MUMBAI :- Most members of the Reserve Bank of India's advisory committee favored a softer stance than the central bank took with its July monetary policy, minutes of the committee's meeting released Thursday reveal. On July 26 the RBI surprised markets by hiking its key lending rate by a sharper-than-expected 50 basis points. Four members of the technical advisory committee, or TAC, suggested the RBI " wait and watch" as the transmission of earlier rate hikes was still playing out and uncertain global conditions were slowing domestic investments. "While one member suggested an increase in the repo rate by 25 basis points, two members felt that the increase in the policy rate be avoided, if possible," the minutes released on the RBI website stated. Another member suggested an increase in the cash reserve ratio by 25 basis points. The committee said while investment activity was slowing down, overall growth was strong compared to other emerging markets. Inflation, however, is stubbornly high and a major concern. Most members felt there could be a slippage in the fiscal deficit estimated in the federal budget. They expressed concern that the entire burden for inflation management was on monetary policy, it stated. The central bank's TAC, chaired by the RBI Governor, includes some central board members, deputy governors and external experts in the areas of monetary economics, central banking, financial markets and public finance. The TAC periodically advises the RBI on the stance of monetary policy in the light of macroeconomic and monetary development. The last meeting, as a run up to the first-quarter policy review, was held on July 20 and was chaired by Governor Duvvuri Subbarao.
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201108180957dowjonesdjonline000343&title=indian-central-banks-advisory-panel-favored-a-softer-july-policy
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Friday, August 19, 2011
New players needed for competition in banking sector: PMEAC
New Delhi : Amid RBI framing norms for the setting up of new banks, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan today said more lenders were required to ensure competition in the sector. "New [bank] licences are required because no industry can remain competitive if the entry is completely excluded," Rangarajan said when asked if Indian customers need new banks. Speaking on the sidelines of a function here, he said the Reserve Bank of India (RBI) would lay down conditions for the entry of new banks, "but it can not be that the opportunity for entry can be completely denied." Following a Budget announcement, the RBI last year floated a discussion paper on allowing the opening of new banks and invited stakeholders' comments on the issue. According to sources, the Finance Ministry is not in favour of immediately allowing large corporates to open banks and has conveyed it to the RBI. They said the Reserve Bank might initially give only four licences mainly to NBFCs or Non-Banking Finance Companies. On the plans of the postal department to seek banking licences, Rangarajan said "Well, I do not know how that will be treated because a bank not only receives deposits but also gives loans...I don't know what they have in mind...." The department had over Rs 3.72 lakh crore in deposits from 26.45 crore small savings accounts at the end of June. Telecom Minister Kapil Sibal wants to reach out to the masses in the rural areas with modern banking facilities through the post offices. With an aim to to commercialise the department, he said recently that the government would seek licence from RBI to convert all post offices into banks.
BS
Subbarao ignored majority view to hike key rates by 50 bps
MUMBAI: Minutes of RBI's technical advisory committee's meeting on July 20, ahead of the monetary policy review, reveals that governor D.Subbarao went against the majority opinion to raise repo and reverse repo rates by 50 basis points each. All but one panel members had favoured a pause in monetary tightening. Even the one who suggested a hike was in favour of a 25 basis points rise in the repo rate. Among those who submitted their written views were Subir Gokarn, K C Chakrabarty, H R Khan, Shankar Acharya, Y H Malegam, Sanjay Labroo, A. Vasudevan and Prof Sudipto Mundle, Dilip M. Nachane and Samir K. Barua.
TOI
Only one panel member wanted RBI to raise rate
A majority of the members of the panel, chaired by the RBI governor, wanted the central bank to wait and watch for the transmission of past monetary actions and give equal weight to the objectives of “fostering growth and controlling inflation while formulating monetary policy,” according to the edited excerpts, posted on the central bank’s website. The views of the members, which include 10 outside members and several senior central bankers, are not binding on Governor D. Subbarao......
Subbarao is lone inflation hawk in RBI advisory panel
....But the Governor, who has shown his independence many times, felt that he had to stamp out inflationary expectations and opted for 50 basis points. In the monetary policy, the governor made inflation his primary target, and the RBI actually raised its year-end inflation forecast from 6 percent to seven percent......
Atyant Capital's Rahul Saraogi: Rule of Law Determines Depth of Debt Market - India Knowledge@Wharton
India has a very sophisticated and well-developed equity market -- comparable with the best in the world; however, the debt markets in India remain underdeveloped. Former deputy governor of the Reserve Bank of India (RBI), Shyamala Gopinath, had once stated that the RBI is keen to develop the corporate bond market in India. She said, however, that none of the stakeholders have really been able to tell the RBI what changes they need in the regulatory environment for the development of the bond market........
The business of banking : Jaimini Bhagwati
A discussion paper put out by the Reserve Bank of India (RBI) in August 2010 examines the pros and cons of the “Entry of New Banks in the Private Sector”. The central issue in the paper is whether large industrial houses should be allowed to sponsor new private sector banks. This article reviews the discussion paper and comments on the six topics listed in it for further debate. The RBI paper starts with a discussion on widening financial inclusion as one of the objectives in granting licences to new private sector banks. A separate July 2011 RBI paper titled “Financial Inclusion in India: A Case Study of West Bengal” rates Indian states on the extent of financial inclusion achieved. Kerala, Maharashtra and Karnataka are ranked one, two and three and Uttar Pradesh, Madhya Pradesh and Bihar are at positions 13, 20 and 21. Clearly, there is a positive correlation between social development levels and financial inclusion. New private sector banks could be required to help promote financial inclusion by using profits from their branches in urban clusters. However, such cross-subsidies will not be sustainable since banks can only complement development efforts, not substitute for them. The first and second questions posed in the discussion paper are: (a) what should be the minimum capital requirements for new banks; and (b) what should be promoters’ contribution? My sense is that these two capital requirements may be Rs 1,000 crore and 40 per cent, respectively, with the latter number to be brought down to, say, 20 per cent over 10 years. The guiding principle for required minimum capital and ceiling on promoters’ contribution should be consistency with a risk management framework that includes existing banks. The third question is the extent to which foreign shareholding is to be allowed in new banks. The licensing norms for new banks should not be complicated by simultaneously reopening the issue of caps on foreign ownership of banks in India. If anything needs to be changed on norms for foreign holdings in the financial sector, it is the often misused distinction between non-resident Indians and non-Indians. Everyone permanently residing outside India should be in one category for investment and taxation purposes. The fourth, and most important, question posed in the paper is “whether large industrial and business houses could be allowed to promote banks”. The Indian licensing guidelines of 2001 do not allow “large” industrial houses to sponsor new banks. The reasons go back to the dubious practices of such banks directing credit to preferred borrowers prior to bank nationalisation in 1969. All the disadvantages of allowing industrial houses to sponsor banks are as valid today as before. Among major economies, Canada, UK, Germany and France do not bar industrial companies from promoting banks. In contrast, the US does not allow industrial houses to own banks. It is evident from the dispersed nature of past banking sector breakdowns that permitting industrial houses to own banks or disallowing them was not a good indicator of whether banks would need government back-stop funding assistance. As the RBI paper has suggested, the probability of industrial houses interfering in banks promoted by them could be reduced by restricting banking licences to companies with diversified ownership. On balance, continuing indefinitely with policies that restrict the entry of new private banks and, thus, inhibit competition would not be efficient. There could be ways through which large industrial houses can provide equity capital without the egregious wrongdoing of the past. The downside risk is that it may be practically impossible for RBI to prevent crony lending practices. Consequently, it is for RBI to assess whether, at our current stage of development, it can consistently monitor bank lending and stand up to pressures from corporate oligopolies. The fifth question is whether non-banking financial companies (NBFCs) should be allowed to convert into banks or promote banks. A large number of Indian NBFCs are engaged in tax and other forms of financial arbitrage. Hence, while in principle NBFCs can be allowed to sponsor new banks, their antecedents and possible ownership links with corporate houses through non-transparent cross-holding structures should be investigated and taken into account. The last question is what the business model for new banks should be. The short answer is that there is no need for a separate business model for new banks. Taking a step back, the RBI discussion paper needs to be broader in its outlook and should analyse the causal reasons for banks having to periodically depend on funding support from taxpayers. The section in the paper titled “lessons from the recent global financial crisis” is too short and perfunctory. Indian household and private sector debt, as a proportion of GDP, is lower than comparable numbers in several developed countries. As for smaller Indian companies, they often pledge shares as collateral to borrow. Indian banks have recently had to take over equity stakes in some companies that were not in a position to service their debt. Further, dark clouds are again gathering on the European and US economic horizons. Consequently, we need to assess if periodic banking sector crises are inevitably linked to business cycles or whether they are more influenced by unconstrained and under-regulated growth of the banking sector as compared to the rest of the economy. For example, the banking sectors in the US, the UK, Iceland, Ireland, Cyprus and regional savings banks in Spain are significantly oversized and/or over-leveraged. It is high time to reflect on the received wisdom that more is good in banking since this promotes growth. A related issue is the extent to which deposit taking and investment banking should be segregated in new private banks in India. In this context, it has been reported that the UK Independent Commission on Banking headed by John Vickers is likely to recommend strict segregation of deposit taking from investment banking (the report is expected in October 2011). According to press reports, RBI would soon issue draft guidelines for large industrial houses to sponsor new private banks. RBI should take its time to reassess outstanding levels of household, corporate and public internal and external debt, sectoral growth of credit and preferred size of the banking sector versus that of the economy before issuing licences for the entry of new private banks.
BS
Couple loses property due to mortgage, challenges Securitisation Act rules
In an interesting case, a petitioner whose property was mortgaged by the India Bulls Housing Finance Ltd, has moved the Gujarat High Court challenging the provisions of the Securitisationand Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. By this they have challenged the power conferred to the central government to declare an institution as a financial institution. Jyoti Gajjar and her husband Kamlesh Gajjar, resident of Surat have moved the Gujarat high court challenging the said provisions of Securitisation Act 2002. They have alleged that the central government had by a notification dated September 19, 2007, declared India Bulls Housing Finance Ltd a financial institution which is ultra vires to the constitution. They have further alleged that provisions of the securitisation Act gives uncontrolled powers to the Centre which gives rise to discriminatory decisions. The couple had taken a loan of Rs8.25 lakh from the company which was to be repaid in 120 installments of Rs14,296. The couple had had paid about Rs6.58 lakh but the company meanwhile sealed the property. The case is pending before the DRT. The couple had challenged the sudden increase in the amount of installment and exorbitant rate of interest charged by the company in violation of the RBI guidelines. In the petition filed by the couple through their advocate Massom Shah and Vishwas Shah, they have stated that notification issued by the central government declaring the company a financial institution is illegal and without authority of law as Narasimham Committee and Andhyarujina Committee never had an occasion to study the company. The Gujarat high court after hearing the argument by the petitioners have admitted the case and issued notices to central government, India Bulls Housing Financial Ltd and RBI. However, the court has further stated that as the provisions of the Act is challenged, the court has issued notice to the attorney general.
DNA
Reserve Bank fines Rajkot Commercial Coop Bank
The Reserve Bank of India (RBI) on Thursday penalised Rajkot-based Rajkot Commercial Co-operative Bank Limited for violation of RBI's instructions regarding grant of unsecured advances in excess of prescribed ceiling and director related advances. The RBI has slammed a penalty of Rs 2 lakh on the urban commercial cooperative bank. In a statement issued on Thursday, the RBI said, a monetary penalty of Rs 2 lakh on Rajkot Commercial Co-operative Bank Limited, Rajkot, Gujarat, in exercise of powers vested in it under the provisions of Section 47(A)(1)(b) read with Section 46(4) of the Banking Regulation Act, 1949 (AACS) for violation of Reserve Bank of India's instructions regarding grant of unsecured advances in excess of prescribed ceiling and director related advances. The RBI had issued a show cause notice to the bank in response to which the bank had submitted a written reply. After considering the facts of the case and the bank's reply as also personal submissions in the matter, the RBI came to the conclusion that the violations were substantiated and warranted imposition of the penalty, the statement said. Further, on Tuesday, the RBI had fined another Gujarat based cooperative bank for violation of RBI norms. The apex bank imposed a monetary penalty of Rs 1 lakh on the Becharaji Nagarik Sahakari Bank Limited, Becharaji in Mehsana district of Gujarat. The penalty was slammed for violation of RBI's instructions relating to Know Your Customer (KYC) norms and Anti Money Laundering (AML) guidelines
BS
How to secure your credit and debit cards from fraud
Convenience banking has, undoubtedly, come a long way. Most individuals have made the journey from ATMs to internet and mobile banking with consummate ease. However, most of them are still concerned about the risks involved in these new-age banking channels. The sentiment is shared by the Damodaran committee on customer service in banks, set up by the Reserve Bank of India (RBI), to study the problems and concerns faced by bank customers....
Now, any bank can join national financial switch
The National Payments Corporation of India (NPCI) has said any bank with round-the-clock core banking solution capabilities, with or without ATMs, can now join the national financial switch (NFS) through a sponsor bank. NPCI is an umbrella institution for all the Retail Payments Systems' in the country. The move is aimed at facilitating even non-scheduled urban cooperative banks and regional rural banks to have access to the national network of over 78,000 ATMs in the country, NPCI managing director and chief executive AP Hota said in a release. So far, access has been limited to only scheduled banks with RTGS membership, he added. Meanwhile, the NPCI also said the total number of banks which have opted to join the inter-bank mobile payments service (IMPS) network have crossed 27 with two more private sector lenders joining the network over the past fortnight. With the above change, two cooperative banks which are now only sub-members -- the Pandharpur Urban Cooperative Bank and Dr Annasaheb Chowgule Bank at Kolhapur-- have already gone live on the NFS network. While the Pandharpur Urban Cooperative Bank has three ATMs and is sponsored by ICICI Bank, Dr Annasaheb Chowgule Bank is sponsored by HDFC Bank and has only four ATMs. But with this facility, the customers of these banks can access any ATM in the country. "This is a step forward to inclusive growth of financial services and serving customers of the smaller banks, UCBs and RRBs," Hota said. The sponsor bank scheme on the NFS network will improve ATM connectivity across the country, even in the remotest areas, he added.
BS
Demystifying foreign exchange
Money matters:
Uma Shankar, Regional Director, RBI Bangalore, and Canara Bank Chairperson S. Raman at the RBI exhibition in Bangalore on Wednesday
With terms such as FEMA (Foreign Exchange Management Act) as well as conditions relating to the amount of money you can carry abroad, the idea of foreign exchange is a daunting one to most of us. A two-day exhibition-cum-interface, organised by the Reserve Bank of India (RBI) intends to demystify all that. “The idea of the exhibition is to dispel the fears behind FEMA, and demystify the whole process of carrying money out of the country,” said Uma Shankar, Regional Director, RBI Bangalore, who, along with Canara Bank Chairperson S. Raman, inaugurated the exhibition on Wednesday in the city. “If people know their responsibilities and the procedure to take, half of the grievances lodged with the RBI would be solved,” said RBI Chief General Manager K.R Das. The exhibition has 20 stalls, covering a range of issues such as remittances, loans, sending money abroad and banking frauds. With stalls such as those explaining FEMA with computer games, as well as quizzes and interaction sessions with banking officials, the organisers hope to get students actively involved in the initiative. The exhibition is open to the public between 5 p.m. and 6 p.m. at Jain College, J.C Road.
HBL
Thursday, August 18, 2011
Tripping Growth – TANEESHA KULSHRESTHA
Is RBI Governor D Subbarao waging a futile battle against inflation?
On July 26, RBI hiked repo and reverse repo rates by 50 basis points, the 11th such hike since March last year. The move rattled a market expecting a 25 basis points hike. It also conveyed RBI’s tough stance on controlling inflation even at the cost of growth. Inflation stood at 9.44% for June and has continuously remained above the 8%-mark for the past 18 months, a rate higher than RBI’s comfort zone of 4-4.5%. Clearly, the rate hikes have not worked till now. Meanwhile, growth is already suffering. For instance, India’s factory output grew at just 6.3% in April as compared to 13.1% last year. This scenario is expected to worsen. “We are only at the early stages of seeing the impact of the monetary tightening, the negative effects of which are likely to persist well into 2012-13,” said a Credit Suisse note in June. This begs the question: has RBI Governor D Subbarao indeed lost his touch? Through successive rate hikes, RBI is trying to reduce the money supply in the system and bring down effective demand. Unfortunately for RBI, the rising prices are a combination of domestic and global market phenomena beyond its control. Commodities like coal and oil have been witnessing continuously high prices fuelled by uncertain political dynamics in West Asia and the growing demand from emerging economies. Closer home, inherent supply side constraints continue to fire inflation. Agricultural productivity has stagnated while policies regulating food retail and distribution need urgent reform. “The retail margin charged between the farmer and the end consumer is too high,” says DK Joshi, Chief Economist, Crisil. Recent fuel price hikes for diesel and petrol too have added to inflationary pressures. Clearly, focusing on monetary policy alone will not give the desired results. “Some blame government schemes, like MGNREGS and other such rural employment schemes, for increasing demand pressures, but that is not correct. What we need is reforms and policies that encourage agriculture and manufacturing,” says independent economist Anjan Roy. RBI, too, agrees. “The Reserve Bank’s efforts of achieving low and stable inflation could also be supported by concerted policy actions and resource allocations to address domestic supply bottlenecks, particularly in respect of food and infrastructure,” said Subbarao in a statement. In a not so subtle warning against profligacy he added, “Fiscal consolidation can contribute to a sustainable growth path by rebalancing demand away from government consumption and towards investment.” For now, rate hikes are expected to continue. The RBI is clearly at war.
The Outlook
RBI’s Mohanty on success of new monetary policy framework
 |
Reserve Bank of India Executive Director Deepak Mohanty offers positive feedback on central bank’s new operating framework |
Deepak Mohanty, an Executive Director at the Reserve Bank of India (RBI), on Friday said the central bank's new monetary policy operating framework had improved the policy effectiveness, but that further challenges remained. On May 3, the RBI announced a revised monetary policy operating procedure, which improved upon the liquidity adjustment facility (LAF) framework and recognised the weighted average overnight call money rate as an explicit monetary policy operating target. At the Indian Institute of Management in Lucknow, India, Mohanty said: "While it is too early to judge the efficacy of the new operating procedure, experience of more than three months suggests that the overnight interest rate was more stable following the implementation of the new procedure." Mohanty said the new operating framework with the modified LAF meant the impact on the overnight interest rate was immediately transmitted through the term structure of interest rates. However, Mohanty said there remained three main challenges: keeping systemic liquidity consistently in a deficit mode; retaining the capacity to conduct longer-term liquidity management operations; and the ability to send effective transmission of policy signals to the operating target. "Needless to say, the success lies in the achievement of the ultimate objective of sustained growth with price and financial stability. This will require further deepening of financial markets and removal of structural rigidities coming in the way of market determination of interest rates," he said.
Can’t bank on them?
RBI appears to have convinced the finance ministry on the need to be cautious when it comes to issuing new licences for banks, and big corporate houses may not get banking licences at this point in time. Given that 24x7 policing end-use of funds is a difficult job, more so given the number of subsidiaries so many of India’s corporates have, RBI is a bit wary about the possibility of funds being diverted. Indeed, RBI’s experience with BCCI has made it realise that deciding on who is ‘fit and proper’ involves a lot more than just ticking off a host of boxes. It also suggests RBI has to have a lot of leeway in decision-making—the fact that regulators like Sebi are now in favour of consent orders where companies pay a fine but admit to no wrong makes it that much more difficult to decide on who is ‘fit and proper’. Given that banking licences for corporates have been a sticking point, the reported agreement between RBI and the finance ministry is a good thing. At some point, probably sooner rather than later, the government and RBI will have to deal with another reality, that of who will set up and fund the banks India needs. Bank credit in India is around $1 trillion right now, and it needs to grow at around 20% each year. That takes it up to $2.5 trillion after 5 years, or $1.5 trillion more. Given RBI’s prudential norms, that means an additional equity infusion of $135 billion. A large part of this will obviously have to come from the government since PSU banks dominate the banking landscape, but a significant amount will have to come from the private sector. Corporate houses with deep pockets, and a reputation that gets others to invest in their equity, offer an obvious solution. More liberal licences to foreign banks is another option. Since many large Indian corporate also manage public money through their mutual funds, and there haven’t been too many complaints of the money getting misused, this should provide RBI some comfort. At the end of the day, given how banking lies at the heart of the economy, RBI has to have the last call on who is ‘fit and proper’.
FE
Bank on it
When it comes to new bank licences, replace dogma with safeguards
Differences between the finance ministry and the Reserve Bank of India (RBI) on new bank licences have, reportedly, been narrowed down. Only two outstanding issues, the extent of foreign ownership and the time within which promoters have to dilute their holding, remain. So, with a little luck, we should see final guidelines take shape before the end of the current financial year. This is good news. It is almost two years since the finance minister announced in his Budget speech that the RBI might be willing to grant new banking licences. In a country as under-banked as ours, it makes no sense to restrict entry. It is equally important, however, to ensure that the basic principles of bank ownership and governance, viz the ‘fit and proper’ criteria, are not diluted. At one level, this might sound anachronistic. In a scenario where industrial licensing has long been scrapped and shareholders alone decide who controls a company, why should a third party, the RBI, sit in judgment of who is ‘fit and proper’ to run a bank? The reasons are two-fold. First, nowhere in the world is banking an unlicensed activity. Second, banks are fiduciary institutions; they hold deposits of the public in trust. More importantly, their financial health has serious implications not only for the stability of the entire financial system but also the economy. The financial crisis has brought home quite graphically that banks (and quasi or shadow banks) are quite different from manufacturing companies. The collapse of even a single bank can bring an entire economy to its knees, if it is large enough to affect the entire system. But it would be difficult to justify ruling out the entry of corporate houses altogether on those grounds. After all, the US, which has determinedly kept corporates out of the banking business, has little to show for it as compared to other countries that are less dogmatic. The right approach, therefore, would be to put in place a proper system of checks and safeguards, including amendments to the Banking Regulation Act 1949, so that only those who are genuinely ‘fit and proper’ are given a banking licence. And then leave it to the RBI to be the final arbiter of who qualifies. ET
Will maintain anti-inflationary stance, says RBI
The Reserve Bank of India (RBI) continues to focus on controlling inflation and inflationary expectations even as inflation has shown some signs of easing. RBI Deputy Governor K.C.Chakrabarty on Wednesday said the central bank sticks to the policy stance as stated in the quarterly review statement in July. "Whatever the inflation guidance is given in the quarterly statement (July) that stands as of today," Chakrabarty said on the sidelines of an event here. The wholesale price index (WPI)-based inflation was at 9.22 per cent in July, down from 9.44 per cent in the previous month. Inflation for May was revised upwards from 9.06 per cent to 9.56 per cent. However, core inflation, or price rise of non-food manufactured products, came at around 7.5 per cent in July, up from 7.3 per cent a month ago. Also, economists expect revised inflation in July will touch double digits. "From a policy perspective, we expect the RBI to remain focused on bringing down inflation, ignoring signs of slowdown in growth, as both headline and core inflation are expected to remain elevated for the next few months. Therefore, we expect RBI to implement a final 25-basis-point repo rate hike in this cycle on September 16 and then stay on hold," said economists at Nomura Securities in a note. In response to the RBI official's statement, the yields on the 10-year benchmark bond went up to close at 8.32 per cent after hovering around 8.29 per cent for most of the trade on Wednesday. Yields had closed at 8.29 per cent on Tuesday. On new banking licences, Chakrabarty said the draft guidelines could be expected any time soon. RBI had submitted the draft guidelines on new banking licences to the finance ministry for approval, which is believed to have been cleared by the ministry.
BS
New banking solution from Ramco
Chennai : Ramco Systems Ltd, the Chennai-based software company, has announced that its banking analytics product enables banks to automatically adhere to the Reserve Bank of India guideline for submission of returns without any manual intervention. The RBI recently released an approach paper on Automated Data Flow from various transactional systems of the banks to RBI. By adopting an automated process for submission of returns, banks will be able to submit accurate and timely data without any manual intervention. This process will also enable banks to improve upon their MIS and Decision Support Systems. From the RBI standpoint, this will ensure uniformity in returns submission, says a Ramco press release.
HBL
Will need RBI permission for Islamic banking: JK Bank chief
The Chairman Jammu and Kashmir Bank, Mushtaq Ahmad Wednesday said that there was scope for Islamic banking in the state but it needs to be understood in its right perspective first. “Reserve Bank of India has authority to give permission for the Islamic banking. But we have not approached them yet,” Mushtaq said. However, he said implementing Islamic banking in Jammu and Kashmir was completely different from Middle East. “We have to take permission from the RBI first,” he added. The Hurriyat Conference (M) chairman Mirwaiz Umar Farooq had recently called for abolition of ‘interest-based’ banking, and pitched for introduction of Islamic banking in the state. He had asked the state-owned J&K Bank to take steps in this regard. Addressing a Friday gathering at Jamia Masjid on Friday, Mirwaiz had said there was no place for ‘interest-based banking’ in Jammu and Kashmir, a Muslim majority state, and the J&K Bank should play its role in introducing Islamic banking here. Senior Congress leader and Minister for PHE, Irrigation and Flood Control Taj Mohi-ud-Din supported idea of Islamic banking in the state. “If guidelines of RBI permit it, state government has no objection,” he said. Opposition Peoples Democratic Party president Mehbooba Mufti said people should have a choice in deciding it. “Islamic banking should be available and it should be left to people to decide what they want. Islamic banking is gaining popularity in West also. We aren’t supporting it because J&K is a Muslim majority state, but it is a positive development,” she told KNS. Senior PDP leader and former Deputy Chief Minister Muzaffar Hussain Beig said that a group of citizens should approach the RBI with a plea to start Islamic banking in the state. “Then only it can be permitted,” he said. Reacting to Mirwaiz’s statement that J&K Bank should take steps in this regard, he said, “Miwaiz isn’t correct. J&K Bank can’t do it on its own. They have to take permission from the RBI and it can only happen when citizens of the state will approach them (RBI),” he added.
http://www.kashmirdispatch.com/headlines/17085335-will-needs-rbi-permission-for-islamic-banking-jk-bank-chief-kashmir.htmRBI, Bangalore United show the way
BANGALORE: The promotion of two teams in the B and C division football league is very significant this year. For one team will figure in the A division for the first time after ages, and another will play in the B division in the very second year of its participation. The revival of the Reserve Bank of India team and the upward movement of a fledging team like Bangalore Untied Association augurs well for state football. But then, lack of initiative and poor administration has ensured that private clubs barely survive. And even if they do, it is only because of the zeal and enthusiasm of a select group of dedicated officials rather than any support from the game’s administrators. The growth of public sector in Bangalore after Independence, spelt the death-knell of private clubs as they were starved of finance. With footballers opting for jobs and signing up for teams like ITI, HAL, BEL, HMT, BEML, or defence teams like CIL, LRDE, 515 Army Base Workshop, it was curtains for private clubs like Blues, Bangalore Muslims, Crescents, Jawahar Union, Jupiters, Southern Blues and many others. Yet, they continued to survive and stay on the football scene hoping against hope that better days will come. With private firms plumping for clubs outside Bangalore as they were prominent names on the national scene, it became a case of cart before the horse or vice versa. Unless the private clubs moved up the ladder, they wouldn’t get sponsorship support and unless they got that support, they couldn’t move up. Old timers recall the glory days when thousands descended on to the Sampangi Tank grounds (where the Sree Kanteerava Indoor Stadium now stands) to witness Bangalore Blues practice every day. After a long wait, RBI have managed to win the B division title and gain promotion to the senior division. This will give a boost to qualified footballers who seek jobs in banks. On the other hand, a group of dedicated people in Banaswadi, formed the United Football Association to promote football in that part of the city. The response was immense and soon they were able to form a good team. The KSFA supported them with a registration. They participated in the C division and after winning three group league matches, the knock-out quarter-finals and semi-finals, the entered the final but lost 0-1 to Goans FC. But they earned promotion in the very first year of their entry into organised football.]That in itself is an achievement as not since Telecom emerged as the runners-up in their very first year of participation in the super division in the early 1980s, has a team emulated that feat in league soccer. It’s time private clubs are given all the support they need to further their growth. As the days of the public sector being a force are virtually over, or so it seems, this is the only alternative if Bangalore and Karnataka is to become the hot bed of soccer talent in the country. The Ahmed Khans, the Ramans, the Ulaganathans, the Babu Manis, the RC Prakashs will come all over again in a steady flow. An impoverished Bangalore football is one of the reasons for the downslide of football clubs in Calcutta and Indians football itself. The City’s soccer-loving industrialists and entrepreneurs must come forward to provide financial muscle to private clubs to enable them to figure in the national league and restore past glory.
http://expressbuzz.com/sport/rbi-bangalore-united-show-the-way/304957.htmlBanks’ Commitments to Customers
The banking regulator, Reserve Bank of India, has put in place a series of measures to ensure that banks are held accountable for service deficiency. Banks, too, have agreed to adhere to a BCSBI (Banking Codes and Standards Board of India) code of commitment to customers, which is available on banks’ websites. Here are some commitments you should be aware of:
REPORTING COMPROMISE SETTLEMENTS: Many borrowers, who have repaid their dues under a compromise settlement with their bank, feel cheated when their see adverse reports in their credit history, since it can mean rejection of future loan applications. If a loan is repaid after a part of the amount is waived off, many banks report the loan as ‘written-off ’ while submitting data to credit information companies. However, the code states that if the account of a borrower is regularised after having been in default, the information will be passed on to the credit information company in the subsequent monthly report.
DELAY IN AFFORDING CREDITS: The code also details the penal interest payable by the bank in the event of delay in executing transactions through the electronic payment platforms. The central bank, too, has specified penalties payable by banks in case of such delays. If the delay pertains to NECS, ECS-Credit or NEFT transactions, the bank has to pay penal interest at the prevailing RBI LAF Repo Rate plus 2%, starting from the due date of credit till the date of actual credit. This apart, every bank has formulated a cheque collection policy, which can be accessed on their websites. A key provision relates to the penalty payable by the bank in the event of delay in collecting outstation cheques. You need to study it carefully to be prepared to take action if your bank puts its toe out of the line.
BEHAVIOUR OF RECOVERY AGENTS:
Many customers complain about the high-handedness of recovery agents. The code of commitment states the bank will not initiate recovery proceedings without informing the borrower in writing. The agents can contact you at a place of your choice and have to communicate in a ‘civil manner’. They can make calls or visits only between 7 am and 7 pm. If the recovery agent does not adhere to these norms, you can report the matter to the bank’s nodal officer. Being acquainted with the BCSBI code of commitment to customers will help you become aware of your rights.
ET
Personal loans hold up amid rising interest rates
Other analysts say that the impact of interest rate increases vary according to the nature of the loan. For instance, the impact of rising interest rates on impulse purchases will be low. In a July 26 press briefing, RBI Governor D Subbarao said that private consumption is still strong. "The recent consumer expenditure survey shows that wages had gone up by 20% last year as against consumer price inflation, which is less than 10%," he said......
Don't write off the U.S. economy for now
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Dr.Y.V.REDDY "Intellectual capital, the institutional strengths and the value of the external assets of the corporate sector provide the U.S. with strengths that could potentially be harnessed." |
Interview with Y. Venugopal Reddy, former Governor, Reserve Bank of India.
Y. Venugopal Reddy, who was the 21st Governor of the Reserve Bank of India from September 2003 to September 2008, won international acclaim for his deft handling of India's monetary and external sector policies that famously saved the country from the worst consequences of the global financial and economic crisis of the period 2007-09. After retiring from that post, he has chosen to be an academic, and is now Emeritus Professor, University of Hyderabad. Widely consulted and listened to by many international organisations, Dr. Reddy is a brilliant commentator on contemporary economic issues. The downgrade of U.S. sovereign debt and the burgeoning debt crisis in the eurozone, have created fears of another global recession. Stock markets everywhere, including in India, tumbled. It is against this backdrop that Dr. Reddy answered, through e-mail, a set of questions put to him by C.R.L. Narasimhan.
Do you see some common points between the stock market collapse now and the start of the financial crisis in 2008? For instance, American policy making has been faulted both times — the weak regulation in 1997-98 and the complete absence of a political “give and take” now.
I agree with you that the crisis of 2008 and the incident or event of 2011, are somewhat similar. However, the crisis of 2008 was due to the wrong policies of the past, while the recent event is a failure of policy response to the crisis in the United States. Second, the recent event is not a new crisis; it is a continuation of the old one. Earlier everybody was taken by surprise, while the recent questionable downgrading invited attention to the weak and fragile economic recovery in the U.S. and the inadequate policy response. Finally, the crisis of 2008 was both due to wrong policies in a bipartisan manner based on wrong ideology, and the conduct of financial markets. The recent event is, in a way, due to polarised views on policy and also the result of the “make-believe world” of recovery that has been carefully projected by financial markets, resulting in a disconnect between the real economy and the financial markets.
The leadership role that was automatically bestowed on the U.S. has been called into question yet again. Are such calls once again premature?
[Here he first commented on the U.S. currency being the world's reserve currency, the U.S. role in the recovery phase in the G20 countries, and related issues.] I agree that the leadership of the U.S. has been questioned before, but the questioning of its leadership this time is more serious. On earlier occasions, the policies were a reflection of inappropriate economic considerations, whereas the recent event shows an element of loss of confidence in the economic leadership of the U.S. both at the national and global levels. It is premature in the sense that the predominance of the U.S. will continue since its relative position, relative to other countries such as the euro area and Japan, remains to be significantly superior, as before. In brief, the U.S. continues to be a pre-eminent leader for now, but a weaker leader than before, but with significant resilience and potential for assertion in the future. The intellectual capital, the institutional strengths and the value of the external assets of the corporate sector provide the U.S. with strengths that could potentially be harnessed. If it fails, it will hurt both the U.S. [economy] and the global economy.The U.S. budget-related crisis and the debt crisis in the eurozone have some common features. Both of them are rooted in politics but have global ramifications. There is a difference between the two, though both are related to public debt. In the U.S., it is essentially a political will at a national level to manage public debt with the centralised fiscal authority that it has. Further, the dollar is a primary dominant reserve currency, while the euro is a secondary reserve currency. In regard to the euro, there are important institutional constraints for distributing the burden between different sovereign nations that constitute the eurozone, and between the banking systems of individual countries legally and a constrained central bank. Single monetary [systems], coupled with multiple fiscal regimes, create substantial difficulties for designing the solutions, which will have to be innovative. While the challenge for the eurozone is more complex, the ramifications of the issue for the rest of the world are less severe. The euro area as a whole has no serious economic imbalances vis-Ã -vis the rest of the world. Most of the borrowers and lenders involved in the euro debt crisis are within the eurozone. In regard to the U.S., the rest of the world holds a significant part of the U.S. sovereign debt. The “decoupling” theory, which says that fast-growing economies such as India need not depend on global cues, was discredited even last time. The decoupling theory was developed soon after the financial crisis erupted in the U.S. and the euro area in 2007-08. I had described this at that time as “contextually convenient, but inherently illogical.” We cannot extol the virtues of globalisation when the global economy is booming, and suddenly discover decoupling when there are problems. The issue is an extent and a pattern of interdependence between the countries in regard to trade in goods as well as services and financial flows. It is also dependent on the extent of initial conditions of vulnerability or resilience of the economy concerned and the institutional capacities which provide space for public policy.
Is India as well placed as last time to cope with the consequences of the crisis? What additional steps would you recommend?
There is a difference between the crisis of 2008 and the event of 2011. We had a balanced economy, and, therefore, we could withstand the impact of the crisis better than many others. However, the initial position in 2011 for India is different from [that in] 2008. Our fiscal position is weaker both in quantity and quality. The external sector position is weaker both in terms of stock of assets and liabilities, be it quantity-wise or quality-wise, and flows in terms of current account deficits. Domestically, both public and private investments seem to be somewhat subdued, while supply inelasticities have set in. Above all, in 2008, we entered the crisis with confidence in terms of both growth and inflation, while the sentiment today is less confident than before. The redeeming feature, perhaps, is that the events in 2011 may not indicate a serious crisis, but would indicate uncertainties, volatilities, divergent growth paths, divergent policies, etc. The challenges for policymakers are different, way forward.
HBL
Three big NBFCs sit on 220 tonne gold hoard
Guess how much gold the country’s banker, the Reserve Bank of India, holds? Answer: 550 tonnes. Now guess how much of the yellow metal the country’s three top non-banking financial companies (NBFCs) hold? Hold your breath, the answer is 220 tonnes. For a global perspective, it is pertinent to point out that RBI is the world’s 10th largest hoarder of gold. Where that places all Indian gold-holding NBFCs on a global scale is anybody’s guess. There is a difference though: The central bank’s gold belongs to it. NBFC gold does not belong to them — it is mortgaged to them against loans, a function discharged by pawnbrokers until some years ago. Muthoot Finance, the largest of them all in the loan- against-gold business holds 120 tonnes of the yellow metal; next comes Manappuram Finance with 62 tonnes, then Muthoot Fincorp with 37 tonnes. All that gold is with them because retail borrowers took loans from them by pledging their gold, mostly jewellery. That is also indicative of their extent of the borrowers’ indebtedness. RBI holds gold in bars or ingots of the highest purity, which is 24 carats. It is not known if the gold held by NBFCs is also of the same purity, since most of it is jewellery which is made of lower carats. Considering that most NBFCs target a growth of between 50 and 60 per cent in a few years, it is not unconceivable that by then they will rank alongside RBI in gold holding. Not just the three NBFCs mentioned earlier, a whole array of others is in the business of gold pawing. Among them are Kosamattam Finance and newbies like Shriram City and Cholamandalam Finance – all betting big on the business. Even regular commercial banks are in the same act. “When large banks like ICICI Bank and Axis Bank advertise heavily their schemes of providing loans against gold pledges, people begin to realise that it is not demeaning to take gold loans. To that extent competition has helped our business grow,” says George Alexander Muthoot. Earlier only in dire circumstances would people go to the pawnbroker with their jewellery, which was considered family heirloom to be handed down generations. But that has changed lately. With that change in people’s attitude, there has also been a huge shift in the business from neigbourhood pawnbrokers to organised NBFCs. “It is not that people are pledging more gold leading to a huge growth in the business. The average size of gold pledged was 40 gm earlier and remains there today. But more people are opening up to the idea,” says I Unnikrishnan, managing director of Manappuram Finance. The profile of the gold loan seekers has also changed. Taking loans by pledging gold was an accepted practice in South India, but now even North India betrays a gradual inclination to it. “Even salary earners and professionals in need of instant cash do. Gold loans are cheaper than credit card loans or personal loans and available to anyone. It is an easier way to raise money,” points out George Thomas, finance director of Kosamattam Finance.
Financial Chronicle
Microfinance: Still stuck in the doldrums
According to a banker, the factor that fuelled the stratospheric rise of MFIs was the fortuitous priority sector lending clause issued by the RBI. Under this clause, banks have to lend 40 per cent of their total loan portfolio and of the total 40 per cent, 45 per cent should go to agriculture. If unable to meet this target, banks were supposed to stash this cash in Nabard bonds, which fetched a paltry 3-4 per cent interest. Private sector banks were finding it difficult to meet their priority sector lending target and suddenly....
Banking doors set to open for India Inc
Indian companies may have reasons to rejoice, as the Reserve Bank of India is likely to allow some of them an entry into the banking space. The entry will, of course, be subject to stiff riders. Real estate companies, however, may not be as lucky as they are among four sectors that will find the banking doors locked. According to a government official, the RBI is expected to come out with draft guidelines on allowing new private banks by next Monday, as the finance ministry and the central bank have resolved their differences on most of the contentious issues. The official said foreign direct investment (FDI) in new banks may be capped at 49 per cent for now, as the RBI was not in favour of higher FDI. In a discussion paper released in August last year, the central bank had suggested capping FDI in new banks at 49 per cent in the first 10 years, which could be subsequently raised to 74 per cent. The ministry was open to a higher cap.
ENTRY ROAD MAP |
RBI expected to come out with draft guidelines on allowing new private banks by Monday |
Sensitive sectors, including real estate, won’t be allowed; govt didn’t have a good experience when realty players were allowed in SEZ space |
Number of new licences to be issued not decided yet; central bank to take final call |
Stakeholders to get one-month window to make suggestions on the draft |
Minimum capital requirement for new banks may be Rs 1,000 crore, five times the 2001 figure |
The number of new licences to be issued has not been decided yet and the call will be taken by the RBI. The guidelines were more or less final, but the regulator would want to give a one-month window to all stakeholders to give their suggestions on the draft, said the official. On the reasons for keeping real estate companies out, the official said the government did not have a good experience when the sector was allowed in the Special Economic Zone space. The central bank had sent the draft guidelines to the finance ministry in January this year to seek its approval. The process got delayed as differences cropped up over the grant of licences to industrial houses, the minimum foreign investment limit and caps on promoter shareholding. It is learnt that initially the RBI was not in favour of giving licences to big corporate entities, while the finance ministry was opposed to restricting the FDI limit to 49 per cent. At present, banks are allowed to have an aggregate 74 per cent foreign investment (FDI plus foreign portfolio investments), with a cap of five per cent for a single investor. The norms will also minimise the downside risks of industrial houses promoting banks and ensure promoters of these new banks meet the “fit and proper” criteria. This would make it difficult for any entity to get a licence if any case involving it was pending before any regulator. The minimum capital requirement for new banks may be kept at Rs 1,000 crore, five times the requirement when new bank licences were given in 2001. The RBI had stipulated this be increased to Rs 300 crore over three years from the commencement of business. The minimum promoters’ contribution may be retained after dilution of stake over a period of five years. In its discussion paper, the RBI had suggested retention of the current approach of requiring promoters to bring in a minimum of 40 per cent of capital with a lock-in clause for five years. The threshold for other significant shareholders was proposed to be restricted to a maximum of 10 per cent, with a requirement to seek acknowledgement from the RBI on reaching the five per cent threshold and above. “Promoters, too, would have to dilute to the extent required in a time-bound manner, say, five years after the lock-in period,” the discussion paper said. The grant of new licences will be linked to financial inclusion as the finance ministry is looking at a nationwide roll-out of unique identification (UID) numbers with the help of banks. Industrial houses such as Larsen & Toubro, Reliance Anil Dhirubhai Ambani Group, Aditya Birla Group and the Shriram group have expressed interest in setting up banks. Currently, the space is dominated by the State Bank of India and private lenders such as ICICI Bank and HDFC Bank. In the 2010-11 Budget, Finance Minister Pranab Mukherjee had first announced that new banking licences would be issued to private sector players and non-banking finance companies to extend the geographic coverage of banks and improve access to banking services.
BS
RBI proposal could hit lending against equities
Stringent risk weightage to make banks focus on core biz
Mumbai : Equity related lending for banks could get prohibitively costly (in terms of provisioning) if they opt for RBI stipulated risk weights prescribed in its draft paper on internal rating based approach for credit risk. RBI last week sought comments on implementation of the Internal Rating Based Approaches (IRB) for calculation of capital charge for credit risk. The intention to have such stringent risk weightage is to ensure that banks curb their exposure to equity and focus on their core business of accepting deposits and lending. “Regulators worldwide have started discouraging banks from deploying depositor money in equity or venture capital. The US has in fact, gone a step ahead and directed banks to use funds in their proprietary book for equity exposures,” said Mr Alok Tiwari, CEO of risk management consultancy firm, Aptivaa Consulting Solutions. RBI has spelt out two approaches to calculate risk weights for equity — namely, the market based approach and the probability of default/ loss given default (PD/LGD) approach. Banks using the first approach have to set a 300 per cent risk weightage for listed equity and 400 per cent for unlisted equity if they use the “simple approach.” A variant of the first model (internal models method) brings down the weightage component to 300 per cent and 200 per cent respectively for listed and unlisted equity. The second model probability of default/ loss given default (PD/LGD) pegs the risk weight to be assigned at 1,250 per cent for equity exposures. Indian banks' equity trading book is on an average less than five per cent of their total investment book, said experts. “To minimise problems of provisioning that surface when debt restructuring takes place or when banks invoke a pledge, the RBI has suggested such stringent guidelines,” said a banking analyst of a multinational brokerage.
HBL
SEBI, RBI may jointly regulate wealth management, investment advisory
The famous Shivraj Puri-Citibank Case may bring the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) together to regulate wealth management and investment advisory services by banks..........
Read..............
Will wait for RBI guidelines on new banks before commenting: Pranab
According to sources, the Finance Ministry is not in favour of immediately allowing the large corporates to open banks and has conveyed it to the RBI
New Delhi: Amid debate over whether or not to allow corporate houses to enter the banking sector, the Finance Ministry on Wednesday said it would wait for the RBI’s draft guidelines before making a comment on it. “Let’s see how it (RBI draft guidelines) comes... and thereafter we will make comment,” finance minister Pranab Mukherjee told reporters here. According to sources, the Finance Ministry is not in favour of immediately allowing the large corporates to open banks and has conveyed it to the RBI. The RBI, they said, may initially give only four licences mainly to the NBFCs. The apex bank is expected to release draft norms on the entry of new banks next week. The RBI had last year floated the discussion paper on allowing new banks entry and had invited stakeholders’ comments on the same. The apex bank is also likely to post on the website of the central bank the guidelines for public comments. All applications received in this regard would be referred to an external expert group for examination and recommendations to the RBI for granting licenses. The government had earlier said that although Expressions of Interest of some private entities have been received by RBI, they are to be processed once the guidelines for issuing fresh banking licences to private players are finalized. The move follows the announcement made by finance minister Pranab Mukherjee in the Budget speech of 2010-11 to give more banking licences. Non-banking financial companies could also be considered, if they meet the RBI’s eligibility criteria.
Mint
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