Now, open bank account with other states’ identity proof

NEW DELHI: The government has asked banks to accept identity proofs issued in other states as valid documents for opening no-frills bank accounts, in a move that will help millions of migrant workers, including domestic helps and drivers, access banking services. At a specially convened meeting to push the financial inclusion agenda, the finance ministry asked bankers to accept the identity proofs and use their branch network in other states to verify the authenticity of the documents. As a result, a domestic help in Delhi can use a voter identity card or the NREGA job card issued in Bihar or Orissa to open a bank account in the Capital. Some banks such as SBI said they have been following this practice when they open accounts through business correspondents, who are agents of the bank for opening small accounts, also referred to as no-frills, and undertaking remittance related transactions.

'RBI rule on identity proof not practical'

While RBI had relaxed norms to permit banks to open accounts based on self declaration in the absence of a valid identity proof, in practice few banks were using the flexibility as they feared penal action from the regulator and enforcement agencies in case anything went wrong. "RBI also says that the liability is with the bank, so banks develop cold feet and insist on photo, photo ID and local proof of residence," said a banking industry source. "What the government is saying is tough to implement. It is practically very difficult to use our branch in another state to conduct the verification," said a banker.  As part of the financial inclusion agenda, being pushed by the government as well as RBI, banks have been given flexibility in opening accounts and transacting business. When it comes to opening accounts, last December, the government permitted banks to use relaxed know your-customer (KYC) norms for opening small bank accounts. Small bank accounts refer to those accounts where up to Rs 1 lakh is deposited annually, monthly withdrawals do not exceed Rs 10,000 and the balance does not exceed Rs 50,000 at any point of time.  In addition, a move is afoot to get banks to have a presence, either through a branch or a business correspondent, in any village with a population of up to 1,000 so that remittances can take place through the banking channel.

TOI

Compromise, confuse and pray

.... The bottom line is: if the RBI was convinced about the reasons to increase rates, then there was no need to offer the explicit guidance of a pause in December, even if that is what it eventually did. Conversely, if it was convinced about the reasons for a pause, then there is no need to raise rates.......

Read........ 

RBI: Policy guidance to hold for now - Report

The Reserve Bank of India will stick to its exchange rate policy and the guidance provided on monetary policy would hold until further notice, a deputy governor at the bank, Subir Gokarn, said Tuesday. "We have repeatedly said that the rupee is now a floating currency within the boundaries of the regime of structural capital controls on debt inflows," Gokarn told reporters at a televised event.  "There is no intent to intervene with a particular exchange rate target in mind."  The partially convertible rupee has been the worst performing currencies in Asia so far this year, having shed more than 9 percent against the dollar.  Gokarn said that the rupee's losses are due to global conditions and capital reallocations around the world have impacted many currencies.  The Reserve Bank of India raised interest rates in late October for the 13th and possibly final time in a tightening cycle that began in early 2010, on expectations that persistently high inflation will finally begin to ease starting in December.  The central bank said it was unlikely to raise rates again in December and may remain on hold subsequently if inflation follows its projected trajectory.  "We gave the guidance two weeks ago. If we want to change the guidance we will change the guidance...Unless there is something dramatic that happens to change it, that guidance remains. So let us say, the guidance remains the same until further notice at this stage," Gokarn said. Government-backed fuel retailers have raised gasoline prices by about 2.7 percent from Friday. The move, aimed at cutting revenue losses of oil firms, is likely to add pressure to stubbornly high inflation in Asia's third-largest economy.  RBI may consider reversing its tight monetary stance as inflationary woes begin to ebb next month, a top policy adviser said on Saturday.  India's central bank will only consider easing monetary policy if inflation falls below 7 percent, Governor Duvvuri Subbarao had said a day after its policy review on Oct. 25.

ET

‘Inclusion targets need rural banks’ support’

....Several RRBs were launched, but over the past few years many have been amalgamated because of financial stress. Some 40 RRBs together require a fresh capital infusion of Rs.2,200 crore before March, a committee headed by RBI deputy governor K.C. Chakrabarty has said......

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

RBI not to intervene in foreign exchange market, says Deputy Governor Subir Gokarn

MUMBAI: Reserve Bank today said it does not intend to interfere with the exchange rate and its monetary policy stance in the coming months would be determined by movement in inflation. "In exchange rate policy, Rupee is a floating currency. It remains that exchange rate is market determined and there is no intent to intervene with a particular exchange rate in mind," RBI Deputy Governor Subir Gokarn said here. Gokaran said the Rupee, which is a partially convertible currency, has depreciated because of global conditions. "...capital reallocation around the world has impacted many currencies, and we have stayed with our policy," he said. The Rupee has depreciated against the US dollar by about 9 per cent this year. The Rupee today weakened by 37 paise to trade at Rs 49.48 against the dollar as the US currency strengthened in the overseas markets.  On the possibility of halting the policy rate hike in its next policy review due on December 16, he said it would depend upon inflation rate. "We gave the guidance two weeks ago (in mid-year monetary policy)...Unless there is something dramatic that happens to change it, that guidance remains. So let us say, the guidance remains the same until further notice at this stage," Gokarn said. RBI had since March 2010 raised key rates 13 times with a view to calm down the inflation which was still hovering near the double-digit mark. The Deputy Governor further said that RBI's projection on inflation has take into account international crude oil prices. Since the time deregulation of petrol prices, "we assume that the pass through will be more or less full. The new element in this calculation (on inflation projection) is exchange rate movement".  On the rate of price rise, he said the structural drivers of inflation are still strong and the RBI expects it to remain high through October and November.  Headline inflation stood at 9.72 per cent in September. The government is yet to announce the inflation data for October.

ET

Gearing up for the competitive impulse in the Indian banking in its defining decade

Special address by Dr.K C Chakrabarty, Deputy Governor at BANCON 2011-11-09

Click to read...... 

Cash reserve ratio

Apropos the report “SBI chief for doing away with cash reserve ratio” (Business Line, November 7), the SBI chief's call for abolishing cash reserve ratio (CRR) is quite strong in content, and deserves to be examined by the banking regulator (RBI). Coming as it is from the person heading the biggest bank in India, the remark cannot be just brushed aside. The reason for SBI chairman's dissatisfaction with CRR stems from the fact that the balance of commercial banks with the RBI doesn't earn any interest. How other commercial bank managements and the RBI respond to this comment: Banks definitely welcome the proposal of the SBI chief. As for the RBI, CRR happens to be another instrument of credit control, and needs to be used when it feels that credit has to be further regulated. CRR has the ability to squeeze the funds of banks directly and so impacts the banks immediately.  Policy rates and CRR together would strengthen the intervention of the RBI in times of continuous inflationary pressures experienced by the economy.

K. V. Rao, Bangalore (HBL)

Which GDP is rising?

Voicing the common man’s concerns over persistently high inflation, Gujarat Chief Minister Narendra Modi took a dig at Prime Minister Manmohan Singh for allowing petrol prices to be raised. Addressing a rally during BJP leader L K Advani’s Jan Chetana Yatra in Surat district recently, Modi said inflation is rising because the prime minister sees India’s GDP increasing. But to the PM, said Modi, GDP means (prices of) gas, diesel and petrol.

BS

Banks start waiving prepayment penalty

... “I don’t think it is a very big issue. In fact, it may benefit public sector banks, since our pricing is competitive, transparent and there are no hidden charges,” said M G Sanghvi, Executive Director, Bank of Maharashtra......

Read................ 

Diesel price decontrol only when inflation declines: Rangarajan

...Talking to media persons on the sidelines of a function held by Federal Bank at Aluva near here, the former RBI Governor, however, pointed out that the government had to be careful about the timing of the decision regarding deregulation given the current rate of inflation....

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

Industry wants government, not RBI to curb food inflation

......According to a Ficci expert, the government needs to understand that food prices cannot be controlled by increasing interest rates by the RBI. "Instead, it is the government which needs to be proactive, by improving the supply side, checking hoarding of food items and ensuring that there is no speculation in the numerous mandis,"..............

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

Reserve Bank Makes Repayment of Fixed Deposits Easy

NEW DELHI : Here comes some respite for customers who want repayment of their joint fixed deposits. Reserve bank of India (RBI) has passed on notification stating that on maturity signatures of both depositors are not needed for repayment of fixed or term deposits if such accounts are opened with instructions “either or survivor”. RBI said that some banks make it mandatory for customers to get the signatures of both applicants on the document to allow repayment of money in fixed/term deposits, though the deposit account is opened with operating instructions called ‘repayment instructions’, ‘either or survivor’ or ‘former or survivor’. The notification by RBI elaborated, “Such insistence on the signatures of both the depositors has the effect of making the mandate given by the depositors redundant. This, in turn, results in unjustified delays and allegations of poor customer service.” It also stated that the signature of both the applicants is compulsive if the payment is made before maturity. The RBI also said, “If the operating instruction is ‘either or survivor’ and one of the depositors expires before the maturity, no pre-payment of the fixed/term deposit may be allowed without the concurrence of the legal heirs of the deceased joint holder. This, however, would not stand in the way of making payment to the survivor on maturity”. RBI also added, “In case the mandate is ‘former or survivor’, the ‘former’ alone can operate/withdraw the matured amount of the fixed/term deposit, when both the depositors are alive. ” However, the signature of both the depositors may have to be obtained, in case the deposit is to be paid before maturity. If the former expires before the maturity of the fixed/term deposit, the ‘survivor’ can withdraw the deposit on maturity.” Central bank notification stated, “Premature withdrawal would, however, require the consent of both the parties, when both of them are alive, and that of the surviving depositor and the legal heirs of the deceased in case of death of one of the depositors.” It further added, “If the joint depositors prefers to allow premature withdrawals of fixed/term deposits also in accordance with the mandate of ‘either or survivor’ or ‘former or survivor’ it would be open to banks to do so, provided they have taken a specific joint mandate from the depositors for doing so.”

http://www.indiamag.in/reserve-bank-makes-repayment-of-fixed-deposits-easy.html 

A user’s guide to ECS transactions

.... As per the Reserve Bank of India’s website “Any mandate in ECS Debit is on par with a cheque issued by a customer.” Since ECS is similar to a cheque, you should ensure that you maintain adequate funds in your account from which you have issued an ECS or be prepared to pay a penalty.....

Read.........

Interest Rate Movements are Stranger than Fiction

It used to be said that when the Reserve Bank of India (RBI) sneezes, the banking system immediately takes medicines for cold and fever. On a mere indication of RBI’s view without any formal notification, the system used to respond. Against this tradition, it was startling to witness the television interviews by bankers after RBI announced a 25-basis point hike in repo rates in October 2011; some bankers said they may not hike rates. By increasing the interest rate at which RBI lends money to the banking system, the obvious stance of the central bank is that the banking system should hike rates. It is now clear that RBI’s monetary policy stance on interest rates is not effectively transmitted to the financial system, as bankers do not immediately follow the signals. In earlier times, all lending rates were linked to the bank rate. The bank rate has been in hibernation and the central bank has been using only repo and reverse repo rates, the rate of interest at which RBI lends to banks and accepts money from them for shorter maturities. Banks have been permitted to fix their own base rate and interest rates on loans are linked to their own base rate. If banks say that they will not revise their base rate despite RBI increasing the repo rate, there is a clear disharmony, if not disobedience of policy prescriptions. Banks are emboldened to say that they are not immediately going to increase interest rates despite RBI hiking the rates because of two reasons. There is a general feeling in some sections of the government that increase in interest rates will adversely affect investment and economic growth. More important is the influence the corporate sector wields on different segments of policy making and implementation. The total discretion given to banks to prescribe interest rates on loans and deposits acts against those who have no bargaining power. Those who have the capacity to negotiate get loans at lower interest rates. At the same time, banks want to protect their interest margin and income. As a consequence, those who have no capacity to bargain bear a higher interest burden on their loans. While riskier loans should attract higher interest rates, it has to be stated that the bargaining power of the stronger borrowers and absence of transparency in fixing the base rate by banks vitiates the process of pricing of advances. In order to overcome the reluctance and delay in the banking system transmitting the desired objective of monetary policy of the RBI, it is necessary that all loans are priced with a mark-up above the bank rate, which may be woken up from its hibernation. Thus lending rates will get automatically re-priced whenever RBI revises the bank rate. Borrowers will get the benefit of a downward revision also immediately. This will make the monetary policy more effective. Banks are now free to determine interest rates on deposits. There is greater unfairness in fixing interest rate by banks on deposits. During the past 21 months, the repo rate had been revised upwards 13 times but retail depositors got the benefit of an increase in interest rates perhaps twice in many banks. Banks have been given discretion to extend higher interest rates on deposits of . 15 lakh and above. Bigger depositors with bargaining power would have always received the benefit of higher interest rates as a result of the upward revision of the repo rate. It is understandable that borrowers with lower risk profile are charged lower interest rate. The money given as deposit by retail and large depositors alike do not attract any risk parameters of default to justify differential pricing as in the case of loans. Rather larger deposits may be considered riskier for the bank as they are price-sensitive and shift from bank to bank exposing banks to volatility and liquidity risks. Banks are showing such large deposits procured at higher interest rates as “purchased deposits” to indicate the liquidity risk the banks may be exposed to. The so-called justification for offering lower interest rates to smaller depositors on account of transaction cost is more than offset by the stability of these deposits and the loyalty of the depositors. Some banks also follow a skewed policy of offering lower rate of interest on deposits of longer tenure, while even the government of India pays higher interest rates on securities of longer maturity. It is time the central bank prescribes a term premium according to maturity for deposits of longer tenure as in the case of government securities. This will enable banks to attract term deposits of longer maturity to fund projects in infrastructure and other sectors. Inflation erodes the value of our savings in bank deposits. People prefer to receive lower interest rates on their deposits instead of being under the tyranny of runaway inflation. While the need to increase interest rate is debatable, there should be no differentiation between customers except on consideration of risk in respect of loans. 

K CHERIAN VARGHESE - Former Chairman of BIFR/ Union Bank of India) ET

Rising NPAs poses no threat to banks: RBI

Mumbai : Attributing rising bad loans to business cycle, the Reserve Bank, on Tuesday, said that non-performing assets (NPAs) are not posing any threat to the banking system. “It (NPAs) is not reaching a point where it threatens the integral system. I don’t think we are at that point,” RBI Deputy Governor Subir Gokarn said here. Attributing the rise in NPAs to various domestic and international reasons, Gokarn added, “There is an overall business cycle movement. There is overhang from the previous shock of 2008-09.” Non-performing assets of state-owned banks have increased to 2.31 per cent of their assets at the end of March 2011, from 2.27 per cent in the year-ago period. Amid concerns of rising NPAs in the banking sector, the country’s largest lender SBI had put in place a separate mechanism to contain them. SBI’s NPAs had reached a three-year high of 3.52 per cent of loans in the quarter ended June 30. On RBI’s decision to deregulate the Savings Account interest rates, Gokarn said that the move would increase competition among banks for retaining customers. Earlier, banks were mandated to give 4 per cent interest rates on such deposits, but with the freeing of rates, several private sector lenders, like Yes Bank and Kotak Bank, have hiked rates to six per cent. “We did it at a time when banks are not grappling for deposits. The deposits are quite quite healthy. The gap between deposit growth and credit growth is quite narrow now,” Gokarn added. Referring to inflation, he said, the structural drivers of inflation are still strong and the RBI expects it to remain high through October and November. The government is yet to announce the inflation data for October. Headline inflation stood at 9.72 per cent in September. Besides, food inflation, which account for over 14 per cent in the overall inflation basket, stood at a nine-month high of 12.21 per cent at the end of October 22. “The fact that food inflation will remain high despite good monsoon is something that will shape our view on growth inflation balance for sometime to come,” he said.

DH

NPA threat looms across banking sector, says Karnataka Bank chief

Mangalore : The Managing Director of Karnataka Bank Ltd, Mr P. Jayarama Bhat, has stressed on the need to prevent the malady of non-performing assets (NPAs) in the banking industry. Addressing the bank's regional heads at the review conference in Mangalore on Tuesday, he said that the threat of rising NPAs looms across the banking sector due to the changing scenario caused by various factors. “Proper identification of parties and assessment of credit proposals are essential to prevent the malady of NPA,” he said. The recent repo and reverse repo rate hike by the RBI has resulted in many challenges for banks. The challenges will have to be faced with caution, he said. While the investors in savings bank deposit accounts will cherish the action of the recent deregulation of savings bank deposit rates, borrowers need to be set for a greater interest burden due to hike in key rates by the RBI, he said. Mr P. Jairama Hande, General Manager, briefed the members on the implications of the recent monetary policy and the various macro developments. 

HBL

Higher central borrowings strain states’ fiscal health

........The surge in bank deposits was evident from the last figures released by RBI. Time deposit accretion this financial year was Rs 4.85 lakh crore or Rs 1.1 lakh crore more than the corresponding period last year. Net result is that even states have to now shift to high cost market borrowings instead of relying on small savings...............

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

The cost of high savings rate

..... the whole structure of savings bank accounts is set to undergo a major change. Customers will not only shop around for the best interest rate for the balance that they wish to maintain but will also need to know the charges applicable for mundane transactions that were taken for granted to be free...............

Read............... 

New hybrid rate home loans not ‘teasers’: NHB

....... NHB’s opinion is that the current range of fixed-cum-floating rate products are different from teaser loans launched earlier. The main difference is that the fixed rate charged in the first few years is comparable with the prevalent market rate, said R.V. Verma, chairman and managing director of NHB. “The fixed interest rates in the initial years are market-related rates and are not artificially low. Artificially low interest rates in the initial years was the main attraction of teaser products,” he said.......

Read....... 

Will savings rate deregulation help banks?

... It was considered unfair that depositors, who provide almost one-fourth of the total stock of bank deposits, were not given any protection against rising inflation. Also, the move was deemed essential to promote product innovation and price discovery in the long run, since deregulated SB rates might encourage banks to judiciously manage liquidity and promote efficient resource allocation.....

Read........... 

Rise in savings rate if flight of deposits: SBI chief

Country's largest lender State Bank of India today said it will take a call on increasing interest rate on savings accounts if there is a flight of deposit to other banks. "There had been accretion (to savings bank deposits)," SBI Chairman Pratip Chaudhuri said when asked whether the bank was planning to raise interest rate as was done by some private sector lenders. "If we see there is flight or shift of deposits, then we will take a call," he said, explaining bank's stand on saving rate. Last month the Reserve Bank deregulated interest rates on savings deposit accounts. Earlier, banks were mandated to give four per cent interest rates on such deposits, but with the freeing of rates, several private sector lenders, like Yes Bank and Kotak Mahindra Bank, have hiked rates to 6 per cent. Even RBI Deputy Governor Subir Gokarn today said that the deregulation would increase competition amongst banks ks for retaining customers. Speaking about extending banking facilities in villages with population of over 5,000 people by September 2012, Chaudhuri said "we have to open bank branches."  Besides, Finance Minister Pranab Mukherjee after his meeting with the bankers and SBI chief on financial inclusion here today said that the target of extending Rs 4.75 lakh crore short term crop loan for the current fiscal would be surpassed. On covering 10,721 villages with banking service in West Bengal and eight north eastern states, Mukherjee said so far 4,969 villages had been covered and rest would be done within March 2012. 

FC

Rise in savings deposit rate draws clients to private banks

Only a little over a week ago, a handful of private banks had increased the interest rate on savings deposits. However, these lenders already claim the number of enquiries for opening an account with them has surged. The enthusiasm was seen not only among retail depositors; even small and mid-sized companies have expressed interest to open salary accounts of their employees with these banks. “The response has been extremely positive, even though the hike in savings deposit rate happened recently. On the retail side, the demand is mostly coming from senior citizens who now have the opportunity to earn higher interest income on their deposits," said Rana Kapoor, founder, managing director and chief executive, YES Bank. The bank was the first in the country to raise the savings deposit rate after it was de-regulated on October 25. The private sector bank has raised its savings deposit rate by 200 basis points to six per cent. "Every day, we are getting about eight to ten enquiries from our corporate clients. The companies feel giving their employees an opportunity to earn higher interest income on salary accounts would keep them motivated," Kapoor said, adding the momentum in moping-up low cost deposits would reflect in the earnings in the third quarter. YES Bank’s savings deposits constitute two per cent of the bank's total deposits. Kotak Mahindra Bank had also increased the savings deposit rate and offers six per cent rate on savings deposits above Rs 100,000. It pays 5.5 per cent interest on savings deposits below Rs 100,000. "The initial response has been good, and we are seeing interest from all segments. Upper-end customers who have many bank accounts are exploring options to consolidate their bank balances with us. As a result, we are seeing balances in many of these savings deposit accounts increasing. Also, there are enquiries from new customers who do not have accounts with us," said K V S Manian, group head (consumer banking), Kotak Mahindra Bank. Some banks however said it was premature to assess the impact of increase in savings deposit rate on their financials, but they remain confident that it will strengthen their low-cost retail deposit base over the medium to long-term. Kolhapur-based Ratnakar Bank said depositors in semi-urban and rural centres, where the penetration of investment products was relatively low, were keen to take advantage of the higher interest rate on savings deposits. The banks' metro branches have also seen a rise in customer queries on account opening. "As a result of the savings rate increase by our bank, we are indeed seeing a lot of client interest from across our footprint --- metros, semi-urban and rural," said Rajeev Ahuja, head (strategy and financial markets), Ratnakar Bank. The lender's savings deposit rate has now been revised to 5.5 per cent. "It is too early to have a definitive view and the impact of such seminal changes should to be evaluated over the medium to long term. This is a significant piece of consumer value proposition, and it would have an impact on how the savings product is marketed, and also on innovation in product features and its delivery," Ahuja said. Public sector banks and large private lenders have not revised their savings deposit rates. Many bankers feel savings deposits were primarily used for transactional purposes and a marginal difference in rates would not lead to significant migration of clients. Some bankers were also critical of the Reserve Bank of India (RBI) for de-regulating the rate at a time when economic activity had slowed and asset quality of banks was under pressure. "I have been told by some bankers that the time for de-regulation was perhaps not right, since the non-performing asset cycle is on the upswing. We all know the truth --- there never would be a completely appropriate time for such reforms," said K C Chakrabarty, Deputy Governor, RBI. 

BS

Is inflation ebbing? The CPI tells quite a different story

....perhaps the econometricians at RBI have some aces up their sleeves. Will point-on-point seasonally adjusted inflation, under the benign influence of a strongly negative real rate, veer back into the 4-5 percent range by December 2011?....

Read............... 

NRIs to benefit from KJ Udeshi committee recommendations

...... “The operations of FEMA still betray a ‘fear’ of compensatory payments between non-residents and residents, harking back to the FERA days.” This one sentence in the Kishori J Udeshi Committee encapsulates its pragmatic approach to simplifying rules for the public benefit. ......

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

“Rise in NPAs, slippages need to be urgently addressed”

Anand Sinha, Deputy Governor, RBI (third from right), releasing an IDRBT’s book at the valedictory function of BANCON in Chennai on Sunday .(From left) B. Sambamoorthy, author of the book and Director, IDRBT, M.D. Mallya, Chairman of IBA , M. Narendra, CMD, IOB and A.K. Bansal, Executive Director, IOB are in the picture

RBI Deputy Governor attributes problem to aggressive lending

Deputy Governor of Reserve Bank of India Anand Sinha on Sunday flagged the steep increase in Non Performance Assets (NPAs) and slippages as two issues that the country's banking sector needed to urgently address. In his valedictory address at ‘BANCON 2011' hosted by the Indian Overseas Bank and the Indian Banks' Association (IBA), Mr. Sinha said while part of the up-trending of NPAs could be attributed to the fallout of the global financial crisis, the bulk of the problem had its roots in very aggressive lending during the boom period.  While ruling out a systemic issue because of this, Mr. Sinha pointed out that while gross NPAs have been going down — in spite of inching upwards slightly in percentage terms — in absolute terms, the stock of NPAs had been going up in the last four to five years despite the ratio coming down. In fact, between March 6 and 10, the NPA stock grew by 63 per cent, Mr. Sinha said. While overall profitability had helped peg the net NPAs at a respectable level, this measure of management was more akin to putting a lid on the garbage, he said. “The fact is that there are a lot of unproductive assets lying underneath and that needs to be resolved,” he said. The other area of worry was the substantial increase in slippage — from 1.8 per cent during 2007-08 to 2.2 per cent in 2009-10. As a result, slippage outsized recovery despite heavy write-offs, he said. Mr. Sinha urged banks to tone up credit management to contain slippage, mobilise recovery and reduce NPA stock. The RBI would be issuing draft guidelines on Basel III capital adequacy norms for the banking system by December and put out a final version by March 31, 2012, Mr. Sinha said. Stating that the Basel norms were not a regulatory product, he said the RBI sought a smooth transition to the Basel III norms. It is important for senior management of banks have to understand the nitty-gritty of specialised niche products as the complexity of products coupled with excessive risk-taking had led to the governance failure that triggered the global financial crisis, Mr. Sinha said. Mr. Sinha advocated appropriate standardisation of the Know Your Customer (KYC) norms to make them a one-time or single-point procedure. While new accounts are largely in adherence with the KYC norms, there is a lot of deficiency with regard to older accounts, he said. Pointing to projections that the Indian banking system could become the third largest in the world by 2025, Mr. Sinha said the focus should not be on size but on sustaining “excellence in responsible banking”, through an advocacy of corporate governance, higher productivity, product innovation and financial inclusion. Responsible banking was no longer a choice as it was an obligation to the nation and the world in a globalised economy and banks should combine their pursuit of profits with a balancing of the interests of all stakeholders, Mr. Sinha said. Mr. Sinha also launched a handbook ‘Holistic CRM and Analytics' authored by B. Sambamurthy, director, IDRBT. M. Narendra, IOB chairman and managing director, M. D. Mallya, IBA chairman and A. K. Bansal, IOB executive director, also participated. 

HBL

RBI has a special website dedicated to the common man

Apart from information on various roles and functions of RBI, this website also contains information on various regulations which affects your banking transactions

The bank’s customer care executive on the other side of the phone line may not be too cooperative and the Reserve Bank of India (RBI) website may be an information overdose. Then how do you find a small and specific information that you urgently need to know? Well, RBI has a website especially dedicated to the common man and this can be of help.

The Website

RBI has a website, http://www.rbi.org.in/commonman/English/Scripts/Home.aspx, for the common man. The central bank’s website offers information on various topics in an easy to understand language. The thought behind the website is to reach out to the people and disseminate information regarding various banking-related activities. Apart from information on various roles and functions of RBI, this website also contains information on various regulations which affects your banking transactions. This website works like an one-stop shop for information on various notifications, press releases, master circular and customer service guidelines. The website also gives information on various service-related charges and cheque collection policy by providing the relevant links to more than 50 banks’ website on a single page. This means that you don’t need to remember or visit several websites. Also, if you are someone who is looking for an authorized dealer of foreign currency or a money changer and not sure if you’ve approached the right party, this website solves your problem by providing a list of such entities. That’s not all, it also provides a list of entities whose licences have been cancelled. The website offers elaborate answers to frequently answered questions on various topics related to banking, foreign exchange, government securities, non-banking finance companies and various payment systems.

Other Utility

Apart from getting information on various topics, you can also use the website to lodge complaints against banks or non-banking finance companies regarding deficiency in service and other related issues. If you have a grievance against any RBI department or office, you can file a complaint through the website. The website has games related to money matters which can be used to impart financial education to your kids as well.

Mint

Bait the young for biz growth, banks told

India has a very large growing young population and understanding their needs and requirements provides a big opportunity for banking system to grow with, RBI Deputy Governor Subir Gokarn has said. Delivering his address at the banking conference ‘Bancon 2011’ organised by Indian Banks’ Association and Indian Overseas Bank here, he said, understanding the needs of customers and their requirements was an opportunity for banks. “It not only helps to know your customer but also to grow with your customer”, he said. Stressing that people in their late 20s and early 30s and even in mid-thirties, have a consumption need, investment need and security needs. this was really a size of an opportunity for banks, he said. “Bringing knowledge and understanding the customer is a very big opportunity (for banks)”, he said. Giving some statistics he said there would be close to 400 million people in the 0-15 age groupo..”, he said. Besides, he said along with the younger population, the number of senior citizens would also grow and by 2020 which was expected to be around 100 million over the age of 60years. Stating that 42 per cent of rural households exclusively rely on cash (for their day to day purposes) he said, “bringing people from that segment to the upper segment, by banking services is clearly a market opportunity”. Around 350 million accounts were likely to be opened in Indian banks during the next 10 years. Urging banks to try and understand drivers for savings and borrowings, he said there are opportunities for financial inclusion in urban areas as well.

DH

'New banks should be allowed to maintain competition, says Rangarajan

If the banking system needs to remain competitive over time, there should be no bar on the entry of new banks, Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, said at the Bancon-2011. “A closed system could only become oligopolistic. The ‘threat’ of entry should not be eliminated,’’ he added. It is up to the RBI to lay down norms for entry and also decide on who satisfies the criterion of “fit and proper’’.  Dr Rangarajan also said that the recent financial crisis has “forced us to re-evaluate the size, role and rate of growth of the financial sector’’.  The regulatory regime needs to be restructured to make the banking system more sound.  “Excessive risk taking and leveraging by banks need to be discouraged by appropriate regulatory measures or controls,’’ he said.  In order to enable the financial system to meet the diversified needs of a growing economy, there is the “need to encourage the emergence of a vibrant corporate debt market’’, which will help not only large industries but also SMEs.  “We would also need institutions which will serve as market makers offering two-way quotes. This will provide the required liquidity to the market and make it attractive to the investors,’’ he said, adding that banks should explore innovative ways of financing infrastructure. Even as regulatory oversight of innovations is necessary, Dr Rangarajan said that regulatory perspective on innovation “must not become too restrictive’’. Policy-makers should strike an appropriate balance between the “need for financial innovations to sustain growth and the need for regulation to ensure stability’’.  He also urged the banks to take a re-look at the organisational structure of rural branches to meet the credit needs of marginal farmers.  The banks should also play a proactive role in organising self-help groups, and it is important to enlarge the scale and scope of activities of the SHGs. “This would enable the banks to reach out to people with low incomes including marginal farmers,’’ said Dr Rangarajan. According to him, the business correspondents’ model of financial inclusion has not been satisfactory. Hence, banks should explore the possibilities of looking at other alternatives.  “We should explore the possibilities of looking at low-cost brick-and-mortar branches in panchayat headquarters. Profitability rests on making the operational cost of such branches low,’’ he pointed out. He added that it was worthwhile to re-open the issue of setting up local area banks.

HBL

RBI considers SLR for BASEL III

Chennai: The Reserve Bank of India (RBI) is considering to what extent banks' holdings under the statutory liquidity ratio (SLR) can be used to meet capital requirements for Basel III global banking rules, a central banker said on Sunday. SLR or the proportion of deposits that banks need to invest in government debt and other approved securities, currently stands at 24 percent. But analysts estimate banks' overall holding of SLR bonds is around 29 percent. "We are looking at some norms to what extent SLR portion can be used under Basel III norms," said Anand Sinha, a RBI Deputy Governor. Indian bankers estimate state-run banks will require an extra 8 trillion rupees ($162.9 billion) to meet new capital norms and their growth requirements over next eight years. According to Basel III, banks must shore up their capital adequacy ratios and maintain top-quality capital at 7 percent of risk-weighted assets. Top quality capital includes equity capital. Although Indian banks have much higher capital adequacy ratios than the minimum total capital requirement under Basel III, analysts say their so-called Tier I, or equity capital, needs to be shored up to meet the top-level capital requirement. Basel III also proposes building countercyclical and additional capital buffers, which is expected to involve additional costs for Indian banks. Sinha said the central bank will issue detailed guidelines for BASEL III implementation by end-December and the final framework should be in place by March next year. "The trajectory (for Basel III) would be decided by (the) RBI and banks together," he said. The proposed changes under BASEL III are to be phased in gradually, starting in January 2013 to January 2015, while the creation of a conservation buffer could be set up by banks during the period January 2016 to 2019.

FE

Banks to open branches in area with population 5,000 by 2012

NEW DELHI: The Finance Ministry has asked all banks, including private sector lenders, to open branches in locations with population of more than 5,000 in the under-banked districts by September, 2012.  RBI has identified 296 districts, which are under-banked, spread across 18 states and union territories. "Such branches could initially have lesser staff, say 2 persons, with ATM facilities," Finance Ministry said in its recent guideline on financial inclusion. The staff strength could be increased as the business grows, it said. The new bank branch opened would also provide banking services in the adjoining areas. "While planning for branch expansion, it may be seen that in the unbanked areas the branches are available within a radial distance of 5 km," it said. As per the branch authorisation policy of RBI, prior approval of the the central bank is not required to open branches in Tier-III to Tier-VI areas. In fact, opening bank branches in the under banked districts of the under banked states would entitle the banks to seek branches in Tier-I towns under their annual branch authorisation plan. Such a branch would be assigned a service area by the State Level Bankers Committee covering one or more Gram Panchayats, it said. In other districts, it said, the banks must try to open as many brick and mortar branches, in their service areas, in habitations having population of 10,000 and above by September 2012.  It is to be noted that only about 5 per cent of the nearly six lakh villages in the country have bank branches.  With the Financial Inclusion Plan under implementation, around 73,000 villages, having population of 2000 and above, would be provided facilities for banking services by March 2012.  As of June 2011, banks have opened banking outlets in 1.07 lakh villages up from just 54,258 as on March 2010. Out of these, 22,870 villages have been covered through brick and mortar branches, 84,274 through business correspondents outlets and 460 through other modes like mobile vans, etc.  

ET

Dharwad credit plan at Rs 1,868.63 cr

The District Consultative Committee (DCC) has approved Potential Linked Credit Plan for Dharwad at Rs 1,868.63 crore. The meeting chaired by the Deputy Commissioner, Mr Darpan Jain, approved the credit plan prepared by Nabard for 2012-13. Mr Y.N. Mahadevayya, AGM, Nabard, explained in detail the potential plan. According to the plan, Rs 749.82 crore for crop loan, Rs 247.12 crore (agriculture term loan), Rs 153.62 crore (non-farm sector) and for Rs 718.07 crore (other priority sector). The Manager, RBI, Mr Ramachandran, reviewed the performance of the banks under the Financial Inclusion Plan and advised bankers to achieve the set target. Mr Phulwar Singh, AGM, Vijaya Bank, and Mr G.S. Basavarajappa, Lead Bank Manager, were present on the occasion. 

HBL

Lack of awareness of workers, banks staff discouraging formal transfers

KATHMANDU, Nov 8: With some 4.5 million Nepali workers, India has always remained the largest foreign employment destination for Nepalis.  But despite years of efforts, officials said the volume of income that workers formally remit back home remains so low that Nepal Rastra Bank (NRB) tags it as ´almost nil´ when compared with other countries.  The formal workers´ remittance transfers barely stand at a billion rupees, though we estimate it should have been around Rs 50 billion, said an NRB official.  Then what´s preventing Nepali workers from remitting money through formal banking channel? For long, NRB believed it is solely due to lack of awareness among Nepali workers in India. But a recent finding of Reserve Bank of India (RBI) suggests that NRB´s perception is not completely true. Fewer Nepalis workers in India have been remitting money through National Electronic Funds Transfer (NEFT) -- a formal transfer system put in place in India -- also because of lack of awareness of staff members of Indian banks dealing with Nepali workers, RBI has stated. “It is true the number of Nepali making use of this service is low. But it is also learnt that a large number of already low level of money transfer transactions done by Nepalis in India are getting rejected at the pooling branch of State Bank of India -- through which transfers are made -- due to incorrect contents of message,” RBI has noted. For instance, some of the banks providing money transfer services were found putting actual account number of Nepali beneficiary instead of SBI central pool account -- the main account through which the transfers are cleared. Likewise, the dealing staffers of banks too were widely found filling up the format provided for such transactions in a faulty manner. As such mistakes by bank staffers have been affecting timely receipt of money by families back home, even the Nepali workers making use of the service have been shifting to informal channels to remit their income. Following such finding, RBI has recently issued a strict instruction to the banks in India that have been operating NETF-enabled branches to create awareness among the branch officials about the application. “The bank officials must be aware so that they could guide the Nepali customers, many of who may be illiterate,” RBI has said in its instruction. RBI has also instructed the banks to ensure that the dealing officials exercise correct knowledge and necessary care while making the data entry in the system so as to avoid rejection of the payment requests at SBI Pooling Branch.  Furthermore, it has also instructed banks to make tangible efforts to increase awareness of Nepali workers in India toward their money transfer services and enhance its usage. “Branches, especially those situated in areas with sizeable migrant Nepali population, are advised to organize periodic workshops and awareness campaigns about the money transfer schemes,” RBI has said in its directives. In this connection, RBI has even suggested that the banks solicit help of Nepali workers´ association for wider disseminations of information about the service. The fresh instruction from RBI came mainly as a part of an understanding, which it has reached with NRB, to facilitate and promote formal transfers of workers income to Nepal. Nepal had made similar request during the recent visit of Prime Minister Dr Baburam Bhattarai as well.

Republica, Nepal

Key reformist finance laws all set for passage

... The draft Microfinance Institution Bill, which was released for public debate in July, gives the Reserve Bank of India (RBI) sweeping powers to regulate lending rates and margins apart from fixing capital adequacy and other norms. At the same time, the Bill provides for delegation of powers by the RBI to National Bank for Agriculture and Rural Development (NABARD).....

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

Basu supports setting up sovereign fund using forex reserves

Supporting the industry ministry's proposal to set up a sovereign wealth fund to finance infrastructure projects, Chief Economic Adviser Kaushik Basu today said India can use a part of its large foreign exchange reserves to create the fund. "If a small part of our forex reserves is used to set up a sovereign wealth fund and deployed strategically, this can yield steady long-run returns and at the same time enhance India's policy role in the world," Basu told PTI. Sovereign wealth funds have existed for a long time, though they got this name only six or seven years ago. Recently, the industry ministry in a discussion paper suggested that India should consider setting up a sovereign wealth fund to finance infrastructure which would require an investment of USD 1 trillion in the next five years. The paper recommends that government should use a part of its foreign exchange reserves to set up the sovereign wealth fund as has been done by countries like China, Korea and Singapore. Basu said sovereign wealth funds could be set up under the control of either the government or the Reserve Bank of India (RBI). "A sovereign wealth fund does not necessarily mean money moved from the RBI to the government," he said. Basu said, "The returns from the first USD 15 or 20 billion set aside for this can be enormous." India has one of the biggest foreign currency reserves in the world at USD 320 billion. It is, however, far less than USD 3.2 trillion held by China and USD 1 trillion by Japan. The RBI, however, has been expressing reservations on setting up a sovereign wealth fund. The central bank wants the government to set up a sovereign wealth fund from the budget and not out of forex reserves. Citing example of Singapore, Basu said, "There are countries with relatively small foreign exchange holdings that have operated very successful sovereign wealth funds."

DH

Not just bankers, but advisors too

...Banks would need to know their customers' businesses well and should also be able to measure the profitability of the businesses, he said. (This, incidentally, ties-up well with what Dr Subir Gokarn, Deputy Governor, RBI, said at the conference — that banks should not only know-your-customer, but should know customers' businesses to grow-with-your-customers.)....

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

Cash reserve ratio must be reduced once the war against inflation is won

State Bank of India ( SBI) chairman Pratip Chaudhuri has hit the nail on the head. The (interest-free) cash reserve ratio (CRR) that banks are compelled to keep with the Reserve Bank of India (RBI) is a non-performing asset (NPA). For now, the suggestion to scrap it might be out of tune with the RBI's effort to tighten liquidity. But there is no mistaking that this is a desirable long-term policy goal. The CRR is an impost on banks; which is why the Narasimham Committee on financial sector reform in the early 1990s had recommended that CRR be reduced to 3% and the statutory liquidity ratio (SLR), to 25%. We have made progress on the latter; indeed SLR is now 24%. But on CRR, the RBI has wavered. After a phase of steady reduction, it has reversed direction, and CRR has inched up to twice the level suggested by the Narasimham Committee. The reason is that CRR is a handy, if somewhat gross, tool to mop up liquidity.  Unlike a hike in policy rates whose impact can vary from sector to sector and, in addition, depends on the efficacy of the monetary transmission mechanism, a hike in CRR hits all sectors indiscriminately. CRR is noticeably absent from the armoury of mature central banks, even though the impact on interest rates is the same (a hike in CRR reduces availability of funds with the banking system and, hence, pushes up interest rates).  In the Indian context, however, the RBI is constrained in its choices for two reasons. One, it needs to use all the tools at its command to tighten liquidity in a scenario where inflationary expectations seem deeply entrenched. Two, the monetary transmission mechanism leaves much to be desired. So, the central bank is at times forced to use a sledgehammer where a chisel might have sufficed.  The RBI may not have much of an option now. But once inflation trends down, the central bank must get back on track and lower CRR, ideally to no more than 3%. The case for prudential requirements has, undoubtedly, received a shot in the arm following the 2008 financial crisis. But excessive caution can be as bad, if not worse, than none. Banking  is about taking  risks. 

ET

Should you switch banks or exit liquid mutual funds?

.................Many financial experts believe that it’s unlikely that customers would switch banks anytime soon, purely on account of higher interest rate. Moreover, if you have a salary account (your monthly salary comes in your bank account every month) or your bank account gets debited every month towards your loan commitments or even for utility bills such as electricity or telephone bills, changing a bank account can get tedious. Also, the average Indian consumer has till now shown little interest in moving funds from one bank to another.....

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

RBI favours fixed rate on long-term loans

Reserve Bank of India appears to favour long-term loan products on fixed interest rates, believing it will help banks reduce credit risks and prevent significant deterioration in asset quality. “Any long-term product, if it is on a fixed-rate basis, is better from the interest rate risk perspective,” the central bank’s deputy governor, Anand Sinha said on Sunday. “Otherwise, what happens is if interest rates are changing, you don’t know what will happen in the future,” he told reporters here on the sidelines of Bancon 2011. Sinha explained that long-term loans on floating rates carry a risk similar to un-hedged foreign exchange exposure of companies. “When you are going for a fixed-rate product, you are taking a view that you are insulating yourself from interest-rate risks. Floating rates on very long-term products can lead to credit risks,” he said. Currently, a majority of banks’ long-term retail loan products like housing loans are on floating rate of interest. So, is the banking regulator planning to introduce guidelines on managing interest-rate risks on long-term loans? “We will see about it,” is all what Sinha would say. Separately, he said there was a need for banks to reduce their dependence on wholesale funding and market borrowing — for, it may add to the systemic risks. “If you have too much wholesale funding and you are looking to renew it...if you get into a difficult situation, then you will not find a replacement for that,” he said. “Now if you don’t get fresh funding, then what are your options? You have to go for fire sale of assets and book a loss. Not only you suffer, but you put the whole system at a loss,” he added. However, he clarified that currently there were no signs of systemic risks on banks’ asset quality. “Slippages are increasing. It is higher than recovery. Credit management needs to be geared up; more efforts needed for arresting slippages,” he said. “But I don’t see any systemic issue building up as of now.”  

Business Today

RBI may start reversing policy stance from Dec: Rangarajan

The Reserve Bank of India (RBI) may start easing the tight monetary policy as early as from December, as inflation changes its trajectory, C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister, said. “It is expected that by December-January, we should see a decline in inflation, that may be the time when perhaps reversal of the policy (monetary policy) will become possible,” Rangarajan said on the sidelines of banking seminar Bancon 2011. “As the inflation rate shows definite signs of a decline, the policy regime also has to change,” he said. The central bank, which has raised key policy rates 13 times in 20 months, indicated in October it was through with the rate hikes and interest rates would be stable for some time. “It would be fairly reasonable to predict this interest rate regime will extend for some time before we think of cutting rates. Inflation must come to more sustainable levels before we can think of reducing interest rates,” RBI governor D Subbarao said in post-policy interview to Business Standard. Inflation has remained stubbornly high despite the series of rate hikes by the central bank. Inflation is hovering around the double-digit mark for the last 20 months. However, both RBI and Rangarajan expect inflation to start easing from December-January and come down to seven per cent by March. A cumulative rate tightening of 375 basis points since March 2010, however, has slowed economic growth. It also prompted the central bank to signal a pause. Rangarajan, a former RBI Governor, said the government should make all possible efforts to keep the fiscal deficit at the budgeted level and consider deregulation of petroleum prices once inflation starts slowing. “We cannot let domestic prices not reflect international crude prices,” he said.

Availability of capital may limit public sector banks' credit expansion in the coming years, Rangarajan said. “Given, the current government policy of no stake dilution below 51 per cent, capital for public sector banks will have to come from the government budgets, banks' own resources and public issues. The availability of capital through budget sets a limit on the extent of expansion of credit by these banks." The government has budgeted Rs 6,000 crore capital infusion in public sector banks in this financial year after injecting Rs 20,157 crore in 2010-11. But Rangarajan feels the government will have to bring in Rs 4,000 crore -10,000 crore supplementary demands for grants to meet capital requirements of banks. “A long-term programme of injecting capital into public sector banks will have to be drawn up. Otherwise, the market share of public sector banks will have to come down and the slack will have to be taken by existing and new private sector banks,” he said. On Friday, Namo Narain Meena, minister of state for finance, said the government had approved Rs 14,000 crore capital infusion in state-run banks in 2011-12. Banks had asked for Rs 18,000 crore capital.

Rangarajan warned non-performing assets on banks' books might rise this financial year because of high interest rates and slow economic growth. “The Indian banking system is also exposed to some sectors of the economy such as power and aviation, which are not doing well. Non-performing assets in these areas will need continuous watch by banks,” he said. Banks should also be cautious of liquidity risks that may expand because mismatch in maturity of assets and liabilities. “Increased exposure to real estate and infrastructure will lengthen the maturity of bank assets.” He added banks should improve bad loan recoveries and operational efficiencies, as deregulation of savings deposit rates, new capital rules and financial inclusion obligations would keep the lenders’ profitability under pressure. 

BS

Govt is ruining your savings, and the RBI shouldn’t let it

Inflation targeting should be the first and primary objective of the Reserve Bank of India (RBI). The other objectives should be secondary, and this includes growth objectives. There are some sections in the market that believe that India is a growth economy and the RBI should tolerate higher levels of inflation to achieve the growth objective. A growth-oriented RBI will be a disaster in the Indian context as India’s debt is predominantly funded by domestic savers and inflation will hit the saving population the most. The RBI should not tolerate higher levels of inflation and should strive to bring down inflation to its medium term targets. The medium term target rate for inflation is below 5 percent. Inflation, as measured by the WPI (Wholesale Price Index), is running at 9.7 percent as of September 2011 and, as per the RBI’s expectation, inflation should trend down to 7 percent levels as of March 2012. Inflation in India has been running at over 7 percent since December 2009, touching highs of 11.23 percent in March 2010 (as per the old WPI series). The central bank has raised the benchmark repo rate by 375 basis points (bps, where 100 bps equals 1 percent) over the last 20 months to bring down inflation expectations and while it has given us a guidance that rate hikes will stop if inflation trends down, it has not deviated from its inflation control policy. Inflation and rate hikes are affecting India’s economic growth. GDP growth is forecast to come down to 7.6 percent levels in 2011-12 from 8.6 percent levels in 2010-11. The drop in growth is prompting some economists, business lobbies and some sections of the financial markets to tell RBI to look at growth and tolerate inflation at 6-7 percent levels. A drop in economic growth typically means lower profits for corporates and lower or negative returns for the market and lower kickbacks for politicians; hence the call for the RBI to tolerate higher levels of inflation. Let us assume the RBI tolerates higher levels of inflation and loosens its grip on policy rates and other policy tools are used to fight inflation (though there is no sign of that). Inflation will then remain at higher levels and these higher levels will then have its effect on domestic savers, who largely depend on fixed return instruments for their savings. When inflation runs higher than the rate of return offered by provident funds, small savings schemes and bank deposits, it is tantamount to a huge tax on savers as seen in the last two years. Inflation has consistently been higher than provident fund rates at 8.5 percent, small savings rates of 8 percent and bank deposit rates of less than 8 percent (two-year average tenure). Savers also lose out indirectly as a large part of their savings is exposed to government bond yields which rise sharply (value of government bond goes down when yields rise) and the institutions holding these bonds have to face a depreciation on their assets. The Indian government is cannibalising the savings of its citizen. The exposure to government debt for the Indian citizen is through compulsory provident and pension fund investments (nearly 20 percent of gross salary goes into this), through savings in the form of bank deposits (banks have to necessarily invest 25 percent of their net deposits in government debt), through other forms of savings instruments like national savings schemes, post office deposits, etc. The government also makes sure that over 25 percent of insurance investments goes into government bonds and those investments come from premiums paid by the citizens. Government debt in India is predominantly internal (98 percent of GDP) and denominated in rupees and inflation brings down the value of government debt. The average person on the street is given a double whammy by high inflation. One is by eating into savings, and the second is by indirectly weakening the balance-sheets of institutions holding government debt. There is no place to hide for the saver as India does not have capital account convertibility and the saver cannot take his money out of the country. The RBI should protect savers first and that means inflation has to be under control.

Firstpost

Small savings schemes could be in for overhaul as panel suggests changes

Managing money requires more skill than making it. That is why it is important to invest wisely by optimally balancing both risk and returns. Private investments such as deposits with commercial banks and mutual funds have been attractive due to convenience and better liquidity. On the other hand, investments in government saving schemes have been popular with investors as they are considered secure investments. On July 8, 2010, the Centre constituted an expert committee under the chairpersonship of Shyamala Gopinath, Deputy Governor, Reserve Bank of India, for a comprehensive review of the National Small Savings Fund. The committee submitted its report in June. Broadly, recommendations in the report include increasing liquidity, linking returns on small savings with returns on secondary market yields of comparable government securities, etc. Let us now see the available savings options, the tax implications on them under the Income-Tax Act, 1961, and what suggestions the committee has for some of these schemes.

15-Year Public Provident Fund: Public Provident Fund, or PPF, with its various tax benefits, is a popular saving instrument. Falling in the Exempt Exempt Exempt (EEE) regime, an amount invested in PPF is deductible under Section 80C of the I-T Act. (Under the section investments of up to Rs 1 lakh per financial year in specified instruments will be eligible for tax deductions). Interest generated in the account (approximately 8% compounded annually) is tax-free. Further, withdrawal amount is also tax exempt. Investment in PPF is currently restricted to Rs 70,000 per financial year (FY). However, the committee has recommended that the limit be increased to Rs.1 lakh per FY, to align it with the ceiling of Section 80 C of the I-T Act.

National Savings Certificates: Investment in National Savings Certificate, or NSC, qualifies for deduction under Section 80C of the I-T Act. The interest accrued is taxable in the hands of the individual. However, the annual interest accrued is deemed to be reinvested (except interest in the maturity year) and, thus, qualifies for deduction under Section 80C of the I-T Act.  The committee's report has, however, proposed that the benefit under Section 80C of the I-T Act on the accrued interest on NSC be withdrawn.  Currently, NSC is issued for a fixed term of six years and offers 8% interest, compounded half yearly. The committee's report says that two NSC schemes be introduced with maturity periods of five years and 10 years and the interest rates be benchmarked to the five-year and 10-year government securities.

Post Office Schemes: Investments in five-year time deposit qualifies for deduction under Section 80C of the I-T Act, subject to the overall limit of Rs 1 lakh in an FY. However, interest earned on the deposit is liable to tax. These deposits offer interest varying from 6.25% to 7.5% depending on the period of deposit.  With respect to savings account, from FY 2011-12, interest income of Rs 3,500 (in single account) and Rs 7,000 (in joint account) is exempt from tax under Section 10(15) of the I-T Act. There is also a proposal in the Committee Report to increase the interest rate on savings accounts from current 3.5% to 4%.

ET

PSBs wait for RBI norms to revise savings rates

...“Though the RBI had said the deregulation of savings account was with immediate effect, we are waiting for a final word from the regulator as we will be keen to unveil innovative deposit products along with the new rates for savings accounts,”....

Read.......

Banks’ return on equity will come under pressure: RBI



Mr Anand Sinha (left), Deputy Governor, Reserve Bank of India, and Mr M. Narendra, CMD, Indian Overseas Bank, at the valedictory of Bancon 2011 on Sunday



Chennai : The Reserve Bank of India has called upon banks to raise the levels of productivity of its human and technology resources, especially as a means of protecting their return on equity ratios, which would come under pressure with higher mandatory capital infusion. Delivering the valedictory address at Bancon 2011, the RBI's Deputy Governor, Mr Anand Sinha, noted that the transition of the Indian banking system to the Basel-III norms of capital requirements would be smooth. But, he warned, Basel-III would require banks to bring in more capital than now as a relative to its loans, causing ‘return on equity' to come under pressure.  “How are you going to find investors?” Mr Sinha asked.  While the higher capital requirements would bring down risks in the banking sector and eventually investors would recognise the lower risks and be willing to invest, he said, in the short term the answer is only raising productivity. Mr Sinha also expressed concern over the growing stock of non-performing assets in the system. He said that while gross NPAs have been coming down as a proportion of total advances, the stock of NPA (in value terms) has been going up. He noted that between 2006 and 2010 the stock of NPAs grew by 63 per cent.  “Because of good profitability we have been able to manage it by keeping our net NPAs at respectable levels. But the fact is, it is kind of putting a lid on garbage,” Mr Sinha said. While stressing that NPAs was “not a systemic issue”, he noted that the build up of fresh NPAs have been greater than recoveries in the recent times, “even after heavy write-offs”.  “We need to tone up our credit management, contain slippage, recover more and get rid of the NPA stock,” he said. The Deputy Governor also expressed concern over long-term loans, as in the case of housing loans, being offered at floating rates. “Just as un-hedged foreign currency exposure is dangerous,” he said, calling for more fixed rate products.  Mr Sinha observed that over time the demand for housing and real estate would increase and would be another driver for banks' credit portfolio. “Real estate has brought down many banking systems in many countries — so we have to be cautious,” he warned. Mr Sinha said that the RBI was working on “what do to SLR” in case a bank is under liquidity stress. “We have to find a way out,” he added. 

HBL