may lead to meltdown

The rising prices and Reserve Bank’s insistence on repeating the same prescription — raising interest rates — are telling on the health of the banks. Bad loans — non-performing assets — are growing phenomenally.  If the trend persists, it would not be a surprise to see a repeat of Lehman-type crash not only of the banks but of the entire economy. The locale this time might be India. In the April-June quarter, gross NPAs rose by almost Rs 5,000 crore. In the January-March quarter it stood at Rs 60,685 crore. It rose to Rs 65,318 crore by June end. This is stated to be the highest rise of bad loans in over five years. If the proper management of the NPAs is not undertaken, it would hamper the business of the banks. If the concept of NPAs is taken very lightly it would be dangerous for the Indian banking sector. It may lead to severe fund crunch. Till 2008-09, the real estate and housing segment contributed highly towards the NPA. As the economy started heating up, other sectors have also started defaulting. The challenges before the banks in India today are the rising NPAs in the retail sector, propelled by high consumerism and lowering of moral standards.  The corporate sector, which had shown improvement in their repayments, once again is defaulting owing to the pinch of high interest rates. It is not that all payments are unrecoverable. But as the amounts are mounting, banks would have to consider restructuring loans — euphemism for acceptance of delay in repayment. They have little option. As the economy slows down, less business is generated leading to cash crunch. So there is a different jargon to understand the actual level of bad loans — largely doubtful assets — and it is called net NPA. It has risen by almost Rs 3,000 crore in the quarter ending in June from Rs 24,914 crore in the previous quarter to Rs 27,311 crore. It signifies an increase of 9.62 per cent.  One of the major defaulters, of late, has been the small and medium enterprise segment, Bank of India chairman and managing director AK Mishra has said, as they are finding it difficult to service their loans. Overall two out of every three banks are seeing rise in their NPAs. The public sector banks naturally are the worst hit. But some private sector banks, including IDBI Bank, are also not free from the malaise.  The percentage change in gross NPA to gross advances ratio and net NPA to net advances ratio over the years states that public sector banks makes more provisions in gross NPA and gross advances as compared to private and foreign banks. Public sector bank managers blame this on RBI guidelines. Earlier, NPAs were calculated manually. Since many banks used to conceal facts, RBI issued instructions to decide it on the basis of computer system generated ‘recognition’. Many bank top officials say that it inflates the reality. Now the system is based on 90 per cent information. By September it would cover 100 per cent. Technically, the September figures would be much higher. There is truth in the assumption because the computer system does not recognise whether the delay is by a day or several months. So the bankers’ assumption that this inflates the gross NPAs may not be incorrect.  But when it comes to net NPAs, they do not answer the queries.In short, they agree that the problem is aggravating. The bane of Indian banking system as of now is the high interest regime. Even RBI recognises it. But its insistence on containing inflation in a hackneyed manner through monetary mechanism is causing problem. The RBI prescription is further adding to inflation and also slowing down all other industrial activities.  Another fallout of high NPA, according to a study by NR Institute of Business Management, is burdening honest depositors, creditors and other users with high unwarranted fees. This makes banking expensive and ultimately again adds to inflationary pressure. It is also not a guarantee that NPAs would come down. In reality, banks are subsidising defaulters at the cost of others. This may help them in the short-run but in the long-run this is no insurance for a severe breakdown.  The banks need to bring down their fees to encourage people to use their services more. Many organisations are looking for alternative route for payments, as bank services have become expensive instruments. This has led to asset quality deterioration, a term that signifies a crunch of funds with the banks. The banks now saddled with high credit burden are awaiting a relief from RBI. They are expecting that as in 2009-10, in the event of the US and European economic crash, RBI would allow them to restructure their loans. That would technically relieve them of immediate gross NPA worries. But that is not a solution for the rising net NPAs. It is difficult to prevent unless inflationary pressures come down, people once again start flocking to the market for buying goods and industrial production picks up. If it does not happen, the meltdown may impact dreadfully. 

The Pioneer

As the Reserve Bank of India persists with a monetary mechanism to contain inflation and put the economy back on its growth trajectory, the non-performing assets of banks are rising. If this continues, it will lead to a severe fund crunch

Dollar supremacy to continue as there's no alternative: Reddy

MUMBAI: Former RBI Governor Y V Reddy does not think the US dollar will lose supremacy because there is no alternative. "After all, there is no alternate global currency now. If those countries with large exposure to the US T-bills start selling them, then it will devalue the dollar more, which in turn will hurt these countries more than what it does now," he told PTI over the telephone from Hyderabad. "From that angle also, the supremacy of the dollar will continue," he added. When asked if the US downgrade would lead to an eventual loss of the position of the dollar as the global reserve currency, Reddy said, "The fact is that the American greenback still dominates. The euro is in trouble, so is the yen. There may be some weakening of the dollar as a fallout of the current crisis, but the relative position of the dollar to all other currencies has not changed." According to US Treasury Department data, America owes USD 4.5 trillion to foreign countries that hold its government securities. China is the single largest holder of US treasury bills, or T-bills, with an exposure of over USD 1.15 trillion, which is nearly half of Beijing's forex reserves. New Delhi comes 14th, with an exposure of USD 41 billion, or Rs 1.83 trillion. The overall national debt of the US is moving nearer to USD 15 trillion following the consensus reached in August to raise the nation's debt ceiling. Following the unprecedented debt downgrade of the US from the top-notch 'AAA' level by ratings agency Standard & Poor's to AA+ earlier this month, there was expectation that the Reserve Bank, which allows holdings of government bonds of countries with mostly AAA rating, may take some action. However, nothing has come from Mint Road as yet. According to reports, a vast majority of the USD 41 billion portfolio is owned by the RBI itself, but some domestic banks also might have some exposure. Sources had earlier said the RBI is likely to allow holdings of US securities even with a notch-lower rating, as it has been amassing the US treasury securities over the past one year despite a deepening debt crisis there. The country's total holdings of US T-bills have grown by about USD 10 billion in the past one year alone, according to the US Treasury Department data. 

ET

‘S&P downgrade is a wake-up call partly for US, partly for rest of world’

Dr Y. V. Reddy, 70, wasn't short of admirers even when he was Governor of Reserve Bank of India. In the three years since he has demitted office, his reputation has only risen even as the global economic crisis unfolded in all its severity. Seen at one time as someone spoiling the party because of his pre-emptive tightening of policy rates, he has since been vindicated by subsequent events. Prof. Joseph Stiglitz, Nobel Laureate, is reported to have said, “If America had a central bank chief like Y.V.Reddy, the US economy would not have been in such a mess.” Similar hosannas have poured in from many quarters all over the world. Importantly, acknowledgement of his significant role has come in even from the then Finance Minister, Mr P. Chidambaram, who was often at the receiving end of his policy exertions. Mr Chidambaram referred to Dr Reddy as the foremost among the many wise and intelligent men who advised the Government on economic matters and credited him with preparing the country well for the crisis. Dr Reddy was not afraid to differ with the Minister on policy issues and they have had what both call ‘healthy quarrels'. This often gave rise to a number of stories — many of them apocryphal — which added to his image as an independent thinker who would not kowtow mindlessly to the powers that be.  One of them ran thus: A visitor entered Dr Reddy's office and heard him say on the phone.. “ No..No….No….No…Yes.” After hanging up, Dr Reddy explained that he was on the phone with the Finance Minister. Then elaborating a bit more, he said that the Finance Minister wanted him to do a couple of things, which he had refused. The visitor then asked him what was the‘ yes' for? Dr Reddy is supposed to have said, “Oh, he asked me if I could hear him?”  These stories just added to the legend. Dr Reddy established a strong reputation as a defender of the central bank's autonomy, while all the time taking care to emphasise that it had to work in tandem with the Finance Ministry if broader goals were to be achieved.  Dr Reddy is among the few who has been closely and continuously associated with the financial reforms process from the time he went to the Finance Ministry in 1990. From then till his retirement in 2008, he has moved through many positions in the Ministry, followed by a stint as Deputy Governor at RBI, a stint at the IMF as Executive Director, before returning as Governor in 2003.  Since his retirement he has moved to an academic role as Emeritus Professor at the University of Hyderabad. He frequently jets across the globe dispensing his brand of wisdom to eager governments as well as think-tanks that want to tap his brains.  His capacity to take up an issue, debate its pros and cons and find the right words to articulate his thoughts come through in all his talks and interviews. Quick on the uptake, he can, when he chooses to, clothe his thoughts in opaque fashion in Greenspanish mould. Equally, he can bring candour mixed with his humour to drive his point home.  In this interview given to Business Line at Chennai, Dr Reddy talks about the impact of recent events and what he sees as the issues that policy makers have to deal with. The train of thought that runs through is philosophical and contemplative as he deals with global macro issues. Every once in a while he would stop for a moment to half- apologetically wonder whether he was giving a lecture to us. We assured him that our readers would be keen to hear his thoughts on the important issues of the day.

HBL