Like RTGS, Neft also transfers funds from one bank, but unlike RTGS the settlement takes place in batches (that may include transfers from various individuals) rather than individually....
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The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Thursday, October 20, 2011
Tight money hurts: Pranab
Ahead of the Reserve Bank’s credit policy review later this month, finance minister Pranab Mukherjee on Wednesday did not hide his disappointment over sluggish economic growth, blaming it on the tight monetary policy and an uncertain global environment. Though he did not directly say growth would fall below eight per cent for the year, he referred to “most observers” pegging economic expansion at that rate. He, however, called for an analysis of the number in the global context, as all major economies were witnessing low growth — the US grew 1.6 per cent in the first quarter and the European Union 1.7 per cent. Addressing the annual Economic Editors’ Conference, Mukherjee admitted meeting the Budget target to rein in the fiscal deficit at 4.6 per cent of GDP would be a great challenge due to high crude prices. He still exuded confidence the target would be met. Already, till August, the fiscal deficit stood at 66 per cent of the target for the entire fiscal. When asked if the RBI should pause monetary tightening, Mukherjee said, “I have the opportunity of discussing with the governor before he announces the rates. So, it would not be proper on my part to make any comment.” He refused to buy the “so-called popular perception” the government was suffering from a policy paralysis, citing a number of initiatives such as the draft telecom policy, the proposed manufacturing policy, the proposed mining Bill, the land acquisition Bill, and finalisation of the infrastructure debt fund guidelines.
BS
JK in fiscal fix - Govt Coffers Run Dry, Liabilities Mount As RBI Tightens Noose
Jammu, Oct 19: Having piled up huge fiscal liabilities, the Jammu and Kashmir government is confronted with unprecedented financial crunch, particularly in the backdrop of the Rs 1,500 crore cap imposed by Reserve Bank of India (RBI) on overdraft facility. Sources said with its coffers almost running dry, the state government is unable to deal with immediate cash liabilities of around Rs 100 crore, besides meeting the expenditure on account of annual Durbar move and festival season of Diwali and Eid as it has been strictly barred from taking recourse to liberal overdraft facility, especially after the shifting of OD arrangement from JK Bank to RBI, sources in the government said. Pertinently, Chief Minister Omar Abdullah and Finance Minister Abdul Rahim Rather were the biggest proponents of the state’s new financial arrangement with RBI. “As RBI has taken over from JK Bank granting of OD facility after the agreement signed last year, the state government is caught in catch -22 situation—the biggest problem being the failure to meet the financial liabilities, which have crossed Rs 100 crore” said a highly placed source in the finance department. Under the agreement RBI was allowed to carry on the general banking business of the Jammu and Kashmir and is acting as the sole agent for investment of government’s funds. If sources are to be believed, the treasuries across the state are empty with bills worth crores of rupees pending for last many months. Even the contractors who have completed various development projects are not able to get their bills cleared. Officials said that liability of Rs 100 crore has become a great burden on the government as out of which 75 percent bills belong to the contractors, who had recently threatened agitation. “Even the employees are not able to get their GPF from the treasures as they have been asked to wait till funds are released by the government”, said a source. The biggest problem for the government is that Durbar is shifting from Srinagar to Jammu and salaries of move employees have to be cleared by October 22 alongwith move allowance”, sources said. Officials said that earlier state government would immediately take OD from J&K Bank in such pressing circumstances, but the RBI has strict with OD facility and seeks even minutest details before release of funds. “There is a severe financial crisis. The treasuries are out of money, while government is unable to utilize OD option as everything is now under the control of RBI and its approval is necessary”, sources said. Important to note that shifting of OD facility to RBI had political storm in the state with the main opposition Peoples Democratic Party terming it a fiscal sell-out. Though the state’s Finance Minister had later cleared that it will not have any affect on JK’s control over the J&K bank, but in recent past, RBI has become more strict against the unending financial mess in the state. However, a senior government functionary, on the condition of anonymity said that RBI is doing debt management in J&K from 1972 and there is nothing new in the present crisis. “It is short term crisis and liabilities will be cleared soon. This is not for the first time that such things have happened. We had pleaded with the 13th Finance Commission to grant us one time financial assistance of Rs 2300 crores to remove the structural deficit and that is being pumped slowly in the financial system”, he claimed.
Greater Kashmir
RBI guidelines on new banks to promote financial inclusion, say experts
Banking and finance experts today said that draft guidelines issued by the Reserve Bank of India (RBI) for new licenses to operate commercial banks in the private sector will allow only serious players, promote financial inclusion and encourage high level of corporate governance..........
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No unscheduled power cuts from Nov 1
JAIPUR: Reviewing the power situation in the state, the cabinet on Wednesday decided to prepare an action plan report to be submitted to the Reserve Bank of India, to ensure that the Discoms become eligible for bank loans again. Moreover, the government is expecting a positive response over its action plan from RBI, which in the first place directed the banks to discontinue the loans.
TOI
Now, NRIs can hold accounts in any currency
The Reserve Bank today said Indians who have non-resident accounts in the country can now hold them in any currency which is fully convertible. The move is likely to help NRIs/Persons of India Origin as it will give them more options in the holding of accounts, and lessen the risk from fluctuations in major currencies. Earlier, FCNR(B) account holders were allowed to hold accounts in only certain currencies such as the Pound Sterling, US dollar, Japanese yen, euro, Canadian dollar and Australian dollar. "It has been decided that Authorised Dealer banks in India may be permitted to accept Foreign Currency (Non-Resident) Account (Banks) deposits in any permitted currency. It may be noted that 'Permitted currency' for this purpose would mean a foreign currency which is freely convertible," RBI said in a notification.
IE
Corporates turn to MFs as banks cut bulk deposit exposure
...It is noteworthy that the RBI has hiked interest rates 12 times – 325 basis points on a cumulative basis - since March 2010 According to data sourced from the Association of Mutual Funds in India, for the period September 2010-March 2011, the average monthly contribution of liquid schemes to the total assets under management (AUM) of the industry was about 17 per cent and that of the income schemes was about 48 per cent....
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Pick-up in bank loan disbursements
Signs of credit pick-up are gradually emerging in the so-called ‘busy season' for banks, going by Reserve Bank of India's latest data. .............
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Wednesday, October 19, 2011
Time to stop the chorus against RBI rate hikes
The chorus of voices against a rate hike is getting far too loud. And it is dangerous both for the cause of reining in high inflation, and guaranteeing the independence of the Reserve Bank of India (RBI). A few days back, the Department for Industrial Promotion and Policy (DIPP) in the commerce ministry wrote to the RBI asking it to desist from raising rates. This is a strange and unheard of step. Finance ministry officials have never missed a chance to similarly advise the RBI. And now a committee of parliamentarians has told the governor not to hike rates when he deposed before it. Parliament is a law-making body and the RBI’s authority comes from it. Yet, as the guardian of the longer-term interests of the nation, and which has the expertise to take a call on interest rates, the RBI’s independence on matters of rate setting is necessary for the health of the economy. One would assume the governor would have strongly informed parliamentarians about the donwside of continuing inflation. While their tears over growth are well taken, India, or for that matter any country, can post strong GDP growth only when prices are reasonably stable. High rates are a much smaller disincentive to growth than erratic government policy, politicking and corruption. Also, a big input to inflation has been the government’s runaway fiscal deficit. From around Rs 1,50,000 crore in 2007-08, the fiscal deficit has ballooned to over Rs 4,00,000 crore per year in the past three years. This creates massive aggregate demand and has been a big factor in boosting inflation over the last three years. The push to rural demand through the National Rural Employment Guarantee Act (NREGA) has come on top of decades of agrarian neglect. In the past 10 years, the compounded annual growth of agricultural output has been only 1.8 percent. It’s not surprising then that when a stagnant pool of foodgrain output is chased by rising wages, it has inflated food prices by over 40 percent in the past few years. It is important that parliamentarians ponder over these long-term issues of neglect instead of attacking the independence of a central bank which has but only one instrument to tackle inflation. Sure, they can express their concerns about growth. But the chorus against rate hikes is getting worrisome. It is important for the RBI to maintain its anti-inflationary stance when the WPI has been over 9 percent for the past 10 months and over 8 percent for 18 consecutive months. Such structural inflation can reverse the country’s healthy savings growth too, as people see the value of their savings being dented by inflation. India’s long term growth trajectory can be endangered if parliamentarians and bureaucrats in Delhi don’t see the real dangers to growth — sustained inflation and bad policies, and the real triggers of inflation. These include runaway deficits and neglect of agriculture and infrastructure. Rate hikes are not the main villains.
Firstpost
Ombudsman rues lack of complaints
Guwahati, Oct. 18: The Banking Ombudsman for the Northeast, B.B. Sangma, has expressed dissatisfaction over the inadequate complaints received compared to the number of bank branches in the region.In 2010-11, the ombudsman received 584 complaints which is not satisfactory given that there are 2,645 bank branches in the region. “I am not satisfied with the number of complaints received as compared to the bank branches. The low number of complaints does not mean that customer service in the banks of the region is very good,” Sangma said here today. The office of banking ombudsman in the Northeast has been functioning since June 1996. He said the people in the region do not give their complaints in writing which was one of the major problems. “I have disposed a few complaints over the phone itself as the people were hesitant to give their complaints in writing,” he said, adding that banks have responded positively to complaints over the phone. The RBI had introduced the Banking Ombudsman Scheme in India on June 14, 1995 to provide an expeditious and inexpensive forum to bank customers for resolution of their complaints relating to deficiency in banking services provided by commercial banks, regional rural banks and scheduled primary co-operative banks. The scheme has undergone extensive changes in 2002, 2005 and 2007 and underwent more changes in 2009 whereby the RBI has widened the scope to include deficiencies arising out of Internet banking. A customer will also be able to lodge a complaint against a bank for its non-adherence to the provisions of fair practice code for lenders or the code of bank’s commitment issued by the Banking Codes and Standards Board of India.He said it was mandatory for banks to display the name of the nodal officer dealing with customer grievances and the Banking Ombudsman Scheme with contact details. “We conduct surprise checks and have found that it has been complied satisfactorily. There are, however, no statistics in this regard,” he said. Connectivity and logistics are another set of problems being faced in the region. “A person from a remote place finds it difficult to attend the hearings, which are organised to redress grievances,” he said. Many letters delivered by the office of banking ombudsman come back undelivered.
The Telegraph
RBI & India's financial growth
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Allahabad Bank - Change in Directorate
Allahabad Bank has informed BSE that in exercise of the powers conferred by clause (c) of sub-section 3 of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970, read with sub clause (1) of clause 3 of the Nationalised Banks (Management & Miscellaneous Provisions) Scheme, 1970, the Govt. of India, Ministry of Finance, Department of Financial Services vide their Notification dated October 13, 2011, have nominated Shri A. Udgata, CGM-in-Charge, Reserve Bank of India, Urban Banks Department, Central Office, Mumbai as Director of the Bank under RBI Nominee Category, in place of Shri S. Ramaswamy, with effect from the date of Notification i.e. October 13, 2011, until further orders.
Moneycontrol
Two more Members join RBI Board
The Government of India has appointed two more members on the Central Board of Directors of the Reserve Bank of India. The new Directors are:
1. Shri Y.H. Malegam, who has been re-appointed from October 7, 2011 vice Shri H. P Ranina.
2. Prof. M.V. Rajeev Gowda who has been appointed from October 17, 2011 vice Shri Lakshmi Chand.
Shri Malegam is a renowned Chartered Accountant. He is also the Chairman of the National Advisory Committee on Accounting Standards, and has been a past President of Institute of Chartered Accountants of India. Prof. Gowda is Professor of Economics and Social Sciences, Indian Institute of Management, Bangalore. Both the members have been appointed for a period of four years. Prof. Gowda has also been appointed as a Member of the Local Board Southern Area. Last month, the Government of India nominated seven new members reconstituting the Reserve Bank of India Central Board.
Moneycontrol
RBI grants banking license to Co-op Bank
Srinagar, Oct 18: In a significant move, Reserve Bank of India has granted license to the J&K State Co-operative Bank Ltd, Srinagar to carry on the business activities in any part of the country. Giving this information at a high-level meeting of officers held here today, the Minister of State for Cooperatives, Finance & Planning, Dr Manohar Lal Sharma said that it is a matter of pride for the State to get the license for a public sector bank. He hoped that the bank will be able to expand its activities in other parts of the country besides Jammu and Kashmir. This is an indication towards excellent performance of the bank which has paved way for granting the license, the Minister asserted. The Minister directed the Managing Director, J&K State Co-operative Bank Ltd to further speed up its efforts to promote the business activities of the bank. He asked him to identify potential areas for establishment of more branches so that the network of the bank can be strengthened. While reviewing the functioning of the SCARDB, the Minister issued instructions to the Managing Director, SCARDB to initiate measures to improve the functioning of the bank as per the laid down benchmarks so that the bank is revived as per its full capacity. He maintained that Government has already agreed to provide Rs. 25 crore as State equity for the revival of the bank over a period of ten years.
The Greater Kashmir
RBI may hold fire after 25 bps hike
....... Beyond October, the central bank is likely to hold fire as the cumulative effect of its past actions start rippling through the economy. On the growth front, I expect RBI to revise down its projection for the year, thereby recalibrating financial markets’ expectations on growth and its role in monetary policy...........
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Food inflation: Barking up the wrong tree?
It's Monetary Policy Review time again and, ahead of it, the media reports a full meeting of the ‘War Council' — the Prime Minister, the Finance Minister, their Economic Advisers, and the RBI Governor. Not likely that any new ideas emerged and none was announced. But the key architects — the Prime Minister's Economic Adviser, Dr C. Rangarajan, and the central bank chief, Dr D. Subba Rao — have made their choice: they want to increase interest rates till inflation dies down — in fact, they don't seem averse to cutting growth to achieve this. For, the goal clearly is to kill ‘evil inflation expectations' and encourage those of the ‘right' kind — ‘rational expectations'. (‘The RBI won't stop till inflation cools to its target level'). Shorn of the jargon, it means making businesses and consumers feeling less confident about the future — so less spending, and falling inflation. But less spending on what? Food? Surely not. Armchair advice from desi, videshi and Indian expat economists is not in short supply. But it's obvious that, if not exactly, the situation bears recognisable resemblance to the old story of nine blind men describing an elephant.
Wage policies
In a sense, inflation is entrenched in the Government's own wage policies, which incorporate automatic cost-of-living adjustments. Inflation rises, so, pronto, do Government salaries. They are as far away from productivity link as one can imagine. One desperately looks for a reference to this in official economic documents. The closest is the ritual advice found in the annual ‘Economic Surveys' and RBI reports on containing the fiscal deficit. The truth is that the RBI ‘accommodates' Government's completely elastic wage expenditure and the two are in ‘collusion' in stimulating demand amidst their professed concern about inflation. What about the private sector? Are its actions inflation-enhancing? Unlike in Government, there's a clear connect between wages and productivity. The Chief Economic Adviser is right that wages have gone up but, therefore, wrong in his inflation attribution to wages. And Indian industry has little leeway in pricing, exposed as are most segments of it to domestic and global competition. Price trends in consumer durables are generally soft and price increases are offset with more or less equivalent discounts. There's a pretty high degree of absorption of rising fuel and freight costs. No culprits here.
Key areas
Thus we are left with two major areas responsible for general inflation — energy and food. The former is a pass through, at the mercy of international prices. The sub-10 per cent rise in overall food prices actually masks the high rate of increase in several individual categories, including necessities. But will monetary policy do the trick of controlling food inflation? The fact is food inflation is less important in a rapidly-growing economy characterised by productivity-backed rapidly-growing incomes even in the bottom rungs of the population. On the other hand, the net effect of policy-tightening may be eroding consumer and investment confidence, risking private sector job creation and the need to employ the massive additions to the labour force year after year. What's required is razor-sharp focus on non-productive incomes, profits and activity, not the loose cannon of just increasing interest rates.
(The author is Chennai-based financial consultant.) HBL
‘Growth may not cross 9% threshold’
The finance ministry on Tuesday said the economy may register a lower growth during the current financial year as against the earlier projections of 9 per cent given a fragile recovery of the global economy and a subdued industrial growth. However, it said India could clock 9-10 per cent growth in the medium- to long-term given its strong focus on inclusive growth and economic reforms. Recently at the G-20 forum, Finance Minister Pranab Mukherjee said that India is likely to grow by 8-8.2 per cent during the current fiscal while chief economic advisor Kaushik Basu has pegged the growth for the current fiscal at 7.5 per cent. However, Mukherjee has maintained that the economy will succeed in recording 8-9.5 per cent in the long run. According to a background statement prepared for the annual Economic Editors’ Conference (EEC) to be held here from Wednesday, the government said India managed a fast turnaround from the global economic crisis due to its strong fundamentals.
IE
Credit Reporting and the Indian MFI Bill: If not a silver bullet, at least a silver lining?
... By compelling registered MFIs to participate in credit reporting, the RBI could facilitate the development of vastly more comprehensive databases on base-of-the-pyramid borrowers than presently exist....
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Inflation to drop to 7% by March: R. Gopalan
The stubbornly high inflation is likely to prompt the RBI to hike rates at least by another quarter percentage point on October 25.
India’s wholesale price inflation rate may fall to about 7% by the end of March 2012, Economic Affairs Secretary R. Gopalan said on Monday. “I expect around 7% (inflation) by March-end. It (current inflation) is too high from comfort level,” the Economic Affairs Secretary told reporters in New Delhi. It is possible to achieve 9% economic growth in the next five years, Gopalan said. Inflation increased to 9.72% in September 2011 from 8.98% in the year-ago period. However, inflation, as measured by the Wholesale Price Index (WPI), was marginally lower than the 9.78% figure recorded in August. The stubbornly high inflation is likely to prompt the RBI to hike rates at least by another quarter percentage point on October 25. The RBI has already hiked rates 12 times since March 2010, to rein in inflation. http://www.indiainfoline.com/Markets/News/Inflation-to-drop-to-7-percent-by-March-R.-Gopalan/5267828720
Economic growth to be around 8% this fiscal: Montek
.....“We must remember that the current financial year is very unusual year for the world economies. And the euro zone crisis has made virtually every country revise its growth rate downwards,”......
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RBI against letting MFIs collect small deposits
.... India’s central bank has objected to a government proposal to allow microlenders to collect thrifts, or small deposits, from poor borrowers.......
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FinMin questions need for another rural bank
Rural development ministry wants a bank for women self-help groups; finance ministry says Nabard is enough
New Delhi: The rural development ministry’s plans to set up a dedicated national bank for women self-help groups (SHGs) may have hit a roadblock with the finance ministry questioning the feasibility of the proposal, especially given the existence of the National Bank for Agriculture and Rural Development (Nabard). The proposed new bank is intended to promote self-employment among women living below poverty line. Rural development minister Jairam Ramesh, who took charge of the ministry in July this year, had on 18 July said the ministry would prepare a detailed paper on the subject before taking up the matter with the finance ministry. Ramesh had also mooted lowering the interest rate on the credit women SHGs receive from any nationalized bank. While crop loans are available to farmers at 4-7% interest, SHGs pay more than 9% interest on loans. The rural development ministry then sent the proposal to the Reserve Bank of India for consideration. The finance ministry, however, does not seem keen on the proposal, particularly since Nabard is already in place. “There is no point in setting up another bank when Nabard already exists. Setting up a separate bank will require large-scale investments for infrastructure creation, especially since the bank will need to have a presence in rural areas,” said a senior finance ministry official, who did not want to be identified. Nabard was set up by the government as a development bank with a mandate to ensure credit flow to agriculture and promote integrated rural development. It is the apex institution that refinances banks for onlending to critical sectors, including agriculture and rural infrastructure, and administers many funds on behalf of the government. Finance minister Pranab Mukherjee, in this year’s budget, had also announced the creation of “Women’s SHGs Development Fund” with a corpus of Rs. 500 crore, to empower women and promote SHGs. “The fund that was announced for women SHGs in the budget can be administered by Nabard,” the finance ministry official said. “There is no need for another organization to dispense with the funds,” he said. Ramesh, however, says he is still in talks with the finance ministry. “We are waiting for final comments from the finance ministry,” Ramesh said. “We will then take up the matter with the Union cabinet.” S.L. Rao, former director general of the National Council of Applied Economic Research (NCAER), says another specialized institution is not needed. “As far as lending to SHGs is concerned, the existing structure is enough particularly with the proposed Microfinance Bill. Overall, Nabard does suffice,” said Rao. “For the poor, the best system is where SHGs save to create a pool and then use funds out of that for further activities. Further, commercial banks and non-banking financial companies have also started lending much larger sums of money to SHGs.” Mint
PSU bank CEOs seek elbow room
...The finance ministry, which is now looking into the issue, however, could soon relax the overseas travel norms, a senior government official who did not wish to be identified told Hindustan Times. The government and the Indian Banks Association (IBA) have also held discussions on the issue.....
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Federal Bank to beef up SME, agri lending
At a time when corporate credit growth appears to be slowing, banks like Kerala-based Federal Bank are discovering immense lending opportunities in SME and agriculture sector, especially in providing credit to large-scale farmers...............
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MFIN-NACER study unearths agents’ role in microfinance, but does not find these middlemen in Chennai
....As the Ministry of Finance and the RBI (Reserve Bank of India) are trying to solve the Indian microfinance regulatory puzzle, there is further evidence on the use of agents in Indian microfinance. The question to be asked then is whether and how the proposed Microfinance Bill will prevent use of such middlemen in the future. .............
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Tuesday, October 18, 2011
Why RBI should, and likely will, raise rates
It’s that time again. Inflation continues to remain dangerously close to double digits. Wage growth remains buoyant. Input prices increased across the board in September, and inflationary expectations remain elevated. Yet, public pressure on the Reserve Bank of India (RBI) to pause gets stronger and stronger! Proponents of a pause would look at last week’s data and conclude the momentum of growth and inflation are slowing. They would add central banks around the world have moved to a pausing, even an easing, mode. And, this should be reason enough for RBI to call it a day. Given the pressure on RBI from the industry and the market, this is undoubtedly a close call. But, while a pause cannot be ruled out, we expect RBI to continue on a path of monetary tightening and raise policy rates by 25 basis points at the next review. And, they would be perfectly justified in doing so. Here’s why.
First of course, the economy is slowing. But that’s not the relevant question. The question is whether or not it is slowing enough to dent pricing power across the board. There is no evidence to suggest we have reached that point yet. Yes, the momentum of core inflation slowed in September. But one swallow does not a summer make. Several times last year, the momentum of core slowed one month, only to re-accelerate sharply the next. What was ominous, and largely missed, in the September inflation print is input prices rose across the board and are likely to pressure core inflation in time to come. Until the momentum of core slows on a sustained basis, it would be premature to conclude the economy has slowed enough. Second, much is made of the global uncertainty. Yet, recent data flow has surprised consistently on the upside, with Euro area industrial production, for example, stronger than expected for a second month. As a result, commodity and crude prices are at their highest levels in a month. Third, there are increasing fears that fiscal policy would not be as tight as once thought. The looser the fiscal conditions are, the higher the commodity prices are, the tighter the monetary conditions would have to be. And, here’s the irony: The sharp currency depreciation over the last two months has meant that despite the rising policy rates, overall monetary conditions have actually loosened over the last month! The weaker rupee has increased the domestic cost of tradables and thereby, undercut some of the impact of previous rate increases. The implication is policy rates need to do more of the heavy lifting. For all these reasons, we expect (and hope) the central bank would ignore the rising chorus and continue raising rates. To pause now would be to undo much of what was courageously done in the recent past.
BS
MPs want auction of bank licences
A senior banker said, banking licences cannot be auctioned as unlike telecom, banks play a different role and deal with public money
Mumbai: Reserve Bank of India (RBI) Governor D Subbarao on Monday met the Parliamentary standing committee on finance to discuss the issuance of new banking licences to companies, a person familiar with the development said. According to the person, the members of Parliament suggested auctions of new banking licences to the aspirants, citing the controversies in the allocation of second generation airwaves or 2G. Mint could not immediately reach any member of the standing committee. A senior banker said, banking licences cannot be auctioned as unlike telecom, banks play a different role and deal with public money. In August, RBI had released its draft licensing norms for a new set of private banks and said firms that have 10% or more exposure to real estate and brokerage businesses in terms of income or assets, will not eligible to set up a bank. Also, a corporation or an NBFC will need a ”diversified ownership, sound credentials and integrity”, and a 10-year track record, the RBI said. Releasing the draft, the RBI had said it will give licence on a ”very selective basis” and ”it may not be possible for RBI to issue licences to all the applicants meeting the eligibility criteria”.
Mint
New products to revive interest rate futures
The joint technical committee, comprising officials from Sebi and the Reserve Bank of India (RBI), are deliberating on the specifications of the instrument and a decision is expected in the next two-three months. More important, the new contracts will be allowed to be settled in cash, which has been a long-standing demand of industry participants.....
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India's economy 'is slowing sharply': Moody's
India's slowing economic growth is a "cause for worry", research group Moody's Analytics said Monday, highlighting the failure of aggressive interest rate hikes to curb near double-digit inflation.............
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Slowdown fear grips industry as RBI policy meeting looms
Mumbai: A growing uneasiness is palpable among Indian companies, individual borrowers and even commercial lenders as the central bank may increase its policy rates, the 13th such hike since March 2010, to rein in a persistently high inflation in the world’s second-fastest growing major economy........
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Ind Min against notification of some clauses of FDI policy
New Delhi: Taking note of the objections raised by the SMEs, the industry ministry has asked its finance counterpart to refrain RBI from notifying certain clauses of the FDI policy relating to financial instruments. In a letter to Department of Economic Affairs Secretary R Gopalan, the DIPP has said that RBI need not notify "the provisions" related with definition of instruments that would qualify to be foreign direct investment (FDI) or external commercial borrowing (ECB). The Department of Industrial Policy and Promotion (DIPP) is an arm of industry ministry which deals with FDI related issues. The clause, on which objections were raised by the SME sector, was inserted in the recently issued consolidated circular on FDI policy on September 30. According to the clause "only equity shares, fully, convertible and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares, with no in-built options of any type, would qualify as eligible instruments for FDI. "Equity instruments issued/transferred to non-residents having in-built options or supported by options sold by third parties would lose their equity character and such instruments would have to comply with the extant ECB guidelines." The DIPP, the letter said, had received number of objections from the SME sector on the clause relating to FDI and ECB classification. The issue, it added, would have to be "revisited urgently. "In the circumstances, it is requested that RBI may kindly be advised not to notify the provision for the present and maintain status quo until we arrive at a suitable formulation after consultation," the letter said.
Zee News
BALANCING GROWTH AND INFLATION
The perception in the market before the 25 October monetary policy of the Reserve Bank of India (RBI) is that we are very close to the peak of the rate hiking cycle, although the possibility of another rate hike next week cannot be ruled out. Apart from the rate decision, we will also be looking for any subtle or explicit change in the guiding principles of monetary policy because the economic cycle is changing. There are always multiple considerations that go into framing monetary policy, but in our view, belief in three hypotheses has prompted RBI to adopt a more hawkish policy stance in FY12. First, low and stable inflation encourages investment and promotes growth over the medium term. In this context, a recent RBI working paper estimates that inflation can retard GDP (gross domestic product) growth if it stays above the 4-5.5% threshold. So the target of monetary policy should be to keep inflation below this threshold and high inflation cannot be tolerated in search of higher growth. Needless to say, inflation has been much above that threshold for a sustained period of time. Second, near-term growth might have to be sacrificed to keep inflation under check. This hypothesis connects well with the idea of engineering a calibrated soft landing where the economy might have to grow at below the potential growth rate for a while to moderate demand side pressures. Third, monetary policy is effective in not only bringing down demand-side price pressures but also tackling persistent supply-side shocks which dehinge inflationary expectations. At this juncture, we probably need to delve a little deeper into some of these hypotheses. For example, while evaluating the second hypothesis there is considerable uncertainty over whether the potential growth rate of the economy has already been adversely affected by lack of supply-augmenting reforms. Most analysts peg the potential growth around 8% but there is a downside risk to that estimate. Also, it is not clear how far below the potential growth rate, RBI will let growth fall. It is quite likely that in the October policy, RBI will be more explicit in acknowledging that growth moderation has occurred but it will probably be difficult for it to give even a subtle hint of whether the extent of slowdown has crossed its tolerance limit. However, there are two important considerations in deciding the timing of a pause in RBI’s quest for an engineered soft landing. Monetary policy works with a long and uncertain lag, especially in developing countries such as India. So, RBI is likely to pause much before inflation actually falls close to its comfort level. Unfortunately, in late 2010 when RBI paused, inflation flared up again prompting its current worries about a “pre-mature” exit from its anti-inflationary stance. The second factor is the ability of monetary policy to perfectly fine tune the moderation in growth. Once growth starts slowing, a set of chain reactions can trigger a much sharper decline in growth than anticipated, especially when the investment climate is buffeted by global uncertainties. Inflation management does require sacrificing near term growth but allowing growth to drop beyond a threshold could come with its own set of problems. Persistent inflation is also posing the difficult question of whether interest rate hikes are having the desired impact. It is tough to say what would have happened to inflation if rates had not been raised aggressively. Still, stubborn inflation can change people’s perception about effectiveness of monetary policy and complicate matters. I think RBI will hike rates by another 25 bps (basis points, or 0.25 percentage point) in the 25 October policy because of uncomfortably high inflation and uncertainty over whether hidden price pressures can derail the early signs of inflation finally coming under control. A signal that the balance of risks is getting spread more evenly between inflation and growth is likely to precede a pause in the rate action. For that, growth data needs to worsen further or RBI needs to recalibrate its guiding principles.
Mint
SFIO to have powers to prosecute companies
The bill seeks to define 'fraud', and also outlines the punishment to go with each category of fraud. It also makes out a case for setting up a National Company Law Tribunal with its appellate body. The provisions have been brought in tandem with laws of Sebi, RBI and other regulators.......
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House panel questions RBI's bid to allow corporate, non-banking finance bodies to set up banks
NEW DELHI: Members of Parliament's standing committee on finance have questioned the Reserve Bank of India's move to allow industrial houses and non-banking finance entities to set up banks, wanting to know the rationale behind the decision and when precisely the policy was framed. RBI governor D Subbarao was quizzed by finance standing committee members on Monday over his assertion that the new policy flowed from finance minister Pranab Mukherjee's 2010-11 budget speech, who had promised greater access to banking in terms of both geographical spread and services. The MPs contested the argument that Mukherjee's speech - that had dwelt on increasing banking access with India having successfully negotiated the 2008-09 global slowdown - provides the framework for the RBI proposing to allow industrial and business houses to set up banks. They said Mukherjee's remarks did not indicate the proposed policy.
TOI
View from the IMF - ANOOP SINGH
The global economy has entered a dangerous new phase. Growth in the West has slowed while downside risks to the global economic outlook have increased further. Financial market volatility has surged as private demand in the US failed to pick up sufficiently and sovereign debt and banking sector problems in Europe proved more tenacious than expected. International efforts are being made, including by the Group of Twenty (G20), to coordinate policies so as to avoid a major global disruption like the one we experienced in 2008-09. How is Asia faring amid this turbulence? In our recently released Asia-Pacific Regional Economic Outlook, we find that while growth in Asia has also moderated, domestic demand remains resilient. As a result, Asia is poised to grow at about 6¼% during 2011, increasing to 6¾% in 2012 under the baseline scenario. The latter reflects a lowering of only ¼ of a percentage point since our April forecast, compared to ¾ percentage points for our advanced economy growth projections during the same period. However, there are large downside risks to this benign outlook. The advanced economies are at the core of an effective resolution of current global stresses, and a lot depends on them to prevent the risk scenarios from materialising. But emerging market and developing economies’ ability to maintain their stability and growth is also key to an effective global response. The moderation in growth notwithstanding, our Outlook shows that inflation remains generally elevated in the region, with average headline inflation increasing to 5½% (year-over-year) in July 2011, from 4½% in January. This requires a balancing act on the part of Asian policymakers, as they need to guard against risks to growth, but also limit the adverse impact of prolonged easy financial conditions on inflation and balance sheet vulnerabilities. Where does India lie in this balance of risks? India’s inflation remains stubbornly high, registering at 9.7% in September (WPI, year-onyear), while growth is slowing from 8.5% in 2010-11 to 7.6% this year by our current estimation. This confluence has led to understandable public debates about the efficacy of the RBI’s actions. We are clearly of the view that the RBI’s monetary tightening has been necessary and is bearing fruit on the inflation front, and is not the dominant factor in the growth slowdown — that is already showing the early effects of the global slowdown. Thus, although some further monetary tightening is likely necessary under our baseline scenario to quell the entrenched inflationary momentum, the RBI certainly has the room to act quickly if major risks materialise. Indeed, as in 2008-09, the RBI’s ability and readiness to supply liquidity will play a critical role if a major external financial shock materialises. Fiscal policy has an important role to play in the balancing act as the authorities have emphasised. Restraining expenditure to the level of Budget FY2012 would help recreate the fiscal space to counter external shocks. It will also assist the RBI in combating inflation by moderating domestic demand pressures. Finally, a shift in government spending from consumption towards infrastructure, health and education, would help increase the economy’s capacity to grow strongly over time, while also making the growth process more inclusive as we argue in the REO. The government also has a role to play outside of fiscal policy. There is a sense that a reinvigorated pursuit of the outstanding structural reform agenda — such as the introduction of the goods and services tax, further liberalisation of the FDI regime, passage of long-pending financial sector legislation, and measures to improve the business environment — would attract investment currently being held back. This reinvigoration would help bring growth back to potential in the short run while relieving supply bottlenecks that could, otherwise, continue to stoke inflation. India has felt the repercussions of the current global uncertainties in its currency and equity markets. This is a natural outcome of India’s increasing integration with the global economy and reflects the sharp increase in global risk aversion in recent weeks and months. Nevertheless, India’s vulnerability to external shocks is relatively low at present. This is due, in substantial part, to the fact that banks are well regulated and have strong balance sheets, exports are surprisingly buoyant, and external debts are limited. And India has demonstrated its resilience by navigating the global financial crisis in 2008-09 relatively unscathed. Nevertheless, a high level of vigilance is needed in the coming months, and calls for continued efforts to create policy buffers.
(The author is director of the Asia and Pacific department of the International Monetary Fund) ET
Focus on reforms
Apropos of the column “Let’s kill GDP, inflation will fall” (FE, October 15), for months now inflation has been looming as the greater threat on this government than slowing growth. RBI interventions on checking money supply as a tool to rein in inflation have elevated the borrowing costs. A combination of relentless global economic stasis coupled with adamant inflation at home have elevated input costs. Fiscal considerations are not allowing fuel prices to be toned down either. This does not augur well for industrial growth. The added worry is that a weak industrial sector performance is now being followed by weak services sector performance. The one brighter spot is that the agriculture sector has improved in FY2011. But tardiness in agri-market reforms will not allow the gains of this sector being transmitted to the consumer. And food inflation has remained the Achilles’ heel for close to two years now. So, we should now focus on effective governance and push for reforms, which have been put on the back burner. The route to rate interventions will not take us out of the current crisis as would energetic pursuit of reforms.
R Narayanan, Ghaziabad (FE)
Banks start lending to microfinance institutions
The Kerala Association of Microfinance Institutions (KAMFI) has said that the microfinance crisis cropped up due to some unfortunate happenings in Andhra Pradesh seemed to come to an end, as banks have started lending to microfinance institutions (MFIs). After the embargo in lending by commercial banks to microfinance sector, the RBI had issued guidelines on microfinance lending inter- alia directing banks to resume lending to microfinance sector and treat them as priority sector advances, Mr K. Paul Thomas, Chairman, KAMFI, said in a statement.
HBL
Return to indebtedness
This July marked the completion of two decades after India experienced the balance of payments crisis of 1991. With substantial reserves, the external situation today appears and is different. But there are similarities as well........
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Public holidays
This refers to the news item ‘Three public holidays in India against 15 in Pakistan’ (October 16). The Indians may have only three national public holidays but they leave us behind when it comes to the various religious and cultural holidays. For example, the website of the Reserve Bank of India (www.rbi.org.in) informs us that its regional office at Nagpur will observe 26 bank holidays during 2011 of which six holidays fall in the single month of April. Incidentally the bank remains closed on Eid-i-Milad, the two Eids and Ashura.
Dr Faiz Ahmad, Islamabad
http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=72979&Cat=11
Cooperative Banking in India
This report covers the cooperative banking sector in India comprehensively, presenting a full view of the types of cooperative banks, their governing structures, the financial parameters, the technology adoption and the products and services offered. Additionally it also covers NABARD and its subsidiaries and defines the role it plays in the development of the cooperative banking sector as well as the Indian economy. Cooperative banks form the backbone of the rural economy. Especially in an agriculture dominated rural sector (Like the one we find in India), cooperative banks play a pivotal role in bolstering the common individual and financing his business and personal needs. The sector is strongly regulated in India by sub apex organizations like NABARD, closely monitored by RBI’s hawkish policies. Of late RBI has acknowledged the enormous role of cooperative banks in extending microfinance amongst the rural population. The regulations surrounding cooperative banks in India are likely to be relaxed in the next few years to enable the banks to come up with newer products and services for the upliftment of the rural sector. Currently, barring a few, majority of the banks are operating in the low-profit, low-diversity quadrant of banking business.
UID project hits job plan roadblock
....Nilekani had recently told reporters that Aadhaar number will be linked for MGNREGA bank accounts for electronic transfer of wages. It was the next step UIDAI was looking at after the Reserve Bank of India (RBI) declared Aadhaar as enough for one to open a bank account. ......
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Monday, October 17, 2011
Meltdown fears are back
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| Address by Shri V.K.Sharma, Executive Director at the Second Pan-Asian Regulatory Summit, organised recently by Thomson Reuters in Singapore |
Systemic risks in the global markets can be best identified and measured by looking at some select key parameters which, between them, indicate the extent of asset bubbles and the corresponding under-pricing of risks. In other words, it is not so much high volatility, which is the ‘effect', that should be a cause for concern as persistent and excessively low volatility, which is the ‘cause', and was the hallmark of the pre-crisis period.
Read........One rupee sets off one's imagination !
One often hears of poor supply of coins and the Reserve Bank of India releasing more coins and in new formats. The 1-rupee coin released recently with the rupee symbol looks like the 50-paise coin. This has led to the bazaar talk that the 50-paise coins may soon go the way of 25-paise coins. The RBI site still claims: “Coins in India are presently being issued in denominations of 10 paise, 20 paise, 25 paise, 50 paise, one rupee, two rupees and five rupees.” It also says: “Coins up to 50 paise are called ‘small coins.” So we can take pride that we have done away with small change and deal only in rupees. Sign of growth!
HBL
'Allow systemically important NBFCs to float perpetual bonds'
Industry chamber Ficci today suggested that systematically important non-banking finance companies (NBFCs) should be allowed to raise funds through perpetual bonds. "Both deposit-taking systematically important and non-deposit taking systematically important NBFCs should be allowed to raise perpetual bonds," Ficci said in a statement. Currently, only non-deposit taking systematically important NBFCs are permitted to augment their capital in this way. Ficci has also suggested that the recommendation of the Usha Thorat committee fixing the period of default prior to classification of loans as non-performing assets (NPA) should be introduced in phased manner. The working group on 'Issues and Concerns in the NBFC Sector' headed by the former Deputy Governor had suggested a 90-day period of payment default for recognition of NPAs by NBFCs, in line with banks. At present, the period of default prior to classification of loans as NPAs in the case of NBFCs is higher, at 180 or 360 days, compared to 90 days for banks. A 90-day period for recognising the NPAs of NBFCs, in line with banks, would impose an avoidable provisioning burden on the NBFCs and could result in NBFCs deciding to opt for early foreclosures, depriving their borrowers of an income generating asset, it said. It is to be noted that the Thorat panel, in its report to the RBI in August, suggested tighter norms for NBFCs with the aim of strengthening the regulatory and supervisory framework for such lenders. Considering the experience of NBFCs in terms of foreclosure losses, the extant NPA norms should be followed, Ficci suggested. If at all this 90-day provisioning stipulation is to be introduced, it needs to be carried out in a phased manner, given that its impact on the industry will be very high, it added. The committee had also made a recommendation for income tax deduction of NPA provisions. The proposal to enhance NPA provisioning may be made effective only when income tax deductions for such provisions are allowed, Ficci said. In addition, it said loans in the form of NCDs should not be treated as capital market exposure.
BS
No information about illegal gold sale: RBI, Finance Ministry
NEW DELHI: Two key economic regulators of the country - Finance Ministry and Reserve Bank of India - do not have any information about the the consumption of unaccounted gold in the country. The RBI and the Finance Ministry have given a sworn affidavit before the Central Information Commission that they do not have any information about the illegal gold sale in the country. The affidavits were issued on the direction by the Information Commissioner Deepak Sandhu who asked them to file a sworn affidavit that they do not have any information about the consumption of unaccounted gold in the country. The direction of the transparency panel comes on an RTI application by activist S C Agrawal who sought to know sale and consumption of unaccounted gold in the country and related issues. The application filed before the Department of Revenue was transferred to a number of authorities within the Finance Ministry with each of them claiming that they do not have any information on the issue. No reply was furnished to the applicant. When the matter came before the CIC, Information Commissioner Deepak Sandhu directed the Finance Ministry, nodal ministry in such affairs, to file a sworn affidavit that no information was held by it.
ET
Inflated problem
Inflation has been a persistent problem for the Indian economy for nearly six years and worryingly for policy makers, Wholesale Price Index (WPI) inflation has been above nine percent for close to a year. Experts say that the price of commodities like food has risen steadily despite a string of good monsoons and record harvests. Sajjid Chinoy, India Economist at JP Morgan says the substantial price rises being experienced by rural India are a combination of a number of factors: supply bottlenecks, rising incomes, greater demand, and changing consumption habits. Critically, Professor Mahendra Dev, Director of the Indira Gandhi Institute of Development and Research points out that the cost of some food items in rural areas may be two or three times higher than official figures. WPI inflation dipped to 9.72 percent in September, down slightly from 9.78 percent in August. However, it still remains fiercely high and analysts in India widely anticipate that the Reserve Bank of India will, for the 13th consecutive time, lift interest rates later this month. The Reserve Bank of India says that it is mindful of a slow down in economic growth and the impact that the rising cost of borrowing is having on businesses and consumers alike. However India's Central Bank has also warned that it is not likely lower interest rates until inflation is brought under control. The timing of India's economic woes is not great. The country is struggling to keep growth and domestic consumption on track at a time when the world's major developed markets, and some of the country's biggest trading partners, are bracing for yet another slowdown.
BBC News
Let’s kill GDP, inflation will fall
......There has been much talk by the experts that India was behind the curve in tightening. By behind the curve is meant that RBI was too slow in raising rates. But the curve is not a one-way street. You can be (and RBI is) behind the curve by raising rates too much.............
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Consolidation likely ahead of Diwali
The stock market is likely to remain firm ahead of Diwali, as the financial performance of Indian Inc has so far not disappointed street expectations. However, the Reserve Bank of India's policy move could spoil the party at Dalal Street. With headline inflation showing no signs of any correction, market participants expect another rate hike of 25 basis points. The RBI is meeting on October 25 to decide on key interest rates. Corporates are mounting pressure on central bank to pause on current rate tightening, as they are already struggling to raise funds to meet capital expenditure. However, the RBI Governor, Dr D. Subbarao, has reemphasised that inflation must ease before the central bank can reduce interest rates, signalling a tight monetary stance for now. Sustained buying by foreign institutional investors helped Indian markets recover sharply last week. Markets even ignored the weak industrial growth for August on hopes that the global atmosphere would continue to be conducive, as Euro-zone is indicating some actions will be taken to contain the region's economic woes. The slowdown in industrial production is not an India phenomenon alone. The HSBC Emerging Markets Index declined to 51.9 in the third quarter of 2011 which, according to it, ‘is the slowest in nine quarters.' Of the big-four emerging markets, Brazil and India recorded the fastest rates of decline in new export orders. “Consequently, employment growth as measured across manufacturing and services eased to the slowest for nine quarters, reflecting a weaker rate of job creation in services and a stagnation of manufacturing employment. India recorded a decrease in headcounts for the first time since Q1 2009,” said HSBC report.
HBL
Financial markets that are efficiently regulated
The Reserve Bank of India (RBI), until the constitution of sector regulators like Sebi, Irda, etc, undertook the responsibility of developing various segments of the financial market. Setting up of institutions like the Industrial Development Bank of India, Unit Trust of India (UTI), National Housing Bank (NHB) and National Bank for Agriculture and Rural Development and so on, establishes historical track of the role played by the RBI in the development of the financial markets......
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Negotiating the next curve
If the RBI persists with rate hikes despite the onset of slowdown — just as it did not raise interest rates earlier when required — it may miss the bus yet again.
Monetary policy is all about getting the timing right. In 2008, when the wholesale inflation rate suddenly jumped from 4.5 per cent in January to cross double-digits in June, the Reserve Bank of India (RBI) was quick to respond. By August, the central bank had raised its repo rate as well as the cash reserve ratio (CRR) of banks to nine per cent. It wasted little time either when inflation took a plunge from December, following the global economic crisis, to hit negative territory in June 2009. Well before that, the repo rate was brought down to 4.75 per cent and the CRR to five per cent. But subsequently, even as industrial growth recovered towards the year-end alongside unleashing of inflationary pressures, the RBI was slow to react. By the time it did — from around March 2010 – inflationary expectations had already built up. The very fact that 200 out of the 350 basis points increase in the repo rate since then has come after January this year shows how ‘behind the curve' the RBI — and those in the Government prompting it from behind the scenes – have been. The hope that inflation would somehow wither away was simply misplaced. The danger today is of a different hope — of growth still being sustained at an accepted level even as the belated monetary policy actions are beginning to dent it. On October 25, RBI will hold its next policy review. With the annual wholesale inflation rate at 9.72 per cent for September — the 10th successive month it has been over nine per cent and the 21st at eight per cent-plus — it could consider yet another 25 basis point rate hike. But doing so would be counter-productive. The current inflation has been largely food and fuel driven with spill-over effects on wages — against which monetary tightening has proved ineffective, especially post-NREGA. While investment has slowed down, it has, however, more to do with general policy paralysis and waning business confidence than interest rates. High interest rates has mainly impacted the real estate and auto sectors; even that is probably now starting to harm steel or cement consumption more than reining in overall inflation. Demand compression, to fight an inflation fundamentally rooted in supply-side bottlenecks, may only exacerbate a slowdown that is already visible to many. Against this background — more so, with July and August posting dismal industrial growth and September excise collections falling year-on-year for the first time in 17 months — the RBI would be best advised to press the pause button on further rate increases. Having not raised interest rates when it was required and now insisting on no stoppage until inflation falls to six per cent — the so-called ‘threshold' beyond which growth apparently gets hurt — would only be an invitation to recession. Hopefully, RBI will not miss the miss the bus again.
HBL
Economic policy: Shooting in the dark
... As the central bank wrestles with the dilemma of whether to continue, pause or stop in its tracks, it needs to know, and with far more certainty than at present, how far its policies have slowed down the level of economic activity, how far they have impacted inflation and so on. In short, it must be able to get its finger on the pulse of the economy and also ameasure of the pulse rate.....
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Revive economy
As commented in your editorial “Restoring confidence” (Business Line, October 14), the growth rate is disappointing. It is high time the government concentrated its energies on early resolution of the Telangana issue, which is causing untold misery to the people of all regions in AP. Also, the Congress should expedite early passing of the Lokpal Bill in Parliament — not for the purpose of pleasing Anna Hazare and his team — in the interests of all stakeholders of the country. Both the Government at the Centre and States, at the political level, and the RBI from the monetary viewpoint, should strive hard to put the economy on an even keel to arrest further decline in growth rates of the economy.
K. N. V. S. Subrahmanyam (HBL)
Coordinated measures needed to control price rise
....While the RBI is planning to announce its second-half monetary views and measures on October 25, it would be interesting to know that fiscal measures still continue to influence the monetary policy of the central bank and only a coordinated approach by the government and the RBI could bring down inflation.....
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Financial inclusion bogged by too much concern with regulatory prudence, rather than bold experimentation: FICCI report
....Banks have been advised by the RBI to submit their financial inclusion plans for reaching 72,825 financially excluded villages by 2012 and to integrate these with their normal business plans. While much has been achieved, as is the norm in any regulatory regime, what has been done by the banks has been the minimum necessary to gain approval (or at any rate regulatory forbearance). Thus significant areas of the rural hinterland of the major states are now reasonably served with banking services. ........
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Finance Ministry for white-level ATMs to boost banking access in country
NEW DELHI: In a bid to increase the penetration of banking services, the Finance Ministry has favoured setting up of white-level ATMs in the country. White-level ATMs are not owned by banks but by private ATM service providers. Customers from any bank can deposit or withdraw money from such ATMs. "Such ATMs will help take banking services to remote places," official sources said. Besides, it will help sponsored banks to set-up ATMs without incurring capital expenses for owning money dispensing machine, sources said. The Finance Ministry has given its view to the Reserve Bank in this regard, sources said, adding that the lead bank or sponsored bank of a district would be given the responsibility of filling cash and meeting other operational requirement. Thus, the bank will be saved from making investment for setting up ATMs, and even other expenses like technical infrastructure and security would be borne by non-bank entities. Currently, white label ATMs are not permitted by the RBI. State-owned IDBI Bank is considering to create a separate venture with private ATM service providers for running white-label ATMs, so called because they are not owned by any bank. At present, brown label ATMs are allowed in the country. In such cases, the hardware as well as lease is under the ownership of the service provider, while connectivity and cash handling and management is the responsibility of the sponsor bank. The ATM is named under the brand of the sponsor bank but the ATM machine is not owned by the bank. At present, banks allow customers of other banks five free-of-charge cash withdrawals at their ATMs every month but end up paying around Rs 3,000 crore a year to settle inter-bank transaction costs. At present, the installed base of ATMs is India is 75,000 as of June 2011.
ET
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