Baby Steps - India needs true mobile banking to achieve financial inclusion

Recently, HDFC Bank launched a form of mobile banking, using a Vodafone subsidiary as its corporate banking correspondent. This would allow Vodafone’s network of retailers and sub-agents to open and operate accounts, in remote areas outside the reach of the bank’s 2,150 branches in 1,141 towns. This is a great step forward for India’s restrictive banking regulation, but still a small step for mobile banking. The RBI appears to have removed its earlier, impractical condition that multiple banks would not be allowed to share the same banking correspondent. This would mean that the same bank can tie up with different telecom companies and each telco can service multiple banks. Airtel offers some limited stored-value transactions, under which the prepaid value on the phone can be run down by a customer for a limited number of payments in addition to normal telecom transactions. This again is a step forward from the situation that obtained earlier. However, all this does not quite become full-fledged mobile banking. For that, the mobile service provider itself must have a banking licence. In the present system, the mobile retailer can give out a fresh connection, taking proof of identity and so on as required for security purposes. But this form of identity proof will not suffice for the same subscriber to open a bank account. He would have to furnish a fresh set of documents meeting the RBI’s know-your-customer norms, which, then, would have to be processed by the nearest bank branch. This can go into a loop, once the numbers mount. Further, the Vodafone sub-agent is not in a position to process a loan application from a new mobile bank account holder. That would again require the services of that rural rarity, bank personnel. The core of financial inclusion is to let India’s rural masses access formal finance, thus displacing the moneylender as the primary source of credit. That would not be achieved with the modest form of mobile banking the RBI permits now.  The RBI must shed its conservatism and issue fresh banking licences to joint ventures between telcos and established banks, if not to telcos directly. The government can help the central bank make up its mind.

ET

Assam urges RBI to increase agriculture credit

Guwahati, Dec 1 : Assam has urged the Reserve Bank of India (RBI) to increase the state's agriculture credit to Rs 4500 crore this year, Chief Minister Tarun Gogoi said today. During a discussion with RBI governor Dr D Subbarao here, Gogoi told reporters today that he had pressed for the credit to be raised from last year's Rs 2900 crore. The apex bank was also urged to increase the credit ratio from the present 41 per cent, he said. The RBI chief also agreed to give priority to the hotel and tourism industry in view of their potential here and employment generation prospects. During the discussions, Subbarao stressed on the importance of financial literacy among the people to know the basics of the finance, banking system, the various instruments of savings, credit and loans, he said. In view of this, the chief minister said, financial literacy would be introduced in the high school curriculum to promote entrepreneurship among the students.

IBN Live

RBI guidelines on Credit Default Swap operational from today -

...The RBI observed that the objective of introducing CDS on corporate bonds is to provide market participants a tool to transfer and manage credit risk in an effective manner through redistribution of risk......

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Equip ATMs to accept cash directly, suggests panel

A year down the line government-owned bank ATMs in urban as well as rural areas may start accepting cash (not in an envelope but directly), have solar powered back-up, and 24x7 surveillance...............

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Use of fake notes to be treated as terror act

Union home ministry proposes to include fake Indian currency notes (FICN) in the Unlawful Activities (Prevention) Act

New Delhi: Alarmed by the rising use of fake currencies, the Union home ministry has decided to treat it as an act of terrorism. Accordingly, it proposes to include FICN in the Unlawful Activities (Prevention) Act, or UAPA, which entails more stringent provisions. Not only will it attract more punitive action, bail will also be more difficult to obtain. Only terrorist organizations and people associated with them are currently covered under the Act. Fake currency is among the “biggest threats” facing the country, said R.K. Singh, Union home secretary. That’s why “we are planning to include this in UAPA”. Singh added: “FICN circulation is not done by local gangsters. The quality of (fake notes) suggest that state actors are behind it. These state actors are getting it executed through non-state actors.”

Mint

Migrants new couriers for fake notes

Bangladesh, Thailand emerging as key conduits for routing fake notes, says study by CEIB

.... “The UID-based micro-ATM model (where money can be withdrawn anywhere, anytime), once scaled, could lead to reduction of fake currency in circulation,”.... 

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RBI should allow rupee to fall – S.S.Tarapore

A policy of non-intervention when the rupee appreciates, and of intervening only when the rupee depreciates, is not sustainable, as India would run out of forex reserves.

December 1, 2011:  The nominal dollar-rupee exchange rate has been under pressure in recent weeks. India Inc has fired all cylinders, to force the authorities to stem the depreciation of the rupee. There is need to reflect on the fundamentals of exchange rate formation. A basic axiom is that if inflation in country A is higher relative to country B, country A has to depreciate its currency by the extent of the inflation rate differential. Importers root for an exchange rate appreciation while exporters advocate depreciation. The forex reserves represent the ammunition to smoothen out excessive swings in the exchange rate. In the case of India, the reserves are entirely built up by capital inflows. India is the only leading emerging market economy (EME) in Asia that has a persistent balance of payments current account deficit (CAD). Hence, the Indian forex reserves are vulnerable to the caprice of volatile capital movements.

RBI's policy shift

Until 1997, the Reserve Bank of India used the trade weighted six-country Real Effective Exchange Rate (REER) as a pole star. This was an index of the nominal exchange rate adjusted for inflation rate differentials. Since 1997, the RBI's deity continued to be the six- country REER, except that the deity was no longer on public display. The RBI progressively moved over to a hands-off exchange rate policy and the emphasis was on controlling “volatility”. For years the RBI accepted the need for the general theory of the second best wherein it tried to come as close as possible to the Impossible Trinity of an independent monetary policy, freer capital flows and a managed exchange rate. Forex reserves were built up during periods of heavy capital inflows to prevent excessive appreciation and utilised to prevent excessive depreciation of the rupee. This was the policy up to the latter part of 2008. In the more recent episode of exchange rate fluctuations, the RBI renounced its policy of buying up forex during periods of heavy capital inflows and the REER appreciated by 19 per cent by July 2011 on the basis of the six-country index. Having renounced buying while the rupee was appreciating it should have renounced selling when the rupee depreciated. Initially, the RBI held on to this very reasonable policy stance, but India Inc launched a massive campaign and the RBI was forced to stem the depreciation of the rupee. The actual extent of intervention would be known only after some time. A policy of non-intervention, when the rupee appreciates, and intervening when the rupee depreciates is not sustainable as, sooner or later, India would run out of forex reserves. The delightfully vague policy of “controlling volatility” takes away a reference point not only for the markets but, more importantly, the RBI no longer has a clear reference for turning points in its exchange rate management. Another way of assessing an appropriate exchange rate is to use the March 1993 base, when the dual exchange rates were merged and the market stabilised for a long period at $1= Rs 31.37 even though the RBI was buying forex over an extended period. Using this nominal exchange rate and a secular inflation rate differential of 5 per cent, between the US and India, the appropriate nominal exchange should be $ 1= Rs 63. Intervening at the present rate of around $ 1= Rs 52 would only dissipate the forex reserves. What the RBI needs to do is to sit back and let the rupee depreciate a little.

Importance of gold

Another important issue is the composition of the forex reserves. Countries have nowhere to hide as all reserve currencies are suspect. A multi-polar reserve currency system, advocated by a number of eminent experts, is a pipe dream. Such a system is bound to fail as it is a summation of the weaknesses of a number of reserve currencies. The international monetary system is condemned to massive instability as it stubbornly clings on to the reserve currency concept. Sooner or later, the international monetary system will have to give up the illusory reserve currency system and revert to a gold-linked international monetary order. While we continue to denigrate the gold bugs, the resurgence of gold is inevitable. Emerging market economies need to gradually increase the gold proportion in their total forex reserves. Those opposed to such a policy argue that gold prices are notoriously volatile. The critics of gold need to realise that a Chartist's approach to gold prices is inappropriate. No major central bank intends to sell gold in the ensuing period and as underground stocks of gold are rapidly dwindling, there is no way that gold prices can crash to the levels of the 1980s. Fiat currency carries with it stupendous risks. Despite all the intellectual backing for a multi-polar reserve currency system, the basic flaw of such a system cannot be wished away. Emerging market economies, including India, should not be deaf to the death knell of the reserve currency system and they would do well to gradually increase the proportion of gold in their forex reserves.

HBL

Where will the rupee be in six months?

... After an unbelievably long time, the Reserve Bank of India (RBI) has finally taken some action, and appears to be more proactive in managing this situation. Of course, the rupee is still on the ropes, since the twin pressures of a weakening euro and a still heavily short market have not gone away. I believe the RBI should be more aggressive, perhaps requiring banks to not hold long dollar positions overnight.....

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In Defense of the Rupee

... The RBI has rightly taken action against inflation this year, but it will do better if it stems the rupee depreciation. So far the central bank has only intervened in patches when the trading got too wild—by some estimates.... 

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MFIs take indirect route to tap FIIs

... The Reserve Bank of India’s Foreign Exchange Management Act (Fema) rules do not allow investments by FIIs in primary debt issuances. There is no such restriction on FII investments in listed securities, subject to overall limits allowed by the government. However, for the instruments to be listed on the exchanges, they must be first issued. This is where some institutions play a key role, of warehouses.....

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Moderating GDP may prompt RBI to halt rate hike: Analysts

Moderating economic growth and easing inflation may prompt the Reserve Bank to halt interest rate hike in the upcoming mid-quarterly credit policy review later this month, according to analysts..............

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RBI not opposed to RBS-HSBC deal

Royal Bank of Scotland (RBS) on Thursday said the Reserve Bank of India (RBI) had not rejected its proposal to sell the bank’s retail and commercial banking businesses in India to Hongkong and Shanghai Banking Corporation (HSBC). “We can confirm the Reserve Bank of India is agreeable to the transfer of our retail and commercial businesses in India to HSBC. We continue to work closely with HSBC and the regulators to complete the transfer in a manner that is in the best interest of our clients and employees,” RBS said in an e-mailed statement. The deal, announced in July, 2010, was part of RBS' plan to retreat from some of its business in foreign markets. HSBC had agreed to pay premium of up to $95 million over the tangible net asset value of the businesses, once the deal was completed. The actual price, however, would depend on the quality of assets. The transaction was scheduled to be completed by September 30. RBI, however, has not approved the deal yet. According to sources, the banking regulator was not comfortable with RBS selling its branches to HSBC, though the lender would continue its wholesale banking operations in India. Sources said the banks were re-working the structure of the deal. Currently, HSBC has 50 branches in India, the second-most among foreign banks in the country. RBS has 31 branches. HSBC has maintained the bank continues to “engage positively with the regulator” for this transaction. In an interview with Business Standard, Naina Lal Kidwai, country head for HSBC in India, said the regulatory approval was taking time due to the unprecedented nature of the deal. RBS said India would continue to remain the third-largest employment centre for the group globally. “India remains one of the top three priority markets in the Asia-Pacific region for the RBS Group...Our commitment to India remains focused. We have been, and will continue to, invest strategically in India across our ‘go forward’ businesses,” it said. 

BS

Reserve Bank Cancels the Licence of Bharat Urban Co-operative Bank Ltd., Solapur (Maharashtra)

MUMBAI: The Reserve Bank has cancelled the licence of Maharashtra-based Bharat Urban Co-operative Bank as the lender has become insolvent. "In view of the fact that Bharat Urban Co-operative Bank Ltd, Solapur (Maharashtra), had ceased to be solvent... the Reserve Bank of India delivered the order cancelling its licence to the bank as on the close of business on November 25, 2011," the apex bank said in a statement. It said efforts to revive the bank in consultation with the Maharashtra government have failed and the depositors were being inconvenienced by continued uncertainty. The Registrar of Cooperative Societies, Maharashtra, has been requested to issue an order for winding up the bank and appoint a liquidator for the bank.  "... On liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of Rs 1 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the usual terms and conditions," the statement said.

ET

Don't fret about the Rupee

... if the rupee is being depreciated for reasons unrelated to real activity in the domestic economy, there is reason to intervene. However, there is limited scope for conventional RBI intervention to prop up the rupee.....

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Nigerian nationals nabbed for cheating

Bangalore, Dec 1 (PTI) Four Nigerian nationals have been arrested here for cheating a person to the tune of over Rs 13 lakh, police said today. Momodu Prince Julius, Kofi Francis, Immanuel Ujunwa and Ibeh Ugochokwu had allegedly cheated Jayaprakash by sending him an e-mail that an Iraq Bomb Blast victim had deposited USD 22.5 million in a bank, 40 per cent of which, they said they would give to him in return of some amount, a police release said. They reportedly showed him fake death certificate, fixed deposit certificates and RBI receipts and after collecting the money vanished from the scene. Jayaprakash then lodged a complaint with police following which they were arrested on November 26. A laptop, modem and foreign currencies worth Rs 80,000 worth were seized from them. They have been remanded to judicial custody.

Moneycontrol

Bond prices soar after RBI unveils OMO plan

Government securities on Thursday shot up after the Reserve Bank of India (RBI) said it would buy back another Rs 10,000 crore worth of bonds under open market operations.....

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Inflation will come down by March 2012: RBI Governor

Inflation will come down by March on the back of strengthening agro-based economy in the country, Reserve Bank of India (RBI) Governor D Subbarao said in Dungabori on Wednesday. "Inflation will come down because the production and agriculture sectors will boost up the rural agro-based economy of the country," Subbarao said at a RBI Financial Outreach Programme here in central Assam's Morigaon district. The Indian economy is stable and will grow despite the global economic slow down, the RBI Governor said. Proper coordination of farmers' loan recovery was the only way out to strengthen the agro-based economy of the country as well as the North East region, he said. Subbarao said that by March 2012 every village with a population of over 2000 people in the country will get a bank. On the need for financial inclusion, he advised the controlling heads of banks to realise that there exists tremendous business opportunity at the bottom of the pyramid. Financial inclusion aims at providing basic services to all with access to savings or current account, loans, insurance services. The RBI Governor also urged the rural population not to be lured by the offer of high rates interest on their money by unauthorised bodies. He appealed the students, farmers and self-help groups (SHG) to work for better financial coordination and literacy in society. One of the main purposes of conducting this Financial Outreach Programme was to spread awareness of the importance of financial inclusion, and the financial services and products available in the banking sector, Subbarao said.

HT

RBI chief dwells on need for banking awareness

GUWAHATI, Nov 30: The Reserve Bank of India (RBI) has asked banks of the State to gear up for fulfilling the target of disbursing credit of Rs 4,500 crore in this fiscal for the agricultural sector. Addressing mediapersons in Morigaon on Wednesday, RBI Governor Dr D Subba Rao said that credit disbursement to the agricultural sector by banks was not satisfactory. He urged banks to coordinate with the State Bank of India (SBI) to meet the target. Regarding inflation, Dr Rao said, “At present the rate of inflation is 10 per cent but it is expected to come down to 7 per cent by the end of March next year.” Highlighting as why the rate of inflation is high, Dr Rao said: “The main reason behind the abnormal rate of inflation is rise in oil imports and rise in the prices of food products. In Assam, the rate of inflation is high due to rise in the prices of food products as compared to other States. Moreover, the essential commodities come from outside.” Harping the role of the RBI, he said, “The first and foremost role of the RBI is to print currency. No other bank of India has the right to print currency apart from the RBI. The second role of the RBI is to control inflation when inflation increases and threatens to go out of the manageable state. Generally, in such a situation the monetary policy has to be tightened, which means reducing the amount of liquidity in the economy. The third role of the RBI is to motivate people living in the villages of the country to have access to banking facilities.” Keeping in mind its responsibilities, the RBI organized an outreach programme at Dongabari village in Morigaon district to create awareness among the villagers regarding access to banking facilities. The main objectives of the programme were financial education and financial literacy. In Assam, there are 2,300-odd villages having a population of 2,000 which do not have bank branches and banking correspondents. The people have to travel long distances to open accounts in banks in neighbouring towns and cities. Appreciating the problems of villagers, the RBI Governor announced that by March next different bank branches would be opened at Dongabari. Moreover, there will be banking correspondents who will look after all matters related to loans, opening of bank accounts, repayment of loans on time and other banking facilities. Dr Rao also asked Assam Gramin Vikash Bank chairman SN Sahu to take the initiative of opening a branch of the bank at Dongabari village 1 and village 2 by Magh Bihu. Responding to the request of the RBI governor, Sahu announced that they would inaugurate a branch of the bank by Magh Bihu. Dr Rao also asked Sahu to conduct a training camp for the villagers. In the camp, training should be provided as to how to open an account and how to avail of banking facilities. The proposed branch of the Assam Gramin Vikash Bank at Dongabari will also provide its services to other neighbouring villages. Regarding fake currency, Rao said: “The problem of fake currency is more serious in border States, especially in the Northeast.” The RBI has also taken a noble initiative of publishing comic books on finance and banking. This move has been made in order to generate awareness among children who are the future citizens of the country. Stressing the need of education, Rao said: “Each and every child in villages should have access to quality education.” Emphasizing education of the girl child, he said: “If any family of a village does not send their girl child to school, then that family should not be allowed to open any account in any bank.” Reacting to the news that branches of various banks will soon start their operations at Dongabari, a villager named Ratna Mandal said, “This is good news for us as we shall now be able to open bank accounts easily. We shall also get loans for improving our agricultural production.” Other dignitaries who were present in the programme were United Bank of India chairman Bhaskar Sen, Morigaon deputy commissioner Aruna Rajaria and RBI Regional Director Surekha Marandi.

The Sentinel

RBI prefers stable foreign investment to gap CAD : H R Khan

Mumbai, Nov 30 : The Reserve Bank of India (RBI) prefers a stable foreign investment flow to gap the current account deficit (CAD), Deputy Governor H R Khan said here today. "We have capital scarcity and our current accout deficit continues. Thats why, we look forward to have stable FDI inflow. We will not like Indian economy to have too much of exposure on the debt sector," Khan said. A recent report by the Prime Minister's Economic Advisory Council had said the CAD will be around 2.7 percent of the GDP in the current fiscal. However, with the decline in exports andrising import bill, it is being feared that the deficit will widen further. Inflows through the FDI route are more stable while foreign institutional investors' money is more fickle. Citing the East Asian crisis of 1997, Khan said RBI has adopted a stance of going slow on opening the debt market for foreign investment. He pointed out that some East Asian nations were in trouble in the past due to opening up their debt market too soon. Referring to global FDI flow, he said, "Post-crisis, there was a lull in investment. It (global FDI flow) was almost stagnated USD 1.1 trillion in 2010. But, in 2011 first half, there is slight increase. But, there can be bit of issue due to happenings in the world." He, however, pointed out that despite occasional hiccups, India remains one of the most preferred investment destinations in the world. On impact of ongoing debt crisis in Europe on India, Khan said that recent developments had created major concerns across the world, which is certainly going to affect investors' apetite. "We have been certainly insulated (in the past), but we can't be totally decoupled (from the global economy). The more and more, we globally integrate, we derive the benefits and also have to pay the price of this," he said.

IBN Live

Regional Rural Banks' count will reduce to 46 as government starts consolidation

The government has kicked off a major consolidation exercise among regional rural banks, which play an intense role in the country's scheme of financial inclusion. It plans to amalgamate geographically contiguous RRBs within a state, to help optimise the use of resources.......

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HSBC acquisition of RBS assets may get RBI nod, but with riders

The Reserve Bank of India (RBI) will give conditional approval to HSBC's proposed acquisition of select assets of Royal Bank of Scotland NV (RBS). The regulator will, in all likelihood, approve a portfolio sale, but is against an automatic transfer of RBS's branch offices in India to HSBC. HSBC would have to apply for new branch licences.  In 2010, HSBC had agreed to buy the commercial and retail businesses of the erstwhile ABN Amro in India that RBS received as part of its share in a three-way split of the Dutch bank whose other business were acquired by Fortis of Belgium and Santander of Spain. "The RBI supervisory board discussed the details of the transactions and evaluated the regulatory aspects of the deal at its Jaipur meeting in October," said a source in the know of the development. An email query to the RBI went unanswered......

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Payment system issues and challenges : G.Padmanabhan

Speech by Mr.G.Padmanabhan, Executive Director of the Reserve Bank of India at the Foundation Day – Catholic Syrian Bank, Thrissur – 26 November 2011

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Banks vulnerable to prying eyes

... Accepting that several security guidelines have been issued for the banks, a senior RBI official in Jaipur said it's not possible to adopt all security features at one go. "It can only be done in phases," he said, lamenting that lack of such features, however, imperils the lives of staff and customers, and "not only money kept in banks, which is insured"......

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RBI asks banks to ensure opening of Aadhaar enabled accounts

MUMBAI: The Reserve Bank today directed banks to ensure opening of Aadhaar enabled banks accounts for beneficiaries of the Mahatma Gandhi National Rural Employment Guarantee scheme and other social security schemes for facilitating electronic transfers.  "In view of the timelines attached to the implementation of Electronic Benefit transfer (EBT) for routing MGNREGA wages and social security benefits including proposed cash transfers in respect of subsidies on Kerosene, LPG and Fertilisers, you are requested to ensure opening of Aadhaar Enabled Bank Accounts (AEBA) of all the beneficiaries...," the Reserve bank said in a circular.  It said that such an account based on the Aadhaar unique national identification number should also be opened for residents of villages with less than 2,000 population for promoting financial inclusion.

ET

Banks can be hauled up for not verifying customer signature

... This judgement should make banks realise the importance of functioning in a professional manner. Now, the customer can no longer be made a scapegoat and the bank will have to squarely shoulder the liability of its own negligence.

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Banks will have to be selective in free services: Oriental Bank chief

...Today, quite a lot of services are offered free to customers. There will be a system that will regulate the free services. Earlier, the cost of the free services was capable of being absorbed because of the low interest rate that we were paying. Now, we have to be selective in offering the services......

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Sikkim declared disaster affected state

Gangtok, Nov 30 : Sikkim has been officially declared as a 'Disaster Affected State' by the government to avail soft loans and other facilities from banks, official sources said today. It was also to source funds from international funding agencies such as the Asian Development Bank and the World Bank, the sources said. Banks and international agencies had been approached by the state government for rebuilding efforts following the large-scale damages to infrastructure during the earthquake of September 18, they said. This is a requirement stipulated as per the Reserve Bank of India guidelines. The notification was issued on November 21, the sources said.

IBN Live

State-run banks led by State Bank of India to install 40,000 ATMs

.... RBI's worries also stem from the fact that white-label ATMs do not carry the brand name of any bank, making it difficult for a customer to know whom to contact in case there is a problem with the cash-dispensing machine. A bank officer said to resolve this dilemma, there is a proposal to make the lead bank in an area responsible for the ATMs in their region......

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Start cutting bank interest rates, Assocham tells Reserve Bank of India

BANGALORE: Citing stubbornly high inflation, the rising cost of funds and crisis-hit global markets as the main factors responsible for a GDP growth slowdown in the second quarter, Assocham today said the RBI should start cutting interest rates so the cost of credit comes down. The escalating debt crisis in Europe and the shaky economic recovery in the United States are likely to hit the services sector in India, which contributes over 60 per cent of the GDP, the industry body said in a statement. The slowdown in the manufacturing sector -- a major contributor to industrial production -- is also expected to hit services in the third quarter, the Associated Chambers of Commerce and Industry of India (Assocham) said. "The RBI should start cutting bank interest rates so that the cost of credit comes down. Due to near double-digit inflation, the cost of raw materials has shot up, resulting in a slowdown in factories output," said Assocham Secretary General D S Rawat. Unless there is a recovery in the euro zone and the United States, the Indian economy will continue to be impacted, Assocham said.

ET

Pressure mounts on RBI to cut CRR

The Reserve Bank of India, buffeted by stubbornly high inflation and tightening liquidity, is under increasing pressure to cut the cash reserve ratio - the portion of deposits that banks keep in cash with the central bank - to ease the strain in money markets. The central bank, committed to an anti-inflationary stance, may find it justifiable to release as much as Rs 60,000 crore into the system through a 1 percentage point CRR cut, rather than reducing policy rates that will signal a shift in stance when inflation is still above target, say economists.  Many countries such as Australia and Thailand have cut rates to bolster growth as the EU debt crisis threatens growth, but India may not be able to match up since prices are not easing despite 13 rate hikes. China on Wednesday cut banks' reserve requirements by 50 basis points. A basis point is 0.01 percentage point.  With September quarter economic growth slumping to 6.9% from 7.7% the quarter before, a CRR cut could be the answer to increasing calls by corporates to ease monetary conditions, without compromising on inflation. Banks keep 6% of deposits in cash without earning interest. The last cut was in January 2009. "There is a perfect case for a CRR cut at this point," says Abheek Barua, chief economist, HDFC Bank. "The deficit is twice as much as what the RBI is comfortable with. And it is likely that additional pressure on liquidity will continue to build up, if the RBI has to intervene in the forex markets."  The RBI's policy stance is that it is comfortable with banks borrowing up to 1% of their net demand and time liabilities, i.e. about Rs 60,000 crore, from it rather than depositing funds with it due to excess liquidity. Now banks are borrowing nearly double that.  To ease liquidity, the central bank is already buying government bonds from investors releasing cash into the system. Banks are borrowing an average of Rs 1.2 lakh crore from the RBI, which could go up as approaching advance tax payments will add to the pressure.

CRR cut may not materialise soon

The central bank's sale of US dollars to arrest the accelerated slide in the rupee is also reducing liquidity. Most bond auctions this quarter have devolved on primary dealers with investors seeking higher yield.  Governor Duvvuri Subbarao has signalled at pausing interest rate increases if inflation shows signs of cooling. But he has ruled out rate cuts even if it reaches the 7% target till there is evidence of inflationary expectations easing.

ET

India’s consumer story is fading rapidly. Why won’t the govt listen?

...A worsening economy also means Reserve Bank of India Governor D Subbarao is unlikely to opt for another rate hike at the next policy meeting in December, even though doubts persist about whether inflation will really cool off by then.......

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Improve credit delivery in rural areas: RBI to pvt banks

At a time when the government and regulators are emphasizing inclusion and increase in credit delivery to those without access to formal sources of finance, private sector banks are found to have low credit-deposit ratios in rural areas as compared to public sector counterparts. In a recent interaction at the state-level bankers committee (SLBC) meeting, in which Reserve Bank of India governor D Subbarao was present, bankers brought this to the regulator’s notice. According to bank executives present, RBI asked private sector banks to boost credit expansion in rural areas. The credit-deposit (C/D) ratio indicates the amount banks extend as loans for every Rs 100 of deposit. According to RBI data, the ratio in private sector banks was 42 per cent at the end of March 2011 in rural areas, a marginal improvement from December. For government-owned banks (State Bank of India excluded), it was 60 per cent. Countrywide, banks had a C/D ratio of 75 per cent for 2010-11. “RBI has said it is imperative to have a C/D ratio of at least 50 per cent in rural areas,” said a senior official from a public sector bank who attended the SLBC meeting. Public sector banks have accused their private counterparts of using branch presence in rural areas to collect low-cost deposits, and use those resources for credit expansion in urban areas. According to RBI data, private lenders have around 1,300 branches and offices in rural areas, while for nationalised banks (meaning, government banks, excluding SBI), the figure is 14,000. Private sector banks admit lending is relatively low in rural areas but say this is due to lack of credible borrowers. "Yes, lending is relatively low in rural and semi-urban branches. These mostly lend to SME (small and medium enterprises) and farm sectors. But in rural centres, most companies do not present their accounts in an organised manner. The figures are not properly audited and, hence, it is difficult to lend to these firms,” said an Axis Bank official who wished not to be named. Private sector lenders involved in vehicle finance in rural areas said they don’t face the problem of a lower C/D ratio. “We don't have this problem in our rural branches. Our model is different from other private banks. We do truck financing, which mostly happens in rural centres. But the accounts are maintained at the nearest hub branches, which may be a rural branch or a semi-urban branch,” said Sumant Kathpalia, head of consumer banking at IndusInd Bank.

BS

Nose-diving economy

... Faced with a 17 per cent depreciation of the rupee in six weeks, the Reserve Bank governor D Subbarao, sought to allay panic by asserting that ‘India’s growth story is still credible’. If its growth had slackened, he said, it was only because of the global financial crisis. His explanation is less than credible......

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Maunam Mohanam

....In 1983, as RBI Governor, he allowed the Bank of Commerce and Credit International, which was owned by a Pakistani and which went bust in 1990, to be given a banking licence — after the RBI had resisted it for seven years......

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Win some, lose some

....Thanks to the Reserve Bank of India’s (RBI) punishing rate increases and its credit squeeze in the face of a primarily supply side inflation, growth has come down. It can hardly revive without a fiscal kick, since investments have nearly collapsed.Will the move hurt Indian business? The move is less important than the central bank’s monetary conservatism over the last decade.......

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Will RBI push the pause button on rate cuts now?

..“The RBI may choose to maintain status quo for the time being, it would start reducing rates only once inflation starts to ease, which is likely to happen in the next couple of months,” DK Joshi, chief economist CRISIL told ....

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Indicus Analytics: Off the Bharat track

.... Financial inclusion has been a priority in recent years. To achieve this goal, the Reserve Bank of India has put in place many measures to push for the delivery of financial services to the unbanked. With a mere five per cent of India’s 600,000 villages having bank branches, the financial inclusion plan (FIP) has first taken up provision of banking services.....

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Getting reliable and recent data is a key challenge, says Chawla

.....RBI does not have the wherewithal to take up competition issues and it is the legitimate domain of CCI,.....

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Catholic Syrian Bank adopts 91 Eco Clubs

Kochi, Nov. 29: On the occasion of the 91st foundation day of the Catholic Syrian Bank, Mr G. Padmanabhan, Executive Director, Reserve Bank of India, inaugurated the adoption of 91 Eco Clubs by the bank at schools and colleges. The bank will associate with the adopted Eco Clubs in different schools and college campuses to create awareness among students and public about the need to conserve environment, reduce CFC emissions and use of plastics, and undertake social forestry and other related activities that inculcate in students a sense of social and environmental awareness. As part of the CSR activities, the bank distributed free solar study lamps to financially challenged students. Delivering a lecture on the occasion on the bank's recent development in payment and settlement systems, Mr Padmanabhan requested banks to leverage the technology platform to ensure a reliable, economic and efficient payment system to the common public. He cautioned the public against various online fraud attempts like e-mails that promise huge returns. For protecting their interests, customers while using various technology-based products like ATMs, Internet banking and mobile banking, should take the necessary precautions specified by banks. He also appreciated Catholic Syrian Bank for the various CSR activities undertaken.  Mr V. P. Iswardas, Managing Director and CEO, CSB, delivered the welcome address and Mr T. S. Anatharam, Director, CSB, proposed the vote of thanks. Mr V. P. Nandakumar, President, Trichur Management Association, felicitated.

HBL 

Karnataka Chief Secretary wants banks' panel to be more effective



Satisfactory performance :

(From left) Mr S.V. Ranganath, Chief Secretary, Government of Karnataka, Mr Basanth Seth, Chairman, SLBC and CMD, Syndicate Bank; and Ms Uma Shankar, Regional Director, RBI, at the State Level Bankers’ Committee meeting at Vidhanasoudha in Bangalore on Tuesday



Bangalore, Nov. 29:  The Karnataka Chief Secretary, Mr S.V. Ranganath, has called for strengthening the State-Level Bankers' Committee (SLBC) to be more effective in delivering services to both the Government and the public. Addressing the SLBC meet, Mr Ranganath said, “SLBC should regularly monitor various sub-committees and report the out comes to the Chief Secretary or Development Commissioner.” “When this reporting is done to the Chief Secretary or Development Commissioner on a regular basis, automatically attendance in all sub-committees will improve and the outcome is better,” he added. The SLBC should be more active and it is the duty of the convenor to report non-performance of sub-committees for effective monitoring before the quarter meetings.  The main reason for strengthening SLBC is due to steep fall in vital parameters such as CD ratio, lending to agriculture sector and to Scheduled Castes/Scheduled Tribes in the State. “When States like Tamil Nadu and Andhra Pradesh have achieved 100 per cent in CD ratio, then why the State lagging behind is and the main reason is lack of monitoring by respective sub-committee,” he pointed out. Mr Basant Seth, Chairman and Managing Director, Syndicate Bank and Chairman- SLBC, in his address said the progress made under FI is in tune with the SLBC for the current fiscal, ie, FI and credit flow to agriculture, a focused attention needs to be given to these two areas and the set goal need to be achieved positively. As of October, banking services have been provided to 2,639 villages out of 3,395 unbanked villages identified, in the population group of over 2,000, thereby, accounting for 78 per cent achievement. “The performance by and large has been satisfactory. However, there is a need to hasten the pace so that the remaining 756 villages are covered by March 2012,” he added. He also said that five regional rural banks (RRBs) are yet to cover 330 villages out of uncovered villages and reiterated the sponsor banks to handhold them to accomplish the task. While reviewing the performance of banks in the State as on September 2011, Mr Seth informed that the aggregate deposits stood at Rs 3,58,474 crore while aggregate advances was Rs 2,66,315 crore with a credit deposit Ratio of 74.29 per cent.  The advances to priority sector stood at Rs 1,12,346 crore, constituting 42.19 per cent of credit, surpassing the RBI stipulation of 40 per cent.  Similarly, the advance to agriculture sector was Rs 49,233 crore comprising 18.49 per cent of the total credit, which is above the stipulated level of 18 per cent. Advances to the MSME sector stood at Rs 43,945 crore. More than five lakh new farmers have been assisted by lending to the tune of Rs 3,781 crore. Under secondary and tertiary sectors, disbursement was to the tune of Rs 5,283 crore and Rs 6,619 crore respectively.

HBL

Maharashtra tops fake note haul with 85% of total seizure

... Government on Tuesday informed the Lok Sabha that the Reserve Bank of India (RBI) and state police had recovered fake Indian currency notes (FICN) worth over Rs 81 crore in Maharashtra out of total Rs 96 crore till October.....

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For 6 yrs, govt dragging its feet on law to protect depositors

. Not only gold, but dubious schemes including investments in sheep and land had also been rolled out by companies. To curb such activities, the Reserve Bank of India Act was amended and DNBS was created.  The department was entrusted with the responsibility of conducting meetings with state governments and authorities and urging them to bring an act in their respective states.....

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Customer service at banks—a step forward -

..there is a need to standardise certain critical systems and procedures to ensure a paradigm shift in the way in which banks function today by harnessing technology to the maximum extent and the BCSBI can play a pivotal role in achieving this objective...........

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Highly professional VITALINFO..........

Waiting for VITALINFO.......November 2012, 2013...........

HC stays CIC's order asking RBI to give information about bank

New Delhi: The Delhi High Court on Tuesday stayed an order of Central Information Commission (CIC) asking RBI to provide copies of its inspection reports about a bank to an information seeker under the transparency law. Justice Vipin Sanghi also issued a notice to information seeker Jayantilal Mistry and stayed the operation of CIC's order asking Reserve Bank of India to reveal inspection reports of Makarpura Industrial Estate Cooperative Bank Ltd under the Right to Information Act. The court's order came on a plea of RBI filed against the direction of CIC saying a single bench of the transparency panel cannot disregard the order passed by its full bench. Senior advocate T R Andhyarujina, appearing for RBI, said the CIC order was passed "erroneously" since it was against the decision of its own full bench which had held that RBI was entitled to seek exemption from disclosure of inspection reports under the RTI if it was satisfied that such revelation would adversely affect the economic interests of the nation. He said, "If the wisdom of (Information) Commissioner finds the finding of the full bench was wrong, he should have referred the matter to the full bench." Seeking setting aside of the order, he said the CIC's order has widespread ramifications for the banking system and that it was also against the interests of cooperative bank concerned. He submitted the disclosure of inspection reports of RBI as part of its statutory duty would lessen faith of public in the banks and the banking system. Mistry had sought copies of inspection reports of last 20 years of the co-operative bank. The information seeker had also sought the names of persons who had inspected the records and details of action, if any, taken against it. Justice Sanghi, however, questioned RBI's counsel asto "why should the citizen not know that whether a bank they are banking with was in a healthy or unhealthy (state)." Andhyarujina responded by saying it was considered by the full bench of CIC while holding that RBI could claim exemption from disclosure of inspection reports. The information sought by Mistry was denied by the CPIO. However, a single bench of the commission had directed RBI to provide the information sought by the applicant by November 30. The Indian Banks Association had also sought to be heard in the matter, but was asked by the court to file its response. The court listed the matter for further hearing on February 13. 

Zee News

Through thick and thin

The report on Annual Financial Inspection (AFI) – the karwa sach (bitter truth) note on banks prepared by the Reserve Bank of India – is slimmer by 70 to 75 pages from the previous 100-odd. Here are some reasons, according to a central banker:

* If an AFI report is 100 pages, the bank concerned should not survive.

* In any case, no bank chief takes it seriously and rarely reads it fully, so it is better to save costs by printing fewer pages.

The buzz is that bankers are no longer taking the slimmed-down 25 to 30 page report as casually as they did its thicker predecessor.

BS

Is RBI to blame for microfinance industry’s woes?

...A lack of regulation has only exacerbated the other problems of the $5.3 billion industry, which was once touted as a savior of the “poorest of the poor”.....

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RBI often takes recourse to open mouth operations

.... Central bankers across the globe are renowned for their gobbledegook. So is the RBI. But what made Gokarn tell the world in clear terms that India is on a weak wicket? Was that a deliberate attempt to push down the overvalued Indian rupee, in terms of the real effective exchange rates? Or is it a way to curb demand, where the depreciating rupee makes imports expensive. This is the flip side of the argument.

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Sporadic measures

This refers to the report “Finmin diktat sets stiff targets for PSU banks” (November 28). As an owner, the government’s anxiety to ensure that public sector banks (PSBs) meet its expectations with regard to performance is understandable. But setting up almost uniform levels for achievement under several parameters in which different banks have varying competencies may not bring the desired result. Forcing memorandums of understanding (MoUs) will add pressure on the top management. It may also encourage unethical practices, if one would agree that financial products are different from other consumer products and marketing in the financial sector cannot be compared with buying and selling consumer articles. The finance ministry, at this late stage, should think in terms of (a) encouraging individual banks to do business in areas in which they are better equipped and have a competitive advantage in terms of outreach; (b) redefining the role of various categories of banks considering their background, skills and capabilities; (c) and involving the regulator, the Reserve Bank of India, for conveying the government’s expectations, so that multiplicity of guidance is avoided. Sporadic efforts like the present one will only destabilise the financial sector.

M G Warrier, Mumbai (BS)

Finance Ministry wants to cut banks' IT spend

........With regards to standardisation of IT requirements, bankers said this could make it easier for the banking regulator Reserve Bank of India to supervise banks since they will be able to pull the data from banks' server and also receive it in a common format......

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A crisis is a time to take stock

Moving beyond desperate liberalization, authorities could engage in somber introspection at this inflexion point.....

-    Renu Kohli (New Delhi based macroeconomist and former staff member of the International Monetary Fund and the Reserve Bank of India)

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Banks can now open branches in Tier 2 cities without RBI nod

Mumbai: Reserve Bank Tuesday relaxed branch authorisation policy, allowing banks to open administrative office or service branch in cities with population of over 50,000 but less than 1 lakh without its approval. "Now that general permission to banks has been extended for opening of branches in Tier 2 centres, domestic scheduled commercial banks (other than RRBs) will be allowed to open administrative offices and central processing centres (CPCs) or service branches in Tier 2 centre (with population 50,000 to 99,999 as per Census 2001)," the RBI said in a notification. Thus, a bank can open such offices in the Tier II cities without permission from the central bank. The decision was taken as it was observed that branch expansion in Tier 2 centres has not taken place at the desired pace, it said. As per the existing regulation, such relaxation is already available to banks in case they want to expand their presence in Tier 3-6 cities.

Zee News

Cooperative banks in the city safe, now

NAGPUR: Depositors in urban cooperative banks (UCBs) in city may rest assured of the safety of their money - at least for now. After prolonged financial crisis resulted in three cooperative banks in city being shut down causing huge loss to depositors, Reserve Bank of India (RBI) has declared finally there is no cooperative in the city having a negative networth. This means no bank faces a fate similar to Nagpur Mahila, Samata Sahakari and Parmatma Ek Sevak, which have been de-licensed and facing RBI embargo on withdrawals for more than three years. Moreover, this situation is not because the weak banks have been wiped out. It is because banks have over time shown consistent improvement in financial parameters, said a source in apex bank. Negative networth means the banks' losses are more than its owned funds that include share capital and profit reserves. The situation has improved in banks within Nagpur RBI office jurisdiction that covers Vidarbha and Marathwada. There were 22 banks with negative networth in March 2009. The number was halved by March 2011. It came down to eight in October 2011. A couple more are likely to come out of the red soon, said a source. None of the eight banks still in the red is from Nagpur.

TOI

Saraswat Co-op ups savings bank rate to 6%

Urban co-operative banks could be spurred into action as the country's largest co-operative bank, the Saraswat Co-operative Bank, has taken the lead in announcing a hike in savings bank deposit rate from 4 per cent to 6 per cent. The effective annualised interest rate for Saraswat Bank's SB depositors will work out to 6.14 per cent as interest will be credited at quarterly intervals. Irrespective of the deposit amount, the UCB will pay 6 per cent interest on all SB deposits with effect from December 1. The bank may revise the interest rate on SB deposits once in six months. The increase in interest rate on SB deposits by the co-operative bank comes in the wake of Reserve Bank of India's notification (on November 25) allowing UCBs the freedom to set the interest rate on SB deposits. On October 25, the central bank had deregulated savings bank deposit interest rate for all commercial banks.  “In the current rising inflation rate environment, bank depositors are getting a raw deal. Hence, we decided to increase the interest rate on SB deposits. Our intention is not to wean away customers from other banks but to give a better deal to our existing customers,” said Mr Eknath K. Thakur, Chairman, Saraswat Co-operative Bank. According to Dr Vinayak Y. Tarale, Secretary, Maharashtra State Co-operative Banks' Association, following the increase in SB deposit rate by Saraswat Bank, other urban co-operative banks may not have much choice but to follow suit.

HBL 

Savings account freedom fails to excite most banks

In a month since the Reserve Bank of India (RBI) freed the interest rates on savings bank account, only a few small banks have been able to take advantage of the policy change. Most of the big banks have remained uneffected..........

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Govt launches 10-year NSC; to give 8.7 pc interest

...The decision to raise the maturity period of NSC has been taken on the basis of the recommendations of the Committee for Comprehensive Review of National Small Savings Fund (NSSF), headed by Shyamala Gopinath, the then Deputy Governor of Reserve Bank of India....

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Now, electronic transfer of grants and subsidies

........The implementation of the project was discussed by the Collector at a meeting on Thursday in which Reserve Bank of India (RBI) Assistant General Manager A.J. George, Lead District Manager KN. Subramanian and other senior officials took part.

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Experts see reversal of RBI rate-hike spree

...“If we do see inflation rates coming off as we expect, we could be looking at the peaking of the cycle,” said RBI deputy governor Subir Gokarn last fortnight, referring to the monetary authority’s policy outlook. “Let me emphasise it’s a guidance, not a commitment. There are many risks to that scenario.”.....

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RBI helped rein in inflation: FM

The Centre, on Tuesday, said it has pursued prudent fiscal measures to boost slowing Indian economy, but strongly defended Reserve Bank of India’s monetary stance to tame inflation, saying price rise would have been much higher if the rate hikes were not resorted to. The unfolding euro zone crisis and slowdown in US could be one of the reasons for India’s growth slowing, but economic fundamentals are strong…The government is keeping a close watch on the situation,” Finance Minister Pranab Mukherjee told the Rajya Sabha in a written reply.India’s overall economic growth slowed to 7.7 per cent in the April-June quarter against 8.8 per cent in the same quarter last year. Economic experts have blamed persistent inflation, repeated monetary tightening, together with deceleration in of industrial production as the factors responsible for slower growth in the first quarter. They said the global economic environment, particularly the lingering euro zone crisis, has added uncertainties.The government, however, said that it was the monetary action by the RBI, which has have helped contain inflation and anchor inflationary expectations, although both remain at an elevated level. “In the absence of increase in Repo Rate by RBI, inflation would have been much higher and credit growth would have expanded much faster, thereby fuelling inflation,” Minister of State for Finance Namo Narain Meena said. The government’s defence for RBI has come at a time when the Central bank has almost been isolated in its fight against inflation, which hovered precariously close to 10 per cent, one of the highest among major economies in the world.  The RBI, which has raised key short term rates as many as 13 times in the past two years, has been facing stiff opposition from many quarters for its hawkish stance. The India Inc. has criticized the rate hike saying it is unlikely to tame rising inflation and could instead lead to further slowdown in investments and industrial growth. Some of the policymakers too have expressed their reservation towards further tightening of rates when the economy is facing global headwinds. 

DH

Tight liquidity limits RBI role in forex market

Market talk suggests that the Reserve Bank of India stepped into the foreign currency market on Monday to check a steep fall of the Indian currency, but it could not prevent it from closing at an all-time low. Executives manning some of the largest treasury operations in India said RBI has been intervening in the currency markets for the last few weeks, something it had refrained from doing for nearly a year when the rupee hovered in the 44-45 range to the greenback. Just like during the height of the global financial crisis in September-October 2008, RBI Governor D.Subbarao has limited ability to dictate how the rupee moves this time too. Whenever RBI asks banks to step in on its behalf, the public sector players supply more dollars into the market, hoping that they would stem a decline. During this exercise, they also buy rupees from the market and end up reducing the supply of the Indian currency. So, with less cash available in the system, there is every possibility that interest rates, even if it is in the short-run, rise. Given that liquidity is tight with banks borrowing over Rs 1.27 lakh crore through RBI's overnight lending window, the central bank would not like to drain more cash from the system. While RBI remained silent on Monday, the government acknowledged that the authorities had limited ability to intervene and stem the rupee's slide. "The rupee cannot slide beyond a point. Ability to intervene (in the forex market) is also limited," economic affairs secretary R Gopalan told reporters.

TOI

RBI to conduct another OMO of R10,000 cr to ease liquidity

...The OMO announcement came after the market trading hours. “Consistent with the stance of the monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank of India has decided to conduct open market operations, ” the central bank said in a statement on Tuesday.....

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Use mobile telephony to expand banking in rural areas: Rangarajan

Dr C. Rangarajan, Chairman, Prime Minister’s Economic Advisory Council, flanked by Mr Anand Sinha (right), Deputy Governor, RBI, and Mr S. Sambamurthy, Director, Institute for Development and Research in Banking Technology, at the IDRBT Foundation Day in Hyderabad on Monday

Hyderabad, Nov. 28:  Banks should piggyback on the mobile telephony platform to provide banking services to rural households, said Dr C. Rangarajan, Chairman, Prime Minister's Economic Advisory Council. Delivering the Foundation Day lecture on role of technology in development of banking at the Institute for Development and Research in Banking Technology (IDRBT) here on Monday, he said over 700 million mobile connections could be used for authentication and conducting banking transactions. Mobile banking has huge potential and the stakeholders need to collaborate much more proactively for common benefit. Saying that technology provides the scope for affordable financial inclusion, Dr Rangarajan said: “The best way offered for inclusive banking would be through the twin-routes of mobile banking and the banking correspondent model.” The technology should also be harnessed to increase electronic transactions as against paper-based clearing. Banks should develop in-house IT skills and broaden the IT management to achieve consolidation and minimise costs, he said. To ensure continuity of services and safety of data in times of unexpected crises, banks should put an adequate business continuity plan for technology-related matters, Dr Rangarajan said. Mr Anand Sinha, Deputy Governor, Reserve Bank of India, and Chairman of IDRBT, said the institute was focussing on applied research and use of analytics and customer-relationship management in banking.  “IDRBT can function as a centre of excellence in developing cost-effective technology for banking and look for collaborative research projects,” Mr. Sinha said. The emerging technology such as cloud computing could be used by a group of smaller banks to reduce costs, he said. Mr B. Sambamurthy, Director of the Institute, said collaborative research with reputed institutes such as University of Hyderabad was one of the focus areas. IDRBT, which is celebrating its 15th anniversary, had developed many technology- based applications for banks, including the national financial switch, structured financial messaging system for communication between banks.

HBL