Saturday, September 3, 2011

What are the PMO, the RBI, and the finance ministry smoking? - Surjit S Bhalla

Dr Subbarao, the governor of the Reserve Bank of India, has outlined five principles for policymaking. How does he, and his ultra-hawkish monetary policy, stack up against his own principles? Let us find out.

The first principle is that “people matter”. Presumably that means that both growth and inflation matters: the latter because it hurts purchasing power, and the former because it hurts jobs. Inflation has been stuck at a high level of 8 to 10 per cent for the last six months, and that is both good news and bad news. Good that it hasn’t increased, and bad that it is too high.
On growth, the RBI’s record is not only not good, it is plain bad. Industrial growth has crawled to the slowest pace in the last 10 years (excepting the global recession months between September 2009 and October 2010), and growth in construction, where jobs and income and people really matter, has come to a standstill. According to the latest GDP data, year-on-year construction growth was just 1.2 per cent.
Second principle: when economists build models, they should fit it to the real world, and not the “real world to the models.” What reality has the RBI targeted? It alone, in the entire policy making world, utilises a monetarist model to tackle inflation. Worse, it alone uses the WPI as an indicator of inflation. If the US were to use this indicator, then it would presently show inflation at a 6 per cent annualised rate versus the 9 per cent observed in India. Given that developing countries have a 2 to 3 per cent higher inflation rate than developed countries, it does not seem that Indian inflation is that much out of line. So maybe the good doctor can tell us about whether he is living in a model world of virtual monetarism?
Third — fourth and fifth and sixth? — principles: “Economic policymaking is more than a straight application of textbook knowledge; you need to apply judgment, avoid groupthink and have a sense of history.”
History and Judgment: Subbarao’s RBI increased the repo rate by 125 basis points from 6.75 per cent to 8 per cent in the space of just 3 months. This is the second fastest increase in history, nearly matching the gallop from 8 to 9 per cent in June-July 2008. In an eerie repeat of history, at the time Dr Reddy instituted the record hikes, industrial production growth had slowed to a near zero per cent rate in August 2008, actually 1.9 per cent. According to the new IIP index, August 2008 witnessed a low growth rate of 5.4 per cent; in both April and May 2011, IIP growth was a low 5.8 per cent.
The history lesson continues. In 2008, just two months after the record hikes, and level, of the repo rate, the world economy entered a big-time slide. In 2011, at the time of Subbarao’s BMW speed hikes, the world economy is also in trouble. There was serious talk of a Euro, and European, crash. No one is raising rates anymore, and just a few days back, Brazil has actually reduced the repo rate notwithstanding the fact that inflation in Brazil is some 2 to 3 per centage points higher than the Brazilian “target” or “comfort” level.
Groupthink: RBI’s hawkishness, and policy, has been nose-led by the groupthink of several domestic journalists and many investment bank economists. The argument by these scholars has been repetitive and grossly misleading. Unlike what their peers do in other countries, these scholars have failed to note the decline in the more accurate CPI inflation (from a level of 16.5 per cent in January 2010, to a flattish 9 per cent for the last 1 year) and the fact that commodity prices are a major determinant of WPI inflation — and that the trend in international commodity prices is something they, or the RBI, can do precious little about. To reiterate, even in the very low-inflation US economy, wholesale or producer prices are up a hefty 6 per cent. Indeed, non-groupthink would dictate that Dr Subbarao take the lead of his counterpart in Brazil.
Textbook knowledge: In the non-application of text book knowledge, the RBI has made a grievous mistake, and with slowing growth, grievously is India paying for it. In recent months, the RBI has constantly been mentioning one price as a major contributor to India’s high inflation: the absolute price increases set by manufacturers of non-food items. It calls it “pricing power”. According to the RBI, this pricing power is indicated not by an increase in relative prices, but by an increase in absolute prices!
If input costs go up by 10 per cent and output prices by 5 per cent, the RBI would have us believe that there is pricing power on the part of the firm when in reality (assuming productivity and technological change to be zero) the firm is going out of business. Textbook economics would say that pricing power means at least an increase in the price of output relative to the price of inputs. According to the latest GDP data, manufacturing inflation (output prices) has stayed steady at 5.5 per cent since Jan-March 2010; the GDP deflator (input prices) has averaged close to 10 per cent. In the good overall inflation years of 2004 to 2007, inflation in the manufacturing sector averaged a higher 6.1 per cent, and GDP deflator inflation averaged a lower 4.7 per cent. One did not hear of the possibility of pricing power then.
It should be mentioned, or at least noted, that in 2008 there were strong rumours of the PMO and/or the finance ministry, dictating to Dr Reddy the July 2008 rate hike of 50 basis points. Most likely, this occurred because of a traditional misunderstanding, and panic, in these quarters about the political impact of inflation and its determinants. Something similar may have happened in the last two rate hikes of Subbarao. If that is the case, it does not say much about the “independence” of the RBI. And if that is the case, then the ban on smoking applies equally to the three sets of policymakers, and their staff, and their advisers!
The author is chairman of Oxus Investments, an emerging market advisory and fund management firm (IE)

S K Jain joins Union Bank as ED

Union Bank of India today said Suresh Kumar Jain has joined the bank as Executive Director. Jain, who joins the bank from Bank of India where he served as a General Manager, replaces S C Kalia who retired from service, a release issued by the bank said here. Having spent over 33 years in the banking sector, Jain has worked in various capacities in the country and abroad with specialisation in credit and foreign exchange, the release added.
MSN News

Banking system facing liquidity deficit: Pranab

The government today said that the banking system was facing liquidity crunch as was reflected from increased borrowings by lenders from the Reserve Bank of India (RBI). "The net borrowings by bank from RBI in the recent times, is a reflection of the deficit liquidity conditions," Finance Minister Pranab Mukherjee said to a question in the Lok Sabha. On an average, banks and primary dealers have borrowed Rs 46,298 crore on a daily basis from the RBI so far this fiscal (April-August). This is marginally lower than the Rs 46,946 crore borrowed in the previous fiscal (2010-11). "Borrowings by banks from the RBI with the government securities as a collateral is a normal liquidity management operation for banks and this happens whenever there is overall liquidity deficit in the system," Mukherjee added. According to the Minister, during 2008-09 and 2009-10, banks have placed funds worth Rs 4,212 crore and Rs 1,00,310 crore with the RBI. Banks invest in government securities as part of their statutory requirement to maintain the Statutory Liquidity Ratio (SLR), which is currently at 24%. The RBI managed the day-to-day liquidity in the banking system through its Liquidity Adjustment Facility (LAF). Under this facility, banks which are short of liquidity can borrow from the RBI (overnight) at the Repo Rate (8%), by keeping government securities as collateral. "This is in line with the best international practices," Mukherjee added. He said that increased bank borrowings from RBI indicates the strenghthening of the monetary transmission mechanism and is consistent with the anti-inflationary stance of monetary policy. As part of efforts to control inflation, the RBI has hiked policy rates 11 times since March 2010. However, inflation continued to remain on higher trajectory. The overall inflation, which crossed the 9% mark in December 2010, stood at 9.22% in July.
BS

SBI group's efficiency falls, other banks on a high

India’s largest lender, State Bank of India and its associates, fell behind other banks operating in India in efficiency in 2010-11, with a fall in both profit per employee and return on assets, compared to the previous year. “Profitability in terms of return on assets of all scheduled commercial banks at the aggregate level improved during 2010-11. All bank groups witnessed an increase in return on assets during 2010-11, except State Bank of India and its associates, which witnessed a decline in return on assets,”The Reserve Bank of India (RBI) said on Friday. SBI, which had recorded a 99 per cent per cent dip in net profit in the fourth quarter ending March 31, saw its profitability per employee down to Rs 3,85,000 in 2010-2011, against Rs 4,46,000 in 2009-2010. According to RBI, the return on assets also fell on a standalone basis to 0.71 per cent in FY11 from 0.88 per cent in the year before. For the SBI group, profit per employee and return on assets fell for the bank and its associates. Profit per employee fell from Rs 4,70,000 to Rs 4,20,000 and return on assets was down to 0.79 per cent from 0.91 per cent. SBI’s profits had been marred in the previous financial year on account of higher provisioning for both non-performing assets and staff related issues. The bank also has to provide nearly Rs 8,000 crore from its capital reserve for pension, which led to a fall in the bank’s capital adequacy ratio.
BS

ICBC, two more foreign lenders get banking permission

NEW DELHI: Reserve Bank has given permission to Industrial and Commercial Bank of China (ICBC) to start operations in India in 2011, the Lok Sabha was informed on Friday.  Besides, two other banks Rabobank International (The Netherlands) and Woori Bank (South Korea) have also been given approval to expand their presence in India.  In the last calender year, eight foreign banks, including DBS Bank, Credit Suisse AG and Barclays Bank, were given approval by RBI to open branches or expand the existing ones.  As of now, 38 foreign banks are functioning in India through 321 branches.  This information was given by Minister of State for Finance Namo Narain Meena in the Lok Sabha in a written reply.  Replying to another query, the Minister said State Bank of India (SBI) proposes to open additional branches/offices in Bahrain, Bangladesh, China, Germany, Hong Kong, United Kingdom, South Africa and Sri Lanka.  "While giving approvals for opening offices, RBI/ Government of India desires that only banks, which have the capacity to survive in a competitive global market are allowed (to mark their) presence abroad," Meena added.
ET

Tenure of home loans may be increased

..... Banks would give interest concessions on loans to MSMEs based on the rating they got from the RBI-empanelled credit rating agencies such as ICRA, CRISIL, and Dun and Bradstreet. Each bank must show an increase of 20 per cent in the amount of credit given to MSMEs as well as an increase of 10 per cent in the number of MSME beneficiaries (small units funded by the bank)......

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Friday, September 2, 2011

Inflation is big concern for RBI: RBI Deputy Governor K C Chakrabarty

NEW DELHI: With food inflation entering the double digit level at 10.05 per cent after a gap of five months, the Reserve Bank today said its main priority is to combat rising prices.  "I am again telling monetary authority anywhere in the world, inflation is the bigger concern," RBI Deputy Governor K C Chakrabarty said on the sidelines of Skoch summit here.  "Growth is always government's concern because government collects revenue. But then we (RBI) have to look at everything. We have to look at inflation. We have to balance the growth, we have to do everything," he said.  Food inflation rose to 10.05 per cent for the week ended August 20.  "Food inflation has gone up...This is really disturbing. We shall have to ensure and remove the supply constraints on food items," Finance Minister Pranab Mukherjee said after the weekly inflation data was released.  Attributing the jump in food inflation to seasonal factors, experts said it could again force the Reserve Bank to hike interest rates during its mid-quarter monetary policy review scheduled on September 16.  In its bid to anchor inflationary expectations, the RBI has raised policy rates 11 times since March 2010. In its July policy review, the central bank increased rates by a hefty 50 basis points. The short-term lending (repo) rate of RBI now stands at 8 per cent and the short-term borrowing (reverse repo) rate at 7 per cent.  Subsequently, the interest rate under the Marginal Standing Facility, an additional borrowing window, has gone up to 9 per cent from the earlier level of 8.5 per cent.
ET

Service to the nation

To educate people about financial products and services, debt management and help indebted people to come out of their problems, United Bank of India in collaboration with Ramakrishna Mission Samaj Sevak Sikshan Mandir (RKMSSSM), Belur Math, Howrah set up a Financial Literacy and Credit Counselling Centre (FLCC) on the premises of RKMSSSM, Belur Math, Howrah recently. The FLCC will provide these services free of cost.

Swami Divyanandaji Maharaj, secretary, Ramakrishna Mission, Saradapith, Belur Math inaugurated the programme in the presence of Bhaskar Sen, CMD, United Bank Of India; PK Roy, General Manager, United Bank of India; Anindita Bhattacherjee, Deputy General Manager, RBI and other senior dignitaries from Nabard and government.
Speaking on the occasion, Bhaskar Sen, informed that United Bank of India with 81 per cent of its branches located in eastern and northeastern states has been playing a significant role in financial inclusion of eastern and northeastern parts of the country having sizeable number of excluded people from the banking fold.  Sen expressed is gratitude to the Ramakrishna Mission for providing all logistic supports to set up the FLCC. He further informed that the bank has set up eight FLCCs of which four are in West Bengal. Besides, UBI has set up 10 rural self-employment training institutions to impart free training to the unemployed rural youth, women and the weaker sections of the society to enable them to be self-employed.  Swami Divyanandaji Maharaj said poverty and unemployment are the main reasons for rise of insurgency in different parts of the country. “Though our economy has been growing fast, the benefits of the growth are not equitably distributed among all sections of the society,” he observed. Swamiji opined that creating employment opportunities and linking the excluded people with the formal banking channel are the needs of the hour and that FLCC should play an important role in this direction. He further informed that Ramakrishna Mission Samaj Sevak Sikhan Mandir has been running a RUDSETI type institute jointly with United Bank of India and NABARD for creating employment opportunities by providing skill and entrepreneurship development training to the rural unemployed youth. He appreciated United Bank of India for extending loan to the trainees on completion of training to set up their own venture. PK Roy, in his deliberation, informed that the bank will set up more Rural Self-Employment Training Institutions and FLCCs in eastern and northeastern parts of the country.
The Pioneer

Conned by get-crores SMS - Student responds to phishing text, loses Rs 19000

Patna : He dreamt of becoming a crorepati overnight, but 20-year-old Akshay Kumar got gypped of a few thousands as he fell prey to a con text message doing the rounds. Akshay, a student preparing for his engineering examinations, lost at least Rs 19,000, courtesy a phishing text message — which seek out a person’s sensitive information — that he took seriously.  The message, claiming to be from a multinational cola company, was sent last Friday to the cellphone of Akshay’s brother Mukesh Kumar.  “The phone call came from an Indian number, but the person had a British accent. He said he would land at the Indira Gandhi International Airport in New Delhi that very day and would then take a flight to Patna to deliver the cheque to me. The same afternoon I again got a call from him informing me that he had reached Delhi. The man said he was in the airport customs and that I had to pay Rs 19,000 to ‘release’ the cheque,” Akshay said. Akshay said he then smelt a rat, but his reasoning got clouded by the crores he had counted as his winnings.  “I initially refused to pay up. At this, he made me talk to a lady who claimed to be from the customs wing. She told me it was a regulation and that the man was waiting with the cheque. I had calculated the prize amount in Indian currency and it came to around Rs 6 crore. I agreed to pay up and the man gave me an SBI, New Delhi, branch account number belonging to one A. Sharma. Without thinking, I deposited the money in the account. After doing so, I received a mail in the form of a scanned copy from the ‘Indian Customs Office’,” Akshay said.  After a while, Piterson called up again.  “He said he was now going to the Reserve Bank of India (RBI) for money conversion and that I now needed to pay up Rs 49,000. This got me thinking hard and I refused. To this, he handed the phone to the same lady, who now had turned into an RBI official. I could easily recognise her voice. She told me to deposit the money immediately and mailed me a guarantee letter of the RBI which stated that they were responsible and assured me the prize money would reach me,” Akshay said. By then, Akshay knew that he had been duped. “I disconnected the call but the man kept calling me saying that if I didn’t pay up, he would be stuck in the airport. I didn’t listen to him and came to the police today. I have also met RBI officials and they told me that I had been duped,” he said.  
The Telegraph

Your post office wants to become a bank. Lousy idea

Suddenly, India might have a surfeit of banks. The Reserve Bank of India recently announced draft guidelines for the entry of new private sector players even though there is no shortage of banks in the country: we have seven banks in the State Bank group, 20 nationalised banks, 21 private banks and 19 foreign banks with nearly 80,000 bank branches between them spread all over. And that’s not all. Over and above this, we have innumerable regional rural banks, and private and state cooperative banks, not to speak of non-bank financial companies and financial institutions. Now, many non-banks want to become banks......

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Now withdraw cash at an ATM without using your card

Mobile phones have already become a multi-purpose banking gateway. You can buy movie tickets, transfer funds to others’ bank account and pay utility bills, all from your cellphone. Mobile banking has just taken another step to make your life easier and wallet lighter.

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FINO: Doorstep banking for the poor

Financial Inclusion Network and Operations (FINO), based in the financial capital of India, is an integrated technology platform and delivery channel, enabling sourcing and servicing micro customers on a large scale. It operates through a network of 20,000 field force — also called Bandhu (friend in Hindi). This field force serves as a doorstep bank and electronic teller machines in areas where banks are yet to reach or have any ATM. FINO works with 24 banks, several of the state government bodies and insurance firms like LIC, ICICI Prudential and ICICI Lombard. Each of the bandhus is equipped with handheld biometric devices that have GPRS connectivity. Every time a customer is enrolled, she is provided with a smart card. For any future banking activity like depositing, checking balance or withdrawals, they are done through the system. The data is automatically updated to the systems. In case a connection does not work, the handheld can store transactions, which are then updated to the system by visiting the nearest branch of that bank. So far FINO has enrolled 36 million customers and plans to double this base in the next few years. It has presence in 26 states and 386 districts. “Technology is playing and will continue to play a vital role in taking banking products and services to the customers at the base of the pyramid. We have developed the entire technology in-house which is having a meaningful impact on the lives of people. Out of India’s estimated 60 million below-poverty-line people, our technology solutions already reach out to over 30 million. We are proud to be a part of the Technology Pioneers. It is a true recognition of the efforts of our team and I would like to express gratitude to our technology team for this award-winning effort,” says Manish Khera, chief executive officer, FINO. FINO also partners with government agencies. For instance, it is part of payment disbursement for National Rural Employment Guarantee Act. It is also working with the Uttar Pradesh government for payments made to tendu patta collectors. The company is also foraying into mobile payment segment. The services called m-Rupya will soon be tested on a pilot basis with 20,000 customers. This service will be launched by the end of the next quarter. The company has developed the software platform for its mobile payment service through its in-house research and development team. The company plans to offer this service to its 36 million customers in India. At a time when the micro-finance industry has been shrouded in controversy, FINO has been successful in showing an alternative mode of achieving financial inclusion. FINO was formed by ICICI Bank. The idea was to create a technology firm that could provide solution catering to the financial inclusion space. However, Manish Khera, the CEO, and his team realised there was opportunity to become business correspondents. This also received a boost when the Reserve Bank of India allowed business correspondents to work as agents of banks. Since its inception in 2006, FINO has managed to attract big investors. Some of these include, Intel Capital, International Finance Corporation, some of the Indian public sector banks, LIC and more recently Blackstone Private Equity.
BS

SC issues notice to Citibank on petition filed by I-T dept

The Supreme Court has issued notice to US-based Citibank on a petition filed by the income tax department alleging that the bank was liable to pay more than R59.19 crore as tax during 1991-92 for violating the RBI guidelines on Portfolio Management Scheme (PMS). As per the RBI guidelines, certain maximum amount of interest was only permitted on the deposits. Any excess payment has not legally been permitted and, therefore, all the income of the company from portfolio management has to be treated as the income of the company against which payment of interest to the various so-called PAH was to be allowed subject to the maximum of the right permitted by RBI,” the petition stated. According to the revenue department, the bank had collected substantial amounts from corporate under PMS in violation of the RBI guidelines. 
FE

Time to come clean

The charge of government interference in the functioning of the Securities and Exchange Board of India made by its former member K M Abraham is serious and he deserves a fairer hearing from the powers that be in New Delhi than has been the case so far. To paint him as a disgruntled and corrupt element, because he was denied an extension of term and had invested in an apartment in Mumbai built by someone who had business dealings with the National Stock Exchange, as the Union finance ministry has done, is both unfair and unconvincing. It is shocking that when Mr Abraham approached the then Union Cabinet secretary and the principal secretary to the prime minister for help, the correct thing to do by a member of the Indian Administrative Service, he was asked to beseech the very person against whom he was complaining, namely Omita Paul, advisor to Union Finance Minister Pranab Mukherjee. Whatever the facts of the case, and both the charges and counter-charges require further investigation and clarification on the part of the government, the unseemly spat between the capital market regulator and the Union finance ministry was uncalled for and was a highly retrograde development. At a time when there is so much public concern about good governance and transparency in government functioning, and worries are being expressed about the independence of regulators and autonomous organisations, this kind of interference and attack is regrettable.
If the charges levelled against Mr Abraham by the finance ministry through a press release earlier this week are true, then the ministry itself owes an explanation as to what action it took before Mr Abraham went public with his criticism. The entire episode raises two important questions about public policy and the functioning of the finance ministry. First, there is the larger issue of whether appointments of regulators and heads of autonomous institutions should be made on the basis of a “three plus two” principle, under which an initial appointment for three years is followed by an extension of two years. Former finance minister Jaswant Singh did the right thing when he discontinued this principle in the case of the Reserve Bank of India Governor and gave Y V Reddy a full five-year term. If governments are uncomfortable granting a five-year term to one person, then the appointment should be made for a fixed period of only three years. To use the “three plus two” principle as a way of keeping regulators on a short leash and rewarding them for “good behaviour” with an additional two years is not a healthy practice. Second, l’affaire Abraham once again draws attention to the role and functions of an “advisor” in the finance ministry. Mr Mukherjee would do well to clarify the role of an advisor and her administrative jurisdiction in dealing with officials of the ministry, of agencies under the ministry and regulatory institutions. In the absence of such a clarification, vested interests could make a mountain out of a molehill. The finance ministry is a key instrument of central government policy and functioning. If the ministry adopts good governance practices, it would inspire the rest of the government to emulate it.
BS

RBI declares M/s Forex Achievements a fraud outfit

MUMBAI: The Reserve Bank of India on Thursday issued a clarification in which it stated that there was no company going by the name of M/s Forex Achievements registered under the Companies Act, 1956.  In a press release, the RBI clarified and cautioned the general public that M/s Forex Achievements and its website was fabricated entity, and not to deposit money with such unincorporated bodies. It said that anyone depositing money with such unincorporated bodies as M/s Forex Achievements, would be doing so at their own risk.
ET

Inclusion targets will delay breakeven for new banks

The draft guidelines issued by the Reserve Bank of India (RBI) clarify some issues such as eligible promoters, corporate structure, minimum capital requirement, corporate governance and business model. While the paper lays stress on promoter shareholding and milestones to achieve a diversified ownership in fixed timeframe, it is also very focused on the purpose of the new banks, which is financial inclusion (FI) and the related business model. The new banks will have to focus on the unbanked geographies. The regulator has been urging banks to open rural branches and has incentivised the existing banks to open 25% of branches in the rural areas. The regulator has also mentioned strict action against new banks not following the stated business model. The impact of financial inclusion on the business model is immense as the model needs to answer questions like market size, cost of funds, viability, use of technology and efficiency in operating structure for the new banks to succeed.  Banks have been working towards FI for the last five years or so. As on March 2011, a sample of 19 large and small sized domestic banks had an average of Rs600 crore credit outstanding for FI accounts. More importantly, of the total FI accounts opened, only 40% were found to be active for the last one year.  Also, given the challenge that domestic banks would have had a head-start on FI initiatives, reaching the next delta of FI customer would become that much more difficult for the new banks. Assuming that the margin for FI business is currently zero and equal split in FI and other business and a conservative 200 basis points margin for other business, the overall margin for a new bank will be approximately 100/120 basis points.  Including operating costs and technology investments will take the new banks longer to break even. Another aspect is the source and cost of funds, the new banks will face multiple challenges in sourcing low-cost deposits and will definitely have a higher cost of funds than the existing public sector and private banks. Could this lead to a situation where new banks have to issue securities to fund their business is question that every aspirant looks to need into.  A lean, low-cost and efficient operating structure is almost a prerequisite and technology will have to be optimised to achieve success. Reengineering the business model might even lead to something very innovative emerging. Non-banking finance companies (NBFCs) operating in Tier 3 to 6 centres will find it much easier to face these challenges than a completely newly set up bank.  However, they, too, would require RBI’s prior permission to convert branches to bank branches and comply with branch setup norms, as NBFC branches are very different from bank branches.  Banking is a critical and important economic sector and rightly so the regulator is taking utmost care to make sure that the new banks are used for no other purpose than banking with a FI focus.  Diversified ownership and exercise of regulatory control are essential conditions which will need to be fulfilled and seem to be the major concern of the regulator.  The safeguards in terms of promoter shareholding, divestment milestones and corporate structure and restriction on NOHC from setting up a financial services entity for at least three years from the date of licensing send out a very strong message that only very serious players with well-thought out strategy will be allowed. It seems the new bank licences will be a staggered process and it may be 2-3 years before we see a new bank becoming operational and perhaps rightly so considering that banking is a responsibility as well as an opportunity.
DNA

Govt in a bind on inflation

As India's food inflation rate breached double-digit levels again, touching 10.05% for the week-ended August 20, the government and the Reserve Bank of India (RBI) are facing a major challenge: policy options appear to be fast running out on a win-win solution in the trade-off between growth and prices. The central bank has maintained that sustainable solutions to lower inflation and higher trend growth warrant adequate supply-side response from the government.  The government can consider duty cuts in essential commodities to shore up supplies, but that will entail forgoing tax revenues, which in turn,will likely upset the fiscal deficit targets. Finance minister Pranab Mukherjee on Thursday termed the inflation rate as "disturbing," obliquely hinting that the government may not be averse to taking measures to boost supplies. The RBI, which will present its mid-quarter monetary policy review in September, has raised interest rates by 11 times in the past 16 months. "The latest GDP details are supportive of another rate hike by the RBI in September," said Rajeev Malik, senior economist at brokerage CLSA, Singapore.
HT

RBI may hike rates as food inflation surges to 10.05%


"With headline inflation remaining well above 9 per cent, we expect RBI to raise key policy rates by 25 basis points at its next mid-quarterly review," Crisil chief economist D K Joshi said.


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PSU NBFCs’ banking plans may hit RBI wall

The Reserve Bank of India is unlikely to issue banking licences to public sector non-banking finance companies (NBFCs). This could put brakes on the banking ambitions of NBFCs such as Power Finance Corporation and Rural Electrification Corporation, which have shown interest in acquisitions in the banking space or securing a new licence..........

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Gold loan NBFCs cheer panel report

At a time when most non-banking finance companies (NBFCs) are complaining about higher tier-I capital reserve requirement as recommended by the RBI-appointed working group, one section of NBFCs is pleased about it. Gold loan NBFCs, one of the fastest growing financial services businesses in the country, are pleased about the recommendations, whi-ch put gold loan NBFCs on par with banks. The top three gold loans companies, Muthoot Finance, Manappuram Finance and Muthoot Fincorp, together have an outstanding gold loan portfolio of over Rs 30,000 crore. Though the RBI working group recommends a higher tier-I capital of 12 per cent for NBFCs, industry experts pointed out that in Section 6.1.11 of the report, the panel states that in view of the growing importance of NBFCs in financing-sensitive sectors, “whenever RBI raises/lowers risk weights and provisioning norms for banks to address systemic risk, such measures should also be applicable to similar assets of NBFCs.” “Our risk weightage would become lower if the recommendations are implemented and we are treated on par with banks having a gold loan portfolio,” I Unnikrishnan, managing director of Manappuram Finance, said. For gold loans with a ticket size of less than Rs 1,00,000, banks generally have to apply a risk weight of 50 per cent of the loan size, while NBFCs have to apply a uniform risk weight of 100 per cent for the entire portfolio, he said. For gold loan NBFCs, at least 60 per cent of loans are of the ticket size of less than Rs 1,00,000. So, on an Rs 10,000 crore loan book, about Rs 6,000 crore loans would be of ticket size less than Rs 1,00,000. If NBFCs get to apply 50 per cent risk weightage, like in case of banks, then on the Rs 6,000 crore loans, only Rs 3,000 crore would be considered for risk weightage. That combined with the Rs 4,000 crore loans with a ticket size of over Rs 1,00,000 would make only Rs 7,000 crore worth loans being considered for risk weightage, against the entire Rs 10,000 crore earlier. “So, even if the tier-I capital is increased to 12 per cent, we only have to maintain Rs 840 crore reserves against Rs 1,000 crore earlier, assuming the loan book size is Rs 10,000 crore,” Unnikrishnan reasoned. The move to put capital adequacy ratio (CAR) requirements for NBFCs at par with banks will reduce pressure on bringing more capital, said Thomas Muthoot, executive director of Muthoot Fincorp. “This reduced pressure to enhance capital will ensure a level playing ground for NBFCs, which were so far at a disadvantageous position compared with banks,” Muthoot says
Financial Chronicle

President to give awards to banks, MSMEs for excellence

New Delhi : The country''s largest lender SBI and few other banks will be given awards by President Pratibha Devisingh Patil for their performance in extending loans to micro and small enterprises (MSEs). As per the Reserve Bank of India guidelines, banks have to achieve 20 per cent year-on-year growth in providing credit to MSEs. Under the annual National Awards Scheme, the government recognises the efforts and contributions of the micro, small and medium enterprises (MSMEs) to the economy as well as of the banks who lend to the sector. "The SBI''s total advances increased by 82.7 per cent to Rs 77,061 crore, which is the highest among major public sector banks, in 2010-11 from Rs 42,714 crore in 2009-10," the MSME ministry said in a statement.  Others awardees include Indian Overseas Bank and State Bank of Mysore. Corporation Bank lending to micro enterprises increased by 315.2 per cent to Rs 5,011.58 crore in 2010-11, from Rs 1,207.01 crore in the previous fiscal. The banks have been asked to enhance their credit flow to the sector, which contributes about 8 per cent to the country''s GDP. Besides banks, awards would be given to various (MSMEs) for their performance in categories like R&D, entrepreneurship and quality of products.
MSN News

Thursday, September 1, 2011

Tighter regulation of NBFCs was long overdue

The Reserve Bank of India's (RBI) working group on non-banking finance companies (NBFCs) has done well to suggest tighter regulation of the sector. The underlying rationale is sound. Banks and NBFCs are engaged in essentially the same business - lending and investing. They should be brought under similar regulations, like similar prudential norms for asset classification, income recognition, provisioning, capital adequacy and so on. Now, the regulatory regime for NBFCs is far more lax than for banks. This has resulted in regulatory arbitrage, with NBFCs - often bank-promoted, like Citi Financial - indulging in activities that are out of bounds to banks. The new recommendations are intended to plug this gap by bridging the regulatory divide between banks and NBFCs. The idea that the RBI should have the power to lay down 'fit-and-proper' criteria and have the power to remove NBFC directors in the event of their not meeting the criteria and even appoint directors where it is necessary to do so in public interest or for financial stability is in tune with this. Rules saying that the RBI should have the power to supersede NBFC boards in the interest of financial stability and constitute a fresh board, if necessary and any significant acquisition of ownership and control in NBFCs should have the prior approval of the RBI are to ensure safety. The financial crisis in the West was as much a crisis of banks as of shadow banks. So, the working group wants to dispense with the somewhat artificial distinction between banks and NBFCs. The latter will, no doubt, have to work under a tighter leash. But there will be some positives too. Today most NBFCs are unable to recover bad debts using the enabling framework of the Sarfaesi Act even though their borrowers may be exactly the same as those of banks. The working group, rightly, recommends that the Act be extended to NBFCs as well.  Also, the tax treatment for provisions, it suggests, should be the same for banks and NBFCs. The aim, quite clearly, is to ensure a level playing field as far as possible; without jeopardising the safety of the system.
ET

RBI must frame pricing norms for factoring services, says House panel

New Delhi : A Parliamentary Panel wants Reserve Bank of India (RBI) to frame guidelines on pricing of factoring services so as to protect the interests of micro, small and medium enterprises (MSMEs). Also, the rates charged by factors should not be higher than those charged by banks for similar services. These suggestions form part of the Standing Committee on Finance’s report on the Factoring Regulation Bill 2011. This report was tabled in Lok Sabha on Tuesday. The House Panel headed by Mr Yashwant Sinha is of the view that pricing of factoring services cannot go unregulated as it would only lead to "exploitative practices". The Standing Committee’s suggestion is in sharp contrast to the Finance Ministry’s stance that the RBI cannot be asked to administratively determine the rates of commission or discount charged by the factor to the assignor (MSME). The Finance Ministry had in its submissions told the Standing Committee that the RBI had moved away from administered rate of interest regime for financial products and any suggestion to administratively determine the rates would not be in line with the existing policy.  Factoring is a financial transaction where a business sells its accounts receivable to a third party called ‘factor’, which undertakes the activity of financing the receivables, administration of debt and collection of debt. Meanwhile, the Government is likely to exempt factoring transactions from stamp duty by moving an amendment to the Indian Stamp Act, 1899 through a schedule to the present Factoring Regulation Bill. An indication to this effect was given to the House Panel by the Finance Ministry through their written submissions.
HBL

Beware! There’s another scam mail in circulation that uses the name of the RBI to get your bank details

Scamsters are once again using the RBI’s name in a fake e-mail, asking people for numerous personal details to register for a one-time password
Don't hesitate to delete an e-mail that ostensibly asks for your bank details to register your account with a one-time password (OTP). That's because it's very likely that it is a spam message from scamsters who are using the name of the Reserve Bank of India (RBI) to appear legitimate. In reality, the apex bank never asks for these details for the purpose of verification, by e-mail. Many Internet users have mentioned they are receiving this e-mail message with the subject line, "Reserve Bank of India: OTP Registration For All Indian Bank Users", asking people to give their bank details for verification.  The message explains that this is part of a regular process  to screen the activities of various accounts. It also states that certain restrictions have been put on your account after it was found to have issues for safe use. The messages states that in order to lift these restrictions, "we will require some further information from you to enable us register your account for OTP (one-time password)."  Receivers of the message are asked to furnish information such as credit/debit card number, transaction password, ATM PIN number, expiry date and other personal details like e-mail address and mobile phone number. Experts point out that the neither the RBI nor any individual bank asks for the PIN number for account verification. It is only when the accountholder voluntarily opts for mobile or internet banking that one requires to enter a password or PIN number for the purpose of transaction. According to the OTP activation procedure described in the message, once the necessary details are confirmed and verification is successful, a manual containing a PIN (number) and the process to activate it is sent by e-mail in a couple of weeks.  This is again strange, as all banks send the PIN number and necessary account details either by post or they ask the customer to collect it from the bank's branch personally. Moneylife has reported earlier about a fake e-mail circulated, similarly using the RBI's name to offer unclaimed lottery funds. Clearly, this time too this is another fraud in progress again. So, if you receive such a message, delete it immediately. To read some key points that will help you identify fake/fraud messages log on to websites like www.truthorfiction.com, www.fraudwatchers.org or www.scambaits.com that give special attention to this matter, to help potential victims and catch the scamsters.
Moneylife

Biometric-based smart card for pensioners

CHENNAI: To prevent a repeat of the great pension robbery, the government will launch biometric-based smart cards to help old-age pensioners encash their monthly allowance. Chief minister J Jayalalithaa is likely to inaugurate the pilot project on Friday in three taluks in the southern districts through video conferencing from Chennai. So now, a bank-appointed staffer will deliver the cash at the pensioners' doorstep - hitherto done by postmen. All that the pensioner has to do is let the biometric machine with the staffer read his/her smart card that has a chip with the thumb impression. The machine will spit out a slip, like an ATM, and the staffer will hand out the cash. The transaction will be registered in the bank's central server. The revenue department has captured the fingerprints and images of the beneficiaries. The nationalised banks have designated bank staffers in each of the villages as per the guidelines of the Reserve Bank of India., aiming at extending the micro-financial services to the rural pockets. The flexible smart card allows the pensioners to maintain zero-balance account or approach the same staffer any time later to withdraw money. The major advantage is that the pensioners will get a print-out, like ATM transaction. A TOI expose on the great pension robbery led to the arrests of 11 postmen by the Central Bureau of Investigation in September last year. Poor monitoring of pension disbursement had emboldened several postmen to make a killing. The postmen demanded bribe from poor and illiterate pensioners for letting them have their money. Later, when the revenue department verified the authenticity of beneficiaries, it found that money was paid in the name of ghost pensioners for months. In the proposed system, officials said, biometric reader would authenticate the identity of the pensioners before allowing any transaction. The state disburses Rs 1,000 per month to old aged/destitute persons under various social security schemes, including Indira Gandhi national old-age pension scheme. "At least 25,000 pensioners in three taluks, Kattumannarkoil in Cuddalore, Thoralai taluk in Kanyakumari and Manaparai in Trichy district will benefit under the pilot project. The smart cards will be introduced in the rest of the state if the project is a success," said a senior government official. A collector of a southern district said, "This way, we can ascertain the real beneficiaries. None can claim pension for deceased kin". The revenue department will hand over the cheque to the nationalised banks every month and the account holders' database. There are 23.94 lakh pensioners across the state and Rs 239.44 crore are paid in pension every month.
TOI

Raising the bar

The Reserve Bank of India took a measured step towards licensing new private sector banks by releasing a set of draft guidelines on Monday. The central bank's concerns on licensing-related issues have been evident right from the time the Finance Minister mooted the idea in his February 2010 budget speech; unsurprisingly, these find expression in the guidelines. Allowing private players to start banks has always been a sensitive issue in India's recent history. More so when it is seen to benefit large industrial houses and business groups, whose questionable practices in banks they owned were one of the justifications for bank nationalisation that began in 1969. RBI Governor D. Subbarao was airing a widely held apprehension when he said recently that the “gaps” in the existing regulations could lead to corporations “self-dealing” in banks they promote or using them “as a private pool of readily available funds.” The limited attempts at licensing new private banks through guidelines issued in 1993 and 2001 do not offer any valuable lesson for current policymaking beyond the quite obvious fact that only banks with sound promoters do succeed. The RBI has therefore done well to insist on “sound credentials”, “integrity”, “diversified ownership” and a 10-year track record. Prospective promoters should not have even a 10 per cent exposure to real estate and broking businesses. That is ostensibly meant to keep out those from “speculative” sectors. The stipulation that a new bank can be set up only through a wholly owned non-operative holding company is an important safeguard designed to ring fence the bank and its depositors from problems in related entities. Necessary amendments to the Banking Regulation Act 1949 will be carried out to remove the restriction on voting rights while concurrently empowering the RBI to approve acquisition of shares/voting rights of 5 per cent or more by persons who are “fit and proper.” The RBI will get sweeping powers, for instance, to supersede the bank's board in certain cases. The minimum capital requirement is fixed at Rs.500 crore and the capital adequacy ratio at 12 per cent. New banks will have an up-to-date technology platform from day one and ensure that every fourth branch is located in rural areas. Furthering financial inclusion is one of the main reasons for licensing new banks. It is likely that only a small number of applicants will qualify and fewer still will be able to get the licence from an RBI-appointed expert committee. The central bank has said that licences will not be issued to all those who qualify. It is clearly not about to open the floodgates.
HBL

Too much to handle?

This refers to the edit “Banking on licences” (August 31). At present, we have a number of public and private sector banks, a huge list of co-operative banks (scheduled and non-scheduled) and several foreign banks with business and branches in India. The question is if it would be better to add more banks to this list. The Reserve Bank of India’s (RBI’s) intentions may be good – financial inclusion, competition and so on – but does the central bank have the machinery and the manpower to monitor the performance of various types of banks in the country. Definitely not. This is clear from the considerable number of scams, frauds and failures that were exposed in the banking sector in the last decade alone. Another major concern will be monitoring the possible diversion of funds from the banking ventures of industrial houses to their other group businesses. No doubt, with the economic growth projected to remain strong – particularly in the services sector – the demand for banking services, especially retail banking, mortgages and investment services is expected to be high. But the current list of banks is certainly enough to take care of this demand. A better alternative is consolidation, mergers and acquisitions, takeovers and asset sales to have a strong and reliable banking system on which the common man can depend.
J S Broca, New Delhi (BS)

RBI lens on off-balance sheet exposures of foreign banks

The Reserve Bank of India (RBI) has stepped up its oversight on the off-balance sheet (OBS) exposures of foreign banks, which have risen exponentially. Off-balance sheet deals, which include currency and interest rate derivatives, securitised loans and guarantees, are more lucrative for banks than their other portfolios............

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Reviving growth - Reduce interest rates and undertake specific reforms to revive growth - Shyam Ponappa

From this perspective, raising interest rates to combat inflation appears decidedly ill-advised. As expected, interest rate increases have not reduced inflation. The reduction can happen only when economic activity slows so much that demand for essentials falls, a horrific prospect. As for attracting foreign investment, rate hikes do little to induce confidence in foreign investors in skittish times, because they look to India and emerging markets for growth, not for stability. To be a safe haven, India has to be perceived not as a developing economy, but as an equivalent of the Organisation for Economic Co-operation and Development — a long way and many years ahead. The economy, therefore, needs shoring up. Can RBI and the government take steps to reverse the decline?

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Inflation can’t be tackled by rate hikes alone


Naina Lal Kidwai, country head, India, and director of HSBC Asia Pacific, said an increase in interest rates alone cannot tackle high inflation and that India needs to address supply-side issues. She also said the banking sector is not growing fast enough to accommodate the growth of corporations.......



Religare moves in for bank entry

MUMBAI: Religare Enterprises, the financial services group which is promoted by the Singh family that had promoted pharma major Ranbaxy, has set up a panel of three senior business leaders to advise the group on its banking foray. Noted professional manager Kiran Karnik and economist Sumar Bery are already on the panel, while a former managing director of a large PSU bank is expected to join hands with Religare, sources said. The move comes within a day of the Reserve Bank of India making public the draft guidelines for entry of new entities into the country's banking space. Religare, in a statement on Monday, said it was moving ahead to win a banking license since it qualified under most of the parameters set by the regulator, including a business track record of more than 10 years, no real estate exposure and broking being less than 10% of promoter group revenue. "The panel consists of luminaries in diverse fields of policy formulation, economics, banking, development finance & technology - elements critical to developing a new paradigm in banking," the company said in a release. "The panel will support management's efforts in charting out the group's banking strategy and its application for a new banking license under the guidelines to be issued by the RBI," it said. Bery, a former director general of National Council of Applied Economic Research (NCAER) in New Delhi, has also worked with the World Bank and RBI. Karnik is a former president of Nasscom, the software industry trade body, and was appointed the chairman of Satyam Computer by the government to help stabilize the company post its crisis.
TOI

Corporates take expert help to clear bank licence test

Corporates are rushing to rope in experts to ensure that the business model for their proposed foray into banking meets all regulatory guidelines, just days after the Reserve Bank of India announced draft guidelines for new licences. Under the draft norms, finance companies can be converted into banks, and promoter groups with "sound credentials and integrity" and with a 10-year track record of successfully running their businesses can set up banks.
ET

Banking admission only for steadfast


From a macro perspective, RBI has directionally signalled two things. One is to permit Indian business groups to enter banking, but only those very suitable and who are prepared to meaningfully contribute to financial inclusion. Two, allowing NBFCs to convert into or set up banks, sans any potential regulatory arbitrage between the proposed banking and their existing ‘banking-type’ businesses.


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Bank credit to NBFCs zooms by 55.6%

Despite the central bank’s concerns, bank credit to non-banking financial companies (NBFCs) continues to grow at a robust pace......

NBFCs better placed than corporates for bank nod

Non-banking finance companies (NBFCs) seem to have an edge over corporates in bagging the new banking licences, if the draft norms issued by the Reserve Bank of India are any indication. This is particularly the case with NBFCs with strong track record. “Though corporates are eligible to apply for banking licences under these norms (draft guidelines for new banking licences), there is ambiguity on how RBI would define ‘diversified ownership’.  As a result, clarity is yet to emerge on eligibility of Reliance Capital (54% promoter holding), Bajaj Finserv (58%) and Mahindra & Mahindra (25%),” said Pathik Gandotra, Chinmaya Garg, Kavitha Rajan of IDFC Securities in a report on Monday. The analysts are also of the view that, “NBFCs with strong track record (as Shriram Transport, IDFC) and diversified parent ownership (as L&T Finance) could be likely recipients of the new bank licences.” However, few analysts think differently. Mahrukh Adajania and Parees Purohit of Standard Chartered said in a report on Tuesday said that it is positive for groups without existing financial businesses and less so for those with existing NBFCs.  “Less positive for existing NBFCs -M&M Finance and Shriram as their asset financing business will need to merge with the bank,” said Adajania and Purohit. Also, if industrial houses come into the picture it may trigger acquisition of small private sector players in the banking sector. Mihir Sheth, Anil Agarwal, Subramanian Iyer, Reshma Seth and Sumeet Kariwala of Morgan Stanley Research said in a report on Tuesday, “From a near-term perspective, the fact that industrial houses have been allowed to apply could be perceived by investors / markets to be a positive catalyst for small private sector banks (as potential acquisition plays).” Also, increase in number of players may have its own disadvantages. “It (introduction of new aggressive banks) is likely to increase existing fragmentation levels, raise competitive intensity (both on the lending and deposit sides) as well as escalate cost pressures,” said Manish Chowdhary, Aditya Narain of Citigroup Global Markets in a report on Monday. This could also lead to an erosion of the scarcity premium for existing private sector banks - especially the smaller ones (Yes Bank, Kotak, old private sector banks) - though should be gradual and over a longer period of time, said Chowdhary and Narain.
DNA

NBFCs fret over RBI proposals

Non-banking finance companies (NBFCs) are upset over new regulatory recommendations from a Reserve Bank of India panel that wants them to increase their cash cushion by redefining what constitutes a substandard loan. If the RBI working group's suggestion to make asset classification norms similar to banks is implemented, NBFCs will have to classify loans that involve due payments of more than 90 days as "substandard" and make provisioning of 15% with respect to their assets. What this could mean is that a greater share of loans will be seen as non-performing assets (NPA) - triggering a squeeze on the firms' funds, harsher methods to recover loans or interest and a loss of business, say the NBFCs. They add they might have to charge higher rates. "We give loans to mostly the un-banked people such as truck drivers who want to buy second-hand trucks. Most of them are first time customers. They have no collateral and no repayment track record. And banks do not fund them. From those customers' point of view, stricter norms will make things difficult," said R.Sridhar, Managing Director, Shriram Transport Finance Corporation.  "For banks 90 days (to classify a loan as substandard) is okay. But, for NBFCs what is reasonable is 180 days," added Sridhar, whose company extends 400,000 loans a year for pre-owned trucks. "Ninety days mean we have to start acting after 30 days of overdue. This will change recovery practices," Sridhar said. N. Sivaraman, president, L&T Finance, said unorganised sector customers need a different approach. "For example, small contractors may not be very regular in repayment. It does not mean they default," he said. Ramesh Iyer, managing director, Mahindra Financial Services Ltd, said the new norms for vehicle loans suggest legal support for recovery and income tax benefits, which might balance the tough cushioning norms.
HT

Indian companies will find it difficult to raise funds abroad, says RBI

NEW DELHI: Indian companies will find it difficult to raise funds from the overseas market due to the impact of US sovereign debt rating downgrade by Standard and Poor's on global financial market, the Reserve Bank of India (RBI) has said.  Several lenders and financial institutions including Rural Electrification Corporation (REC), IDBI Bank, Bank of India and Indian Bank have already postponed their overseas offerings, said a central bank note on impact of rating downgrade on India. RBI further said its decision to relax the norms for repayment of Foreign Currency Convertible Bonds (FCCBs) may not yield the desired results. "The relaxation in ECB (external commercial borrowings) guidelines offered by the Reserve Bank for repayment of... liabilities (by companies) may not be as useful as foreign sources might dry up," the note to the Sub-Committee of Financial Stability and Development Council (FSDC) said. In May, RBI had raised the overall limit for ECBs to $30 billion from $20 billion for the current financial year, a move seen as a breather for corporates battling high interest rates. Earlier this month, S&P downgraded the US government's 'AAA' sovereign credit rating -- a development which raised concerns that investors will lose confidence in its economy. As per the note, the outstanding of trade credit and loans is about $205 billion as on March 31, 2011, as per India's International Investment Position.
ET

Nebulous, hazardous norms

...One is at a loss to find the RBI mandating listing within two years of licensing. Why this tearing hurry when the insurance regulator had barred insurance companies from going public for ten years by putting a bar on Indian promoters holding 74 per cent of the capital from offering their shares to the public during this period?....

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Central bank’s proposed norms may hit NBFCs’ profitability

The guidelines suggested by an RBI working group on Monday are likely to impact the NBFCs’ profitability. Industry experts feel that with increased capital requirement in a rising interest rate scenario, NBFCs are likely to face tough challenges in maintaining a decent bottomline growth once the guidelines are implemented...........

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A tale of two banking sectors

Sure, times are difficult for the banking sector as a whole with slowing credit growth, hikes in interest rates and rise in non-performing assets. However, public sector banks have additional pressures to deal with, mostly concerning asset quality.


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Madhavpura Mercantile Bank seeks merger in order to survive

Madhavpura Mercantile Co-operative Bank (MMCB), infamous for its association with stock broker Ketan Parekh, has got a six months’ breather from the banking regulator. As a last-ditch attempt to keep the bank alive, a revival package is being worked out by merging MMCB with another bank, said an official of the Gujarat Urban Cooperative Banks Federation (GUCBF).
Mint

Mandi Urban Bank awaits RBI nod to restart operations

Shimla: With the financial health of Mandi Urban Cooperative Bank (MUCB) having improved, the government awaits a nod from Reserve Bank of India to permit the bank that was asked to suspend operations 7 years to start functioning again. Papers laid in the Vidhan Sabha monsoon session that concluded on Wednesday revealed that RBI carried out a statutory inspection of MUCB under Banking Regulation Act for the year 2010-11 from 3rd to 9th August, 2011. A proposal to RBI for relaxing or removing restrictions imposed on the bank was submitted in March and April, 2011 and a response for the request to resume normal banking operations was still awaited, chief minister Prem Kumar Dhumal who is also the state finance minister disclosed in the paper. Financial position of the bank on 30th July, 2011 was shown that it had total deposits of Rs 29.47 crore and had investments of Rs 27.62 Cr.  MUCB with a share capital of Rs 2.1 Cr had reserves of 4.36 crore and the financial position of the bank was conducive for normal functioning of the bank, Dhumal stated. Reserve Bank of India (RBI) had imposed a complete ban on withdrawal of money from the bank seven years ago after it detected misappropriation of funds and other large scale financial bunglings. At the time of closure there were about 2600 depositors with the bank and non performing assets had crossed Rs 7.7 crore.  An RBI inspection then had revealed that loans had been advanced to employees and relatives of those in the management. Loans of even those not eligible were noticed to have been written off.
My Himachal

I-T sleuths train their guns on co-operative banks

AHMEDABAD: The many erring co-operative banks in the state might find income tax (I-T) sleuths on their doors soon. The I-T department has decided to go behind the banks which allegedly help tax evaders by flouting norms like Know Your Customer (KYC) and Anti-money Laundering (AML) guidelines among others. Sources with the department said that the soon to be set-up Directorate of Income Tax (Criminal investigation), or DCI, which will have directors posted in eight cities of the country including Ahmedabad, will look into these cases. "Details of cash transactions, especially those above Rs 10 lakh in banks, remain to be a crucial data during investigations of the I-T department. But a number of cash transactions go unnoticed when banks flout AML guidelines. Banks flouting KYC norms can knowingly or unknowingly help tax-evaders open dummy accounts to manage their black money," said an I-T official. Reserve Bank of India (RBI) has in the last eight months slapped Rs 1 lakh and Rs 5 lakh fine on more than 50 co-operative banks in Gujarat for flouting such norms. There are over 1,700 big and small co-operative banks in the country. Gujarat is among the top five with 280 banks, the majority of which are located in rural areas. The main complaint against co-operative banks is that they allow multiple accounts of a single person or company and hide higher value transactions. RBI had in 2002 made it mandatory for banks to share monthly details of all accounts where cash transaction of more than Rs 10 lakh has taken place with the Financial Intelligence Unit, India. But on several occasions, state co-operative banks have fallen short of complying with the RBI guidelines. "More than 75% of the total banks RBI has penalized in the country in the last one year are from Gujarat. Most of these banks are in rural centers and don't have a trained and aware staff. Several banks have started training their staff and are conducting workshops so that they don't fall on the other side of law due to ignorance," said a co-operative bank director.
TOI

‘Islamic banking has emerged a viable source of financing'

...The importance of Islamic finance has been realised by some big corporates in India. To take an example, Reliance launched Sharia-compliant portfolio management scheme and so has many others. The Reserve Bank is considering starting Islamic NBFCs (non-banking financial companies). In the mutual fund industry, too, a few but big mutual funds have launched Sharia-compliant scheme.......

Wednesday, August 31, 2011

Banks to go on strike if Govt introduces Amendment Bill on new licences

Mumbai : The United Forum of Bank Unions (UFBU) plans to go on a flash strike if the Government introduces the Banking Laws (Amendment) Bill in Parliament. UFBU is opposed to the Bill, which will also pave the way for issue of new bank licences to corporates by the RBI, as it would help in easier merger of banks, unrestricted voting rights to enable takeover of private banks by corporates and foreign investors. The Bill also proposes a 10-fold increase in the voting rights of private shareholders in nationalised banks.  “Instead of strengthening public sector banks by pumping in capital, the Government is letting in corporates in the banking space in the name of financial inclusion. This will be detrimental to the health of the financial sector,” said Mr Vishwas Utagi, Secretary, All India Bank Employees Association. About 10 lakh bank employees and officers working in all public sector banks, old generation private sector banks, and co-operative banks will go on an all-India flash strike under the aegis of UFBU if the Government introduces the Bill in the current session of Parliament, he added.  The current Parliament session is on up to September 8, 2011. UFBU is the apex body of nine trade unions operating in the banking industry. The Unions are also opposed to the Planning Commission's Draft Approach Paper for the Twelfth Plan. The Paper has suggested reduction of Government's capital in public sector banks to less than 51 per cent.
HBL