The Reserve Bank of India hiked its key rate by a quarter point in October in contrast to the recommendation of external members, minutes of the Technical Advisory Committee showed Thursday. Only one external member suggested an increase in the repo rate by 25 basis points, while other five members were of the view that the repo rate should not be changed. The advisory committee consists of twelve members. One external member called for an increase of 25 basis points in the Statutory Liquidity Ratio. The member further recommended that the provisioning for standard assets could be relooked to promote investment activity. Another member recommended a nominal exchange rate appreciation to reduce the cost pressure on the economy. The RBI has hiked rates 13 times since March 2010. Now the repo rate stands at 8.50 percent.
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.
Friday, November 18, 2011
RBI will intervene, but only to check Re volatility: Gokarn
The Reserve Bank of India (RBI), which till date was only focusing on inflation, is now beginning to focus on growth, says Dr Subir Gokarn, Deputy Governor of the Central Bank. However, he says, significant medium-term risk to inflation remains. “Growth recovery can quickly trigger inflation pressure,”....
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No intention of relaxing CRR as of now: RBI Deputy Governor
The RBI on Wednesday had announced it will buy Rs10,000 crore of government bonds from the market through open market operations (OMO) on 24th November, which is reportedly aimed at easing pressures on liquidity and interest rates. Reserve Bank of India (RBI) deputy governor Subir Gokarn today said the RBI will not relax the quantum of deposits banks have to park with the central bank, dubbed the cash reserve ratio (CRR), to ease current liquidity pressures, reports PTI. “Not at the moment. CRR is being seen by us as a part of a monetary dashboard. To use it in a sort of tactical liquidity management sense, I think we are not at that point,” Mr Gokarn told reporters on the sidelines of a conference here. The CRR stands at 6% at present and has not been changed for over a year now. The RBI had yesterday announced it will buy Rs10,000 crore of government bonds from the market through open market operations (OMO) on 24th November, which is reportedly aimed at easing pressures on liquidity and interest rates. With the busy season for credit picking up, banks are reportedly borrowing up to Rs1 lakh crore everyday from the repo window. According to reports, the move can also be aimed at easing pressures on yields, as the RBI was unable to carry out three bond sales because investors were asking for higher yields than what the RBI was offering. “... The OMO is the obvious market-based tactical move. It does not send a signal of change in the monetary policy stance, which the CRR always runs the risk of doing,” Mr Gokarn said.
Moneylife
'Need to be careful about how we use our reserves' – Dr. Subir Gokarn, Deputy Governor
Reserve Bank of India (RBI) Deputy Governor Subir Gokarn tells CNBC-TV18 the rupee depreciation is offsetting whatever little softening India has seen in commodity prices. Edited excerpts:
The finance ministry has been saying it would ask RBI to intervene at an appropriate time. What is your observation on the sharp uptrend in the rupee and how are you approaching it?
This is not a rupee-specific phenomenon, this is global. Every currency in emerging markets has been subjected to broadly the same set of forces. The magnitude of movement has differed across countries, depending on the kind of policy responses initiated. The approach is basically founded on the principle that the rupee has a market-determined exchange rate, something we have been saying for several years. There are, of course, some boundaries on this. There are restrictions on debt inflows. But within those boundaries, the exchange rate is market-determined. We saw this happen in 2008, when the rupee depreciated to 52 and below. It then rebounded sharply, and stabilised in the mid-40s for a time. Now, it is again showing this pattern, driven largely by global considerations. There are two issues here. One, is this going to be a persistent sort of pressure and is the depreciation going to continue for a long period of time, in which case, it starts to disrupt the domestic macroeconomic situation? Maybe, then, we need to think of a different approach to it. The other aspect is the argument that reserves should be used to defend the currency and that, I think, is a much more complicated issue. Our reserves are not an outcome of persistent current account surpluses, unlike in many countries, particularly in our region. There, it is the result of excess capital inflows over the current account deficit and to that extent, reflects a cushion we have against our external liabilities. So, the use of reserves to defend an exchange rate, which may not be defensible beyond a point, means we end up with the same pressures and with a lower set of defence against it. So, you have to be very careful about how we use the reserves, and I think generally, markets have to accept this is a floating currency and that there are measures to help hedge against that. Those exposures have to be hedged as much as we can. So, long-term market development strategists have to ensure these hedging instruments become more accessible and more efficient.
A lot of people have been talking about the 52-level you alluded to, and are probably hoping RBI might want to defend it. But on your point that this rupee move has been determined by global factors, a lot of people say this is also a reflection of India’s weakening macros and, therefore, even if the bank were to try and defend 52, maybe market forces would eventually lead it lower. What do you think?
We been talking about weakening domestic macro conditions for quite some time, before the recent pressure started. So, if you are looking at a pure event impact here, this process started the day the US sovereign rating was downgraded. So, there is an event contribution to this. Of course, domestic macro conditions may be reinforced at the moment, and there is no disputing that, but let's not lose sight of the fact that there is a global dynamic here. And, to try and resist, or try and do something for which we do not have the capacity, we may run out of capacity in a situation in which global forces are pushing it along, this is also a risky strategy. So, it's a question of weighing the relative risk and at this point, we feel the sort of movement, particularly if it's likely to remain in this situation for a very long period of time, is hurting. Whatever little softening we have seen in commodity prices is being offset by the depreciation. In terms of defending a particular target, I go back to my point that to defend, you have to have capacity, and you could well end up in a situation in which you lose capacity without having achieved your target, which makes it vulnerable to any kind of shock beyond that. And, it's not a hypothetical risk, it’s a very tangible risk.
Today, the finance ministry decided to enhance the limit for foreign institutional investors on both government securities and corporate bonds, and the stated objective seems to be to ensure better rupee-dollar parity. Do you think this may bring in some modicum of balance between the rupee-dollar equation? Do you agree that what we are seeing right now is abnormal?
I think on the first issue, we are part of the process of expanding limits. So, the fact that it happened is an issue of coordination between various elements of the system. The motivation, in terms of the exchange rate management, or basically using the control we currently have in place, which are ceilings on debt flows — by lowering these ceilings, are we going to attract more capital to offset the exit from other channels, and if that comes in, there would be a positive impact, at least in terms of reversing the depreciation. So, that’s the consequence I would expect and that’s been the underlying logic, in terms of arriving at a decision, apart from other issues about debts. There are, of course, risks that come with it. We should be conscious of the risk that more debt exposure means more vulnerability overall. But at the moment, the benefits seem to have outweighed the risks. On volatility, I think we have not distinguished between volatility in a very short term — intraday movements — and volatility in the longer term, the magnitude of the movement over a period of time. On the first, I have already addressed the issue in my earlier response. On the second, I would go back to the term I have been using — smoothing intervention. If there are sharp spikes in movement in a particular direction, we see intervention in that situation as a way to smoothen the transition. Defending the rate at this point is not on our radar screen.
BS
Inflation and its policy drivers
...The present battle against inflation can be won only if the government and the RBI live up to their responsibilities. In the final analysis, unless productivity in the system improves, inflation will continue to be a problem.
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RBI tells banks to exercise caution on online forex trade payments -
....The Reserve Bank of India (RBI) today directed banks to exercise caution with respect to online forex trading by Indian residents where margin payments through a credit card or deposit are required in view of the risk of fraud,....
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Thursday, November 17, 2011
Rising e-commerce leading to frauds: H R Khan
IBN Live
Third National Seminar on Microfinance: Issues and Challenges: 02 – 03 December 2011
One of the mandates of the Centre for Microfinance Research is to organize annual conference/Seminar on microfinance in order to disseminate the knowledge generated from the work done by the researchers in the field of microfinance. The first National Seminar on Microfinance was organized on 25-26 July 2009 and inaugurated by Dr.C.Rangarajan, Ex-Governor, RBI & Hon'ble Member of Parliament, Rajya Sabha. CMR has now scheduled the third seminar to be held on 02 and 03 December 2011. Shri Jairam Ramesh, Hon'ble Minister for Rural Development, Govt of India has given his kind consent to be the Chief Guest during the inaugural session (02.12.2011) of the seminar and Shri H.R. Khan, Deputy Governor, Reserve Bank of India has given his kind consent to be the Chief Guest during the valediction session of the seminar (03.12.2011). This Seminar will focus on the following themes:-
1. Regulatory challenges for client protection in microfinance.
2. Enhancing outreach of microfinance: Role of Technology.
3. Microfinance through co-operatives: Performance and Prospects
4. Revival of rural artisans, handloom and handicraft cluster bases: Potential role of microfinance
The programme would commence at 9.00 AM on 02 December 2011 at BIRD, Lucknow and will conclude at 05.30 PM on 03 December 2011.
RBI needs more powers to help banks overcome insolvency: Chakrabarty
IT exemption
About half of the Corporation's premium income, which is its main source of funds, is paid as income-tax to the Government. In this regard, Dr Chakrabarty observed that since DICGC is a non-profit organisation serving social obligations of protection of small depositors, it should be exempted from payment of tax, as is done globally. The tax exemption would enable the DICGC build up its fund base, provide higher coverage to depositors and even pass on the benefits to insured banks by reducing the rate of premium. The Deputy Governor said it is surprising that in India, there is inadequate awareness about deposit insurance. One reason for this could be that in India banks are perceived to be either too-big-to-fail or impossible to fail on account of the Government or RBI backing. While this may be true for the public sector banks, it certainly does not hold good in the case of private sector banks, foreign banks operating in India and the large number of cooperative banks, added Dr Chakrabarty.
HBL
Shell out more to use your safety lockers in banks
These are tough times for the common man: After interest rates for home loans were increased, now bank rates for safety lockers, too, have gone up. Annual charges and security deposits for safety lockers in public sector banks will see a significant hike. Syndicate Bank is the first to revise rates for all categories of lockers. Notices have been sent to its branches, directing that customers be informed to pay money as deposits to avail the locker facility. All public sector banks will follow suit. Banks have different rates for different locker dimensions and customer categories. Customers in metros will end up paying Rs3,000 to Rs10,000 for small lockers, while for large lockers, they have to pay at least Rs15,000 to Rs19,000 as deposits. Customers in semi-urban and rural areas will be charged lower rates depending on the locker size. Furthermore, even the annual rent has been hiked from Rs300 to Rs600 for small lockers; Rs500 to Rs1,110 for medium lockers; Rs900 to Rs1,900 for large lockers; and Rs1,500 to Rs2,500 for very large lockers. According to Syndicate Bank officials, the rates have been increased following a directive from the RBI with an advice to the Indian Banks Association. This means all public sector banks will increase the charges. Corporation Bank general manager BR Bhat told DNA that all bank services are reviewed once in six months and this exercise was a part of it. “The locker rates had not been revised for a long time,” he added. Expectedly, customers are not a happy lot. “There are no recurring expenses for this service. Lockers are installed and they need very little annual servicing. Strong rooms are built for maintenance-free operations for a lifetime. Why are banks hiking the security deposit and rent?” asked Kusuma Shenoy, a locker holder in Syndicate Bank, Mangalore.
Some customers have decided to appeal to the Banking Ombudsmen and to RBI Regional Director in Bangalore to seek a clarification. “But when we called Banking Ombudsman Palanisamy in Bangalore, nobody answered the line. We wanted to complain to him for over-charging for a service that did not warrant such steep hike,” said consumer activists.
DNA
Interest subsidy to farm sector not viable: RBI
The Reserve Bank of India (RBI) on Wednesday said the government should do away with subsidised farm loans, as the proposition was not viable. “If banks are able to give loans to big corporate bodies at nine per cent, why can’t they give loans for agriculture at 13 per cent? The problem is it (the government) wants credit to be available at seven per cent, when inflation is nine per cent. That is our objection,” said RBI Deputy Governor K C Chakrabarty, while addressing a banking seminar organised by YES Bank. He said banks could not provide subsidy to all farmers when the deposit rate was nine per cent. Banks extend loans of up to Rs 3 lakh to the farm sector at seven per cent, and get 1.5 per cent interest subvention from the central government. The rate of interest is fixed and not related to the base rate, or the benchmark lending rate. The interest rate has risen in the last one and half years, and has exerted an upward pressure on the banks’ cost of funds. Since the interest rate is fixed for farm sector loans, banks are unable to pass on the rise in the cost of funds to borrowers. Chakrabarty said financial inclusion could only be led by banks, and not by micro-finance institutions (MFIs) or technology providers. While financial inclusion would be brought about by regulated financial institutions, others could only facilitate it, he said. He said an entity needed to provide savings and payments systems apart from credit facility for financial inclusion. “MFIs provide only credit, hence they cannot bring about financial inclusion,” said Chakrabarty. Within the banking fold, financial inclusion initiatives have to come from private sector banks, he said. “Public sector banks would not bring financial inclusion in this country. It would be brought by private sector banks,” he said. This would be visible in the next two-three years, he said, adding banks needed to work out viable business models, since financial inclusion was not possible through charity. Under new norms, banks have been mandated to open one-fourth of their new branches in unbanked, or under-banked, areas to expand the reach of financial services. The banking regulator has also liberalised branch opening in unbanked areas. Chakrabarty said if banks wanted to grow in a planned manner, this was the time to build a customer base.
BS
Karnataka Bank opens financial literacy centre
Mangalore : Karnataka Bank Ltd, in association with the Manipal-based Jnana Jyothi Financial Literacy and Credit Counselling Trust, opened its first financial literacy and credit counselling centre at B.C. Road town in Bantwal taluk of Dakshina Kannada district on Wednesday. Speaking at the inauguration of the centre, Mr P. Jayarama Bhat, Managing Director of Karnataka Bank, highlighted the centre's functions and its use especially for the rural public. The centre is meant to serve the interest of customers of all banks, he said.
Inaugurating the centre, Mr A.K. Bhattacharyya, General Manager of Reserve Bank of India, spoke on the initiatives taken by the RBI and the need for financial literacy as well as financial inclusion. By this initiative, the level of knowledge among the general public could increase resulting in availing of more banking services. The Managing Trustee of Jnana Jyothi Financial Literacy and Credit Counselling Trust, Mr D.T. Pai, laid out the objectives of the trust and the functions of the centre. He said Karnataka Bank is the first private sector bank to sponsor the opening of such a centre at block level, and reiterated the desire of the Trust to open more such centres at taluk and block levels.
HBL
AIBEA employees oppose Kingfisher Airlines bailout; urges RBI to recover loans
MUMBAI: Opposing the bailout of Kingfisher Airlines, the All India Bank Employees Association (AIBEA) Wednesday urged the Reserve Bank of India ( RBI) to first recover loans given to the airline. "Already 13 banks have extended a total credit of more than Rs.7,000 crore. Twice these loans have been restructured in order to avoid the loan being defined as bad loans," said AIBEA general secretary Vishwas Utagi. AIBEA has also advised all its nominee workman directors on the boards of the banks to oppose any further bailout or credit facility to the airline. "Big corporates are squeezing the public deposit in (state-run) banks by frequently going for Corporate Debt Restructuring," Utagi said. "Kingfisher Airlines is one such glaring example. AIBEA has been opposing such bail-out packages.
ET
SISCO net profit boosts but fall in deposit rates
Gangtok : The 12th Annual General Body Meeting of Sikkim State Co-operative Bank (SISCO) limited was held on November, 15, 2011 to discuss and review the financial position of the bank for the financial year 2010-11 at Denzong Regency here in the capital. The meeting of the bank was graced by RBI, AGM, Anil Yadav, NABARD General Manager P.C.Choudhary and Board of Directors amongst a good strength of shareholders.
G Padmanabhan: Getting "IT" right
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RBI told to disclose top 100 loan defaulters
The Central Information Commission has directed the Reserve Bank of India to make public the names and other details of top 100 industrialists of the country who have defaulted on loans from public sector banks. The commission also directed the bankers' bank to post on its website complete information on all such industrialists as part of suo-motu disclosure mandated under section four of the RTI Act before December 31 and asked it to update it every year. The RBI had objected to making this information public saying it is held by it in fiduciary capacity and disclosing it would adversely affect economic interest of the State. Information Commissioner Shailesh Gandhi agreed that information is fiduciary in nature but said that such exemption does not stand when there is larger public interest in the disclosure. Mr Kapoor had sought to know from the RBI the details of default in loans taken from public sector banks by various industrialists besides list of defaulters, top 100 defaulters, name of the businessman, address, firm name, principal amount, interest amount, date of default and date of availing loan. During the hearing, Gandhi asked the RBI if the information about loan defaulters is held by it as part of statutory requirements. The Public Information Officer admitted that the Banks were providing the information in fulfilment of statutory requirements. Mr Gandhi, in his detailed order, said, "In fact, information about industrialists who are loan defaulters of the country may put pressure on such persons to pay their dues. This would have the impact of alerting citizens about those who are defaulting in payments and could also have some impact in shaming them." He said there is no doubt that details of top industrialists who have defaulted in repayment of loans must be brought to the citizens' knowledge and there is certainly a larger public interest that would be served on disclosure of the same, hence clause of fiduciary information does not stand. "This (disclosure) could lead to safeguarding the economic and moral interests of the nation. The commission is convinced that the benefits accruing to the economic and moral fibre of the country, far outweigh any damage to the fiduciary relationship of bankers and their customers if the details of the top defaulters are disclosed," he said. Mr Gandhi said the commission is aware that information on defaulters is being shared by Reserve Bank with an organisation called CIBIL adding that "it is difficult to understand the reluctance to share this information with citizens using RTI". The commission also rejected the contention that disclosure would adversely affect economic interest of the state saying "if it means that such borrowers would not bank with public sector banks for fear of exposure, it would in fact be in the economic interest of the nation. "It is also unlikely that the economic wellbeing of the nation could get affected adversely by disclosing the names and details of defaulters. The Indian economy is dependent on far stronger footings," he said.
NDTV
Nigerian arrested for cheating engineer
A Nigerian national has been arrested for allegedly cheating a mechanical engineer of Rs 15 lakh through a fake lottery, police said today. Evan Tony alias Franklyn (38), resident of Ubiaja in Nigeria who is presently residing in Mumbai, was arrested yesterday as soon as he arrived from Mumbai to IGI airport here last afternoon to collect more money from the victim, a senior police official said. "He had already duped Ravi Mogra of Rs 15 lakh on the pretext of giving him the lottery amount of Rs 12 crore. Mogra deposited the amount in various bank accounts provided by the accused. He even sold his house in Kondli to get the amount," Chhaya Sharma, DCP South district said. Police has recovered two passports including a fake one reportedly issued from Congo, three cell phones, several SIM cards, fake chemical coated black dollars and an iron safe containing black Pounds. The accused even provided Mogra the letters purportedly issued from RBI to convince him to make these payments, who credited Rs 5 lakh in various accounts of the accused and had paid Rs 10 lakh in cash. Mogra was once called by him in a hotel in Bangalore where he and his associates handed him over an iron safe containing black pounds worth Rs 12 crore to be encashed in Indian currency through RBI account, the official said. When the accused demanded Rs 23 lakh more, Mogra become suspicious and broke open the safe to find several bundles of black powder coated plastic feeling paper. The gang was operating at interstate level and remains most of the time in Bombay and Bangalore.
IBN Live
Hike in small savings return a sweet pill
If you had planned for your future corpus thinking that your Public Provident Fund (PPF) and other small savings options would give almost fixed returns, be ready to make fresh calculations. From December 1, the small savings returns would become market-linked, aligned with the G-Sec rates (government securities). To address the issue of asset-liability mismatch in the National Small Savings Fund (NSSF), the central government has moved towards making returns from small savings instruments benchmarked against the government securities of similar maturities. Being market linked, the rate of return would come down whenever there is a downward revision of interest rates, making it difficult for you to work towards a long term financial goal, like building retirement corpus, through instruments like PPF.
Why market linked
The Thirteenth Finance Commission in its report had recommended that all aspects of the design and administration of the NSSF be examined with the aim of bringing transparency, market linked rates and other much needed reforms to the scheme. As a follow- up to this recommendation, the central government had constituted a “Committee on Comprehensive Review of NSSF” on July 8, 2010, headed by Shyamala Gopinath, the then deputy governor, Reserve Bank of India.
IE
Countercyclical policies needed for financial stability: BIS
Countercyclical policies undertaken by monetary authorities, more capital requirements for banks and effective liquidity management are the most important measures needed for financial stability and growth, Mr Jaime Caruana, General Manager, Bank for International Settlements, said on Wednesday. He was briefing the media at the end of the first international conference conducted by CAFRAL (Centre for Advanced Financial Research and Learning) on ‘Financial sector regulation for growth, equity and stability in the post-crisis world'. In response to a question, Mr Caruana said fiscal authorities must create enough space and be ready to build buffers during good times. He said it was easy to overestimate the health of the Budget during a credit boom, and cited the example of his own country, Spain, which moved dramatically from a surplus Budget to a deficit when the credit boom ended. Mr Caruana was Governor of the Central Bank of Spain till 2006. Briefing media persons on the conference deliberations, Ms Usha Thorat, Director, CAFRAL and main organiser of the conference, said there was greater appreciation among western nations about the need for equity as one of the objectives of financial regulation. The focus was always on growth and deregulation earlier, but this had begun to change after the crisis of 2008, she said.
HBL
RBI cancels licence of Charminar Co-op Bank
The Reserve Bank of India has cancelled the licence of Hyderabad-based Charminar Co-operative Urban Bank as all efforts to turnaround it had failed. In a press release issued on Wednesday, the RBI said that depositors were being inconveniences by the continued uncertainty. The Registrar of Co-operative Societies, Andhra Pradesh State has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank, RBI said. Consequent to the cancellation of its licence, the bank is prohibited from carrying on ‘banking business' including acceptance and repayment of deposits. On liquidation, every depositor is entitled to repayment of deposits up to a ceiling of Rs 1 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC). The problems with Charminar Bank started in February 2002 when the RBI discovered that the bank was not in a position to meet the demand of its depositors. To protect the interests of the depositors, the RBI restricted the bank from accepting and repaying deposits to a maximum of Rs 1,000 per depositor. With a view to restructure and revive the bank, the Government of Andhra Pradesh notified a Scheme of Reconstruction in consultation with RBI which came into force with effect from March 3, 2003. The Scheme, however, failed to yield the desired results. The subsequent inspections of the bank also revealed no improvement in its financial position, said RBI. In terms of a revised restructuring scheme, all depositors of the bank having deposits above Rs 10 lakh were to be paid the balance amount in eight equal half-yearly instalments starting from March 2009. It was observed that the last instalment (fifth) was paid not out of the cash generated from recovery of non-performing assets but by disposing of the fixed deposits maintained with other banks. The bank itself accepted that any further recovery in NPA accounts were not possible. Without any further recovery in NPA accounts, the bank can hardly make repayment of the next instalments, said the RBI. Further, the Charminar Bank is not in a position to pay its depositors in full, the affairs of the bank are being conducted in a manner detrimental to the interests of its depositors, the financial position of the bank leaves no scope for revival and public interest will be adversely affected if the bank is allowed to carry on banking business, the RBI said.
BS
Sharp drop in rupee alarms government - ‘RBI may intervene if needed’
On a day when rupee hit a new low of 50.74 to a dollar, Finance Minister Pranab Mukherjee on Wednesday said, the Reserve Bank of India is monitoring the situation and will intervene if necessary. The rupee dropped as worries about Europe's debt crisis and a worsening domestic economy raised demand for the US currency. "As RBI has already mentioned, it is watching the situation. As and when it is necessary, they will intervene," Mukherjee told reporters here. RBI Deputy Governor Subir Gokarn had said on Tuesday that the bank would intervene in the forex market only in case of extreme volatility. Market participants are agog with the question whether the RBI should intervene in the foreign exchange market, but analysts say, central bank’s intervention in the forex market at this juncture could raise concerns over liquidity as bank’s dollar purchase could potentially suck out rupee liquidity from the market. RBI intervention in the forex market is also not recommended at the time when the commodity prices have again started reigning high and there is an increasing domestic demand pressure. The rupee is already Asia's worst performing major currency this year, having tumbled by close to 12 per cent against the dollar so far in 2011. The falling rupee has already pushed up the cost of country’s imports, particularly oil, in the past as many months.
DH
Banks can't penalise for prepayment of loan
One of the biggest problems faced by banks and financial institutions is the failure of borrowers to repay loans. So, defaulters are offered incentives such as partial waiver of interest or a scheme for one-time settlement. Yet, surprisingly, banks often penalise a customer by levying charges for pre-payment of a loan account. S Krupanidhi Educational Trust runs several educational institutions in Bangalore. It required finance to expand its activities. So, it applied to Union Bank of India, which sanctioned a loan of Rs 21.6 crore, to be repaid over seven years in monthly instalments of Rs 30,000. The interest was 11.25 per cent per annum.As there was escalation in the cost of the project, the trust wanted a further loan. Union Bank agreed to consider the request, but later refused. The trust then approached Axis Bank, which agreed to cover the entire project. So, the trust decided on closing the loan account with Union Bank. The latter demanded Rs 64.8 lakh as closure charges. The trust was compelled to pay this, under protest. More surprisingly, although the account was being closed via pre-payment, the bank charged Rs 169,299 as loan renewal charges. The trust then filed a consumer complaint before the Karnataka State Commission. It said the loan sanction letter didn’t mention pre-payment charges. Even the loan agreement didn’t mention, but later a rubber stamp endorsement about charges was affixed on it . The trust contended these were never agreed to. On the other hand, the bank argued the charges were payable according to the agreement. The bank pointed to the guidelines issued by the Reserve Bank of India (RBI) permitting pre-payment charges, as also its circulars. The state commission observed the rubber stamp endorsement in respect of the charges looked like a subsequent insertion, but it would not be possible to decide this under the summary procedure followed by consumer fora. The endorsement stated that pre-closure would attract a pre-payment penalty. However, neither the RBI's guidelines nor the bank's circulars could be termed as rules. The agreement also provided that in case of a default, the bank would be entitled to recall the entire loan without payment of any pre-closure charges. When no charges are levied here, it wouldn’t be correct to levy these when the borrower voluntarily pre-pays. The commission held levying of the charges as not justified. The commission also noted the observation of the Delhi State Commission in the case of State Bank of India v/s Dr Usha Vaid [ II (2008) CPJ 166 ], wherein it had been observed that no bank or finance company could be allowed the restrictive trade practice by binding the consumer to go on availing a loan even if the interest charged by the bank was higher, and any clause which operates adversely to the interest of the consumer would be void and unenforceable. A similar view had been taken by the Karnataka State Commission in the case of UR Rehman & Ors v/s Kashmir Bank Ltd & Ors. Accordingly, it was held that it would be incorrect to levy pre-payment charges. Also, loan renewal charges could not have been levied when the loan was pre-paid. Hence, the commission ordered Union Bank of India to refund the pre-payment penalty and the loan renewal charges, aggregating to Rs 66,49,299, along with 12 per cent interest and costs of Rs 10,000. Banks must learn to appreciate and give incentives to persons who make prompt or early repayment, rather than giving these to defaulters. This twisted logic must change.
BS
RBI wants to bring down bank profits; draws attention to bad loans
... RBI says if the banks have to increase or maintain profitability, it must come from other income and not from increasing the cost of capital per say......
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RBI directs RRBs not to pay on over 3-month old cheques/DD
Mumbai: The RBI on Wednesday directed the regional rural banks not to make payments on cheques and other financial papers which are more than three months old. "RRBs should not make payment of cheques/drafts/pay orders/banker's cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument," the Reserve Bank said in a statement. The direction came a few days after the central bank said that payments on such papers will not be valid if they are over three months old. "In India, it has been the usual practice among bankers to make payment of only such cheques and drafts as are presented for payment within a period of six months from the date of the instrument. "RBI is satisfied that in public interest and in the interest of banking policy it is necessary to reduce the period within which cheques/drafts/pay orders/banker’s cheques are presented for payment from six months to three months from the date of such instrument," it said.
Zee News
My Mobile Payments receives RBI’s approval to issue mobile wallet
Money on Mobile offers mobile phone users the flexibility and convenience to top up their talk time, DTH account, buy air, bus or movie tickets anytime, anywhere using the mobile platform. My Mobile Payments Ltd (MMPL), a Mumbai-based mobile payment service provider, has received the Reserve Bank of India’s (RBI) go-ahead to launch financial services on mobile phones. “Money on Mobile” (MoM), an electronic prepaid payment instrument for the mobile phone is set to launch its services for the Indian market this December. Shashank M Joshi, MD of MMPL said, “We’ve been granted the licence to offer the semi-closed m-wallet by the RBI. This means that by December, consumers can load their mobile phones with prepaid cash and use this virtual money to purchase goods and services at retail outlets. Retailers and kirana stores across the country will act as a loading point for MoM.” MMPL has already tied up with over 36,000 retailers pan-India and has a presence in over 200 cities. MoM offers mobile phone users the flexibility and convenience to top up their talk time, DTH account, buy air, bus or movie tickets anytime, anywhere using the mobile platform. MoM service operates independent of the consumer’s mobile operator or bank, and hence any mobile subscriber can avail of its services. “Started in India over a year ago, MMPL is determined to turn RBI’s desire into reality of converting 70% of the country’s financial transactions to electronic by 2012,” he added.
Moneylife
Private banks should play pro-active role in financial inclusion: RBI
The Reserve Bank today called upon the private sector lenders to play a proactive role in promoting financial inclusion as state-owned banks cannot do the job by themselves. "Public sector banks will not bring financial inclusion in this country (alone), it will be brought by private sector banks," RBI Deputy Governor K C Chakrabarty said, while speaking at the Financial Times-YES Bank banking summit here. Commending the work done by private sector banks on financial inclusion in the country, he said the lead taken by private sector banks towards financial inclusion would be visible in the next one to two years. Chakrabarty also called bankers to view financial inclusion as a profitable proposition than merely looking at it from the compliance point of view. As per the financial inclusion agenda of the government, the banks will have opportunity to open branches in 72,000 villages with a population of 2,000 by March, 2012. This will take banking to over 90 million customers. On the role played by MFIs (Micro-Finance Institutions), Chakrabarty said they would never be able to promote financial inclusion, as they only disburse credit and do not help generate savings. Chakrabarty further said technology would be the biggest enabler in achieving the financial inclusion by drastically bringing down costs.
NDTV
Real truths about monetary tightening
...Questions have also been raised about the ability of monetary policy to fight inflation, thanks to this perceived dismal performance. However, before condemning monetary policy for being ineffective, there is a need to verify the facts. ....
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Banks ride high on interest margins
...“Interest rate on deposits have already peaked. At this point of time, fixed deposits are offering highest returns. We won’t be increasing interest on long-term deposits in the near future...
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Wednesday, November 16, 2011
Real sector must drive financial sector: Subbarao
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FINANCIAL REGULATIONGeneral Manager of Bank for International Settlements Jaime Caruana (left) and RBI Governor D.Subbarao at the CAFRAL-BIS conference in Mumbai on Tuesday |
It is the real sector that must drive the financial sector, not the other way round, said Dr D. Subbarao, Governor, Reserve Bank of India. He was delivering the inaugural address at the first CAFRAL-BIS (Centre for Advanced Financial Research and Learning and Bank for International Settlements) international conference on ‘Financial Sector Regulation for Growth, Equity and Stability in the Post Crisis World’ at Mumbai. He pointed out that while historical experience may tempt one to believe that financial sector development aids growth and, therefore, more of it must be better, the actual experience was different. He said the financial sector had kept growing out of alignment with the real world. Citing the example of the US, he said that over the last 50 years, the share of value added from manufacturing in GDP shrank by more than half from around 25 per cent to 12 per cent while the share of financial sector more than doubled from 3.7 per cent to 8.4 per cent. The same trend is reflected in profits too. In the same period, the share of manufacturing sector profits in total profits declined by more than two-thirds from 49 per cent to 15 per cent while the share of profits of the financial sector more than doubled from 17 per cent to 35 per cent. The large share of the financial sector in profits, when its share of activity was so much lower, tells a compelling story about the misalignment of the real and financial sectors, he said. Dr Subbarao also talked about the role of regulation in achieving equity. He said, "Our experience in India has been that left to itself, the financial sector does not have a pro-equity bias." He outlined the steps taken by the RBI to promote 'socially optimal business behaviour', including priority sector lending, lead bank scheme, licensing of branches, as well as its pursuit of financial inclusion. He said, "The extent of financial exclusion is staggering. Out of the 600,000 habitations in India, less than 30,000 have a commercial bank branch. Just about 40 per cent of the population across the country have bank accounts, and this ratio is much lower in the north-east of the country." Admitting that these statistics, even though distressing, do not convey the true extent of financial exclusion, he said even when accounts were claimed to have been opened, they were often dormant. Mr Jaime Caruana, General Manager, Bank for International Settlements, said sovereigns must earn back their reputation as risk free borrowers, since they act as the ultimate backstop facility. This was very important for the conduct of monetary policy. He also urged countries to build up fiscal buffers during good times.
HBL
Welfare schemes could bleed exchequer, warns former RBI Governor Y Venugopal Reddy
MUMBAI: India's fiscal woes could deepen because of welfare schemes such as the National Rural Employment Guarantee Scheme, former governor of the Reserve Bank of India, Yaga Venugopal Reddy, said on Tuesday. Reddy, whose conservative stewardship of the central bank between 2003 and 2008 is widely credited with shielding India's banking system from the worst of the global financial crisis, said schemes such as NREGS, the flagship welfare scheme of the United Progressive Alliance government, were almost impossible to withdraw, potentially exacerbating the fiscal situation. The scheme, which commits the state to provide employment for a minimum of 100 days a year to rural workers, has been criticised by many economists for its failure to create assets on the ground but appears to have paid rich political dividends for the government. It has been also hailed for reducing migration from rural areas, providing an economic stimulus by boosting consumption and raising wages for those at the bottom of the pyramid in both rural and urban areas. But Reddy said India entered the downturn in a frail fiscal state, leaving it in a weaker position to raise spending. "In India, there are three problems: One, we started with a relatively weak fiscal situation. Second, we viewed programmes such as NREGS and rural pay as a stimulus whereas actually they are not easily withdrawable, and third, the revenue component was more than the capital component in the expenditure. All these put together have resulted in some sort of a fiscal problem," the former governor said. India's fiscal deficit is expected to widen to close to 5% of national income in the year ending March 31, 2012, compared with a projection of 4.6% in this year's budget because a slowing economy has had an adverse impact on revenue collection while the government has been unable to rein in spending.
INDIA MUST JOIN EU BAILOUT
Reddy, who now lives in Hyderabad, says that policymakers need to do some "honest introspection" about the fiscal situation. "In the name of fiscal stimulus, we should not try to simply reduce expenditure. In fact, you should raise revenue and you should be able to identify where revenue enhancement is possible," he said. With inflation still close to double digits, Reddy, who is this year's winner of the Lifetime Achievement Award at The Economic Times Awards for Corporate Excellence, said the central bank would hardly be in a position to pause, let alone consider cutting interest rates. Reddy, who supervised Indian banks as a central banker for over eights years in the RBI, including a stint as deputy governor, said there are "significant elements of truth" in the analysis of ratings agencies Moody's and Standard & Poor's. Reddy said the "negative conclusion" by Moody's, which had recently revised its outlook on Indian banks to 'negative', was not warranted, but advised banks and the government to treat the analysis as a "good warning". The finance ministry and Indian banks have trashed the change in outlook.
Reddy strongly favoured India supporting the Euro zone by funding the European Stability Fund - a view already expressed by the government. "India is an important country and has to demonstrate its interest in ensuring the Euro zone succeeds."
ET
‘Banks must innovate to serve customers better'
Kochi : IDRBT (Institute of Development and Research in Banking Technology), the technical arm of RBI, in association with South Indian Bank, conducted an Executive Round Table named ‘Beyond Core Banking' at South Indian Bank's Administrative Building near here. Delivering the keynote address, Mr G. Padmanabhan, Executive Director, RBI, said since majority of the banks in India have implemented core banking, it is high time that banks innovate and introduce more technology products and services to serve customers. Mr R. Sambamurthy, Director, IDRBT, stressed the need for building up management information system in banks which will help understand the clients better and to meet their requirements in full. Dr V. A. Joseph, Managing Director and CEO, South Indian Bank, welcomed the gathering. Ms Suma Varma Regional Director, RBI, Thiruvananthapuram, Mr Abraham Thariyan, Executive Director, South Indian Bank, spoke on the occasion.
HBL
India would be impacted by newer regulations : Subbarao
Mumbai, Nov 15 : Flagging the issue of cost of regulations, Reserve Bank Governor D Subbarao today said that emerging economies like India would be impacted by newer regulations currently under discussion globally. "What concerns us is that these global standards are going to be applied uniformly but their implications for emerging market economies will be different given the different stages of our financial sector development," Subbarao said here. Speaking at the inauguration of a global seminar organised by RBI's research and learning body CAFRAL and the Bureau of International Settlements, Subbarao said the financial sector in the country is still under development. Following the recession of 2008-09, a slew of norms have been either suggested or are in the process of being made to ensure financial stability like the Financial Stability Board and the Basel Committee on Banking Supervision (BCBS). One of BCBS' suggestions--the Basel-III norms calling for additional capital adequacy of banks--is one of the most debated issues at present. Subbarao cited studies done by multiple bodies which talk of affecting growth following implementation of Basel-III and said, the country will also get affected by it even though a majority of banks have healthy capital buffers. With high growth, credit demand is going to be healthy in the days ahead and banks will have to expand their balance sheets which will in turn require them to raise capital, Subbarao explained. "The concern is that this will raise the cost of credit and hence militate against growth," he observed. "The crisis brewed in the advanced economies and much of the post-crisis reforms are driven by the need to fix what went wrong there...the agenda under consideration has been dominated by advance economy concerns," he said. Subbarao also stressed the need to focus on the real sector saying the financial sector cannot reach out to those at the bottom of the pyramid.
IBN Live
FT-YES BANK International Banking Summit attracts global banks
... “Indian financial sector has gone through significant transformation and global integration, under the able guidance of RBI. The second generation reforms, including the recent deregulation of the savings rate, opening of banking licenses, etc. are game changers and will facilitate the shift from lazy banking to dynamic banking,”....
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RBI to bring about big changes in deposit cover
The Reserve Bank of India (RBI) is advocating sweeping changes in the deposit insurance system. The initiative would protect the interests of small depositors who have accounts in private banks and small, urban cooperative banks. The changes sought include the power to dissolve a bank before insolvency, an increase in coverage limit and access to depositors’ database. Deposit insurance systems help in arresting panic reactions and hasty withdrawals that arise when banks are believed to be reeling under financial troubles. They help protect the impact of financial crises and restore the public confidence in the banking system. The Deposit Insurance and Credit Guarantee Corporation (DICGC), set up in 1962, is the deposit insurance system and is a fully owned subsidiary of Reserve Bank of India. The recent global financial crisis has rekindled the interest in deposit insurance and in a country like India, deposit insurance is critical for financial inclusion and to protect small depositors from strategic errors by management and wider systemic shocks, said K.C.Chakrabarty, Deputy Governor of Reserve Bank of India, on Tuesday. However, awareness about deposit insurance facility is low because banks in India are perceived to be either ‘too big to fail’ or cannot fail on account of government or Reserve Bank of India backing, he said. “While this may be true for the public sector banks, it certainly does not hold good in the case of private sector banks, foreign banks operating in India and the large number of cooperative banks,” he said. Speaking at the ‘International Conference on Role of Deposit Insurance in Banking Resolution Framework’, he said that, although, DICGC was compliant in its role as a pay-box system relating to the settlement of claims as per rules, there was weakness in the overall bank insolvency framework that needs to be addressed. “It is necessary to broaden the mandate of DICGC from pay-box to attending all aspects of bank resolution, including the monitoring of banks, prompt corrective action and implementing the least-cost method of resolution of troubled banks. This would lead to faster settlement to depositors, lower costs and stability of the financial system,” Chakrabarty said. He also asked for powers for Reserve Bank of India to dissolve a bank before insolvency and a special bank resolution legislation for expanding resolution powers. To provide quick access of funds to depositors of failed banks, all urban cooperative banks should be asked to implement core banking solutions (CBS) and an effective interface between DICGC and banks’ CBS needs to be created to access depositors’ databases. Reserve Bank of India had also set up a working group on reforms in deposit insurance, including amendments to the DICGC Act, he added.
FC
See no systemic weakness in Indian banks: RBI's Gokarn
RBI Deputy Governor Subir Gokarn is not worried about the state of Indian banking system. He believes there is no systemic weakness in India banks, even though non-performing assets are rising due to the gloomy economic environment. The system, as whole, is secured stated Gokarn reacting to the recent downgrade of the Indian banking system by global agency Moody's. "I cannot make a judgement on what a rating agency does. I can neither endorse their views nor I can challenge. Every six months, we come out with financial stability. In that exercise, there is great deal of stress testing," he told reporters on the sidelines of a conference held here in Mumbai. Last week, Moody's lowered its outlook for the Indian banking system from 'stable' to 'negative' on concerns of a possible rise in bad loans, capital infusions and profitability. "We are not targeting any specific rate. We intervene only when there is very strong volatility in a particular direction. It (currency volatility) is now happening globally," the Deputy Governor said.Meanwhile, bankers rubbished some industry rumours suggesting that the finance ministry has asked state-owned banks not to get ratings from ICRA, an associate rating agency of Moody's operating in India. "We have not received any instruction from the finance ministry in this respect. The ministry normally does not pass on this type of intimation," M V Nair, CMD, Union Bank of India told Moneycontrol.com.
RBI Governor D Subbarao on Occupy Wall Street: Growth sans equity destabilising
MUMBAI: Reserve Bank Governor D.Subbarao today said that the key message from the " Occupy Wall Street" movement is that growth itself can be destabilising if not accompanied by equity. "Growth itself can be destabilising if it has no equity dimension...the elite cannot go on to do obscenely well even as the rest keep moving backwards," Subbarao said speaking to an audience comprising of bankers from across the globe at a seminar here. The 'occupy' protests, despite their "amorphous nature and refusal to formulate a set of demands" have been able to strike a chord and spread the world over just because of that, he observed. Interestingly, Subbarao's remarks come on a day when New York police raided the Zuccotti park, the ground zero for the anti-Wall Street protests, ordering protesters to leave the area or court arrest. The movement which began at Zuccotti park in New York's Manhattan area in mid-September caught the attention of the rest of the world, particularly in the West which is reeling under an extended period of financial turbulences. India had become the 83rd country internationally and Mumbai the 1501st city the world over, to witness the wave when a small group of people held protests at the Dalal Street earlier this month. However, the protestors were not able to strike a chord.
ET
Bank locker turns deadly gas chamber for guards in Kolkata
......However, Cossipore police say that this one did not have a buzzer and they had no clue there was any such currency chest in the area. But the bank issued a statement saying they had adhered to all rules and regulations. Currency chests are essentially RBI cash storage units run by banks under RBI's inspection. This one catered to ING Vysa's 12 branches in Kolkata and Howrah..............
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Gokarn hints at change in RBI’s policy stance
RBI Deputy Governor Subir Gokarn hinted at little change in RBI’s stance in light of gloomy IIP data and inflation figures that remain stubbornly high. Gokarn said the central bank would keep watch on whether the output data, which showed a slowing economy, were later reflected in prices growing more slowly. The bank’s moves were based on a decelerating economy. He told reporters: “The IIP figure does have an impact on the projection for the year as a whole but the stance that we had taken was itself premised on deceleration. So this number doesn’t change that stance.” “How it plays out later on, particularly on the dynamics of inflation, clearly will influence beyond the quarter,” he added. Trouble in the euro zone is unlikely to affect the RBI’s day-to-day monitoring of short-term interest rates, Gokarn said.
IE
The NR EYE: Banks innovate as RBI deregulates deposit rates
Non-resident Indians (NRIs), particularly those with families back home, have some more reasons now to remit more money. The latest one was given by India’s central bank, the Reserve Bank of India (RBI), when it freed the interest rates that banks could offer their clients on savings accounts. In an earlier move, the apex bank had hiked interest levels to make even the non-resident bank accounts more lucrative. On their own too, several public and private sector banks in India have been innovating beneficial products and schemes for overseas clients. In a move late last month, RBI threw out the last vestige of the regulated interest rate regime. Now, the rates applicable to only NRI deposits are regulated but that is also likely to go as and when India adopts capital account convertibility. In a notification, the central bank said banks were now “free to determine their savings bank deposit rate” with immediate effect. Within hours the private sector Yes Bank hiked its savings bank account interest rate by two percent. Soon, it was Kotak Mahindra Bank ltd., and others are expected to follow suit as competition to woo savings bank depositors hots up. Savings account rates have traditionally been very low and have never matched up to the high rates of inflation. It would actually mean that keeping money in a savings account was a loss-making proposition. Yet, we must understand that most people have been keeping large sums in savings accounts simply for mthe reason that their salaries are credited to such accounts and most have lacked the knowledge and skills to quickly deploy it to other more fruitful investment options. The savings account rate remained static at 3.5 percent for more than eight years before it was hiked by 0.5 percent in April this year. Now some banks are offering up to six percent on such deposits. Until 2010, the average cost for banks for such accounts was at around 2.8 percent because they used to pay interest only on the minimum balance kept between the 10th and the end of a month. From April, they have been paying interest rate on a daily average basis. Regulations of deposit rates were first enforced in September 1964. In September 1969, RBI banned interest payment on current accounts and deposits of up to 14 days. From 1979 onwards, almost all deposit rates were administered. In April 1992, banks were allowed to fix interest rates on term deposits of 46 days to three years and more within the ceiling prescribed by RBI. In October 1995, banks were given the freedom to fix rates on domestic term deposits over two years. It was only in October 1997 that interest rates on term deposits were totally deregulated. A year later, the minimum maturity of term deposits was reduced from 30 days to 15 days and it dropped further to seven days in 2002, only for wholesale deposits of at least `1.5 m. Now even retail customers can keep any amount for seven days. Meanwhile, public sector lender Indian Bank has revised its Foreign Currency Non-Resident and Non-Resident (External) deposits interest rates. For FCNR(B) deposits, in USD terms, the revised interest rates has been fixed at 1.94 percent as against 1.86 percent for deposits of one year and above but less than two years. For deposits of two years and above but less than three years, it has been revised to 1.61 percent from 1.56 percent during the same period of previous year. The rates for deposits of three years and above but less than four years has been hiked to 1.77 percent from the existing 1.72 percent. For deposits of four years and above but less than five years has been fixed to 2.05 percent from the existing 1.98 percent. For deposits of five years only, the interest rates has been hiked to 2.37 percent as against existing 2.24 percent. For NR(E) term deposits, the revised interest rates has been fixed at 2.69 percent for one year and above but less than two years (2.61 percent existing). For two years and above but less than three years it has been fixed at 2.36 percent from 2.31 percent. The bank said that for deposits of three years and above and up to five years the rate has been fixed to 2.52 percent. On its part, the Kerala-based old-generation private lender, Federal Bank, has started accepting FCNR deposits in three more currencies and also hiked the interest rates on non-resident term deposits. FCNR deposits in the US dollar will get 1.94 percent to 2.69 percent in select maturities. The State Bank of Hyderabad has launched a new product which will give double benefit to customers. A customer who deposits, say `1,000, in this scheme will see it double in just 87 months. The yields achieved are 13.84 percent (general customers) and 14.56 percent (senior citizens) respectively. There will be no premature penalty if the customer withdraws the deposit after 60 months, in addition to the higher rate of interest. The product would be available to all resident.
http://www.thepeninsulaqatar.com/india/172544-the-nr-eye-banks-innovate-as-rbi-deregulates-deposit-rates.html
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