RBI amends fiat on IRFs on G-Secs

The Reserve Bank of India (RBI) on Friday amended its directions on Interest Rate Futures (IRFs) on Government Securities (G-Secs) permitting two-year and five-year IRFs, with immediate effect. “The two-year and five-year IRF contracts would be on two-year and five-year notional coupon bearing Government of India security, respectively. These would be cash-settled at expiry by the stock exchanges offering the contracts,” said the RBI. The final settlement price of the two-year and five-year IRF contracts would be based on the yields of the basket of securities (as specified by respective stock exchanges) and disseminated by Fixed Income Money Market and Derivatives Association of India (FIMMDA) for the limited purpose of settlement of IRF contracts, as per the guidelines issued by the Reserve Bank from time to time.

HBL

External sector outlook turns amber

Data released by the Reserve Bank of India (RBI) has revealed the extent of deterioration in the country’s external sector outlook. India’s current account deficit (CAD), an aggregation of the trade deficit and net invisibles, increased in the quarter ended September to 3.7% of gross domestic product (GDP) from 3.1% in the first quarter............

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Bank on the rate cycle to get better deal on loans, savings

....Most bankers said interest rates would soften by the end of the fourth quarter as food inflation is coming down, the Reserve Bank of India (RBI) may revise rates to support growth. On their part, banks have to bring down cost of deposit before they bring down lending rates.......

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The RBI flashes caution – S.S.Tarapore

While the RBI's Financial Stability Report is sure that the financial sector is sound and resilient, there is a need to be vigilant about asset quality and exuberant credit growth in select sectors

Over the years, the Reserve Bank of India (RBI) reports show progressive improvement both in presentation and content. Opinion-makers take these comprehensive reports for granted and often pay scant attention to the central message. While comparisons are odious, the Financial Stability Report, Issue No. 4 (December 2011) is an outstanding piece of work and policymakers, market participants, opinion makers and analysts should all give careful attention to this report. At the outset, the report warns that Emerging Market Economies (EMEs), like ours, face the risk of sudden capital outflows and or a rise in funding costs, both of which could jeopardise the stability of the domestic economy. This contrasts with the experience in 2008, when policymakers assured that India was different and immune to the headwinds from the global economy. Mercifully, the decoupling theory no longer carries any credibility.

Risks to stability

The RBI has instituted a Systemic Risk Survey, wherein it is recognised that growth in 2011-12 would moderate, while inflation and inflation expectations remain elevated. While the report reassures that the Indian financial sector is sound and resilient, there is a need to be vigilant about asset quality and exuberant credit growth in select sectors. It is reassuring that the RBI is working on a forward-looking provisioning framework. In the Systemic Risk Survey, the assessment is supplemented through wider consultation. The RBI has constructed a Financial Stability Map based on macro-stability, financial market stability and banking stability, which clearly shows that there is a progressive increase in risks to financial stability of the Indian economy. The report expresses concern about the widening balance of payments, current account deficit (CAD) as a result of increased imports and moderation of exports. On the fiscal front, slowdown in revenues and increased subsidy expenditures could result in the fiscal deficit exceeding the target. There has been considerable discontent in the recent period that the Indian rupee has depreciated, in nominal terms, by much more than other Asian EMEs. The report does well to explain that countries such as India, which have a large CAD, have experienced a larger currency depreciation than those with a current account surplus. The report cautions that the corporate sector will have to refinance its external commercial borrowing (ECB) at significantly higher interest rates. Hitherto, India Inc. used the soft option of financing itself at low interest rates on ECB and many have opted to keep open exchange positions. A basic tenet is that a corporate should never keep an open position. If a corporate opts to make money on the swings, it should also be prepared to lose on the roundabouts.

Flaw in thinking

In recent years, a dangerous proposition has been doing the rounds, that is, that currency appreciation is disinflationary and that currency depreciation is inflationary. This flaw in thinking has become fashionable in respected circles. The RBI has also embraced this false analysis When, in the recent period, the rupee exchange rate was appreciating against fundamentals, the RBI followed a policy of “non-intervention”. As a result, when the turn in the cycle took place, the rupee depreciated by much more than what it would have, had the RBI undertaken purchases in the forex market to stem the appreciation.  Given the avowed policy of the RBI to avoid volatility, it was incumbent on it to prevent undue appreciation. Basic international monetary theory teaches us that depreciation of the currency, by absorbing more domestic currency per unit of foreign exchange, is disinflationary and, per contra, an appreciation is inflationary (subject to the Marshall-Lerner Condition of the combined supply and demand elasticity being greater than unity). One cannot fault the Report for merely following the new gospel truth. The new thesis suited the industrial countries which were preaching to the EMEs. But surely, EMEs with large CADs should not have accepted the reversal of the Law of Gravity. The report cautions that funding constraints in global markets could impact the availability and cost of funding for banks and corporates.

Banks resilient, but..

The report indicates that slippages in asset quality of banks exceeded credit growth. Notwithstanding this, the report emphasises that Indian banks have fared better than in other countries. The report concludes that that the loss of assets in an extreme loss scenario would still leave Indian banks resilient. A word of caution is necessary here. When a banking system experiences a break down, all earlier stress tests become irrelevant and firewalls protecting the banking system melt away. In the euphoria of the general perception that Indian banks are the soundest in the world, it is necessary to caution that in the current milieu, banks, the government, borrowers and the RBI are all not prepared to be the harbinger of a possible banking crisis, lest the messenger be shot. The report concludes that the Indian financial system remains robust and well-equipped to face the headwinds of instability; however, one can never be too cautious.

HBL

Return of the white label ATM buzz

White label automated teller machines (ATMs) are back in banking industry debates. Big banks, still smarting from the central bank’s rejection of their proposal for white label ATMs in 2006, are believed to be making a fresh effort to build opinion in favour of them. What’s more, a key advisory committee of India’s finance ministry, chaired by DK Mittal, has recently proposed that the white label ATM model be approved. The committee has also proposed that charges be levied on all ATM transactions, irrespective of the type of ATM. Typically, a white label ATM is owned, run and maintained by a third-party service provider. In a sense, banks outsource the ATM part of their operations to third parties. Customers from any bank can withdraw money from a white label ATM, but will need to pay a fee for the service. What determines the fee is the ATM’s location, but not in the geographical sense. Rather, if there are more customers from a particular bank near an ATM, fee for them will be lower, compared to other customers. Banks love white label ATMs for a reason: the machines are said to reduce per-transaction cost and even help in reducing overall costs. “Managing a payment channel like ATMs is a big problem for banks. If a third party is ready to manage the operations entirely, then it reduces the capital expenditure for banks considerably,” says B A Prabhakar, chairman and managing director, Andhra Bank. The Reserve Bank of India, he says, needs to come out with clear norms for cash deposits and customer grievances in relation to ATMs. Some bankers, however, believe that ATMs boost a bank’s brand-equity and visibility. “It is very easy for larger banks to feel that these ATMs will help in reducing costs. But we need to realise that an ATM is an intangible asset which not only brings in transactions but helps in branding. It is important for the customer to be able to recognise the brand, and that will not be possible in the white label system,” says a senior official from a new-generation private sector bank. There are other concerns as well. For instance, the RBI is not very happy with the lack of clarity on who will address the customer’s grievances in the proposed new system. The central bank believes that the Indian market is not yet ready to adopt a white label model. Some bankers, too, are wary about the instances of counterfeit currency entering the system.For, internationally, retailers that own white label ATMs, and not banks, load cash into the machines. Such risks are minimised in the existing brown system, according to Stanley Johnson, executive vice-president, AGS Transact Technologies (a “third party” in the ATM context). In the brown system, most of the ATM-related operations are still outsourced. But banks are responsible for three important features: cash in the machine, customer grievances and branding at the ATM site. (AGS Transact is an automated dispensing services provider for the banking industry dealing with ATMs and banking transaction terminals.) Such responsibilities placed on banks seem to be helping the brown system to grow. As at March 2011, the total number of ATMs in India stood at 74,743, up 24% year-on-year. The number is projected to grow to over 92,000, according to a report on the bank cards industry by Atos Worldline. (The study is limited to the ATMs of commercial banks and excludes ATMS of co-operative banks.) Data charts alongside capture the essence of the story. It is important to note that the State Bank of India continues to top the list of banks with ATM networks. SBI boasts the highest number (21,625) of ATMs in India. Its associate banks have 5,066 ATMs. Together, the SBI Group is way ahead of other banks. Lately, there has been a buzz that public sector banks will announce a common tender for close to 40,000 ATMs across India. Talk is these banks will likely request the RBI to turn them into white-label ATMs. Public sector banks, however, deny any such plan and state that all these proposed ATMs will be owned by them. But such denials are not strong enough to scotch talk the white label ATMs will dot the Indian landscape sooner than later.

DNA

An idea yet to take off

Ever since the Reserve Bank of India (RBI) first released associated guidelines in 2008, mobile banking has been touted as the future of broad-based financial services in India. It was an elegant solution that married one of the country’s achievements—booming mobile phone penetration—with one of its major shortcomings—a vast financial hinterland of consumers without access to banking services, popularly known as the“financially excluded”. It is widely believed that there are at least 800 million mobile phone users in India, and around 450 million “unbanked”. But so far mobile banking continues to thrive largely in the realm of possibility. The buzz, pilot projects, research reports and numerous joint venture announcements have so far done little to extend financial services to those who desire financial inclusion. Earlier this week RBI announced that it was removing the cap of Rs50,000 per customer per day for mobile transactions. Banks are now free to limit mobile banking bandwidth to customers based on their own assessments of risk. Once again while this might seem like a step forward, it is clearly not targeted at those who remain outside the current banking system by virtue of distance or net worth. While RBI says that 9.6 million transactions were made through mobile banking last year, other reports indicate that offtake is still very slow. (RBI numbers, which indicate an average transaction value of around Rs800, may include hundreds of thousands of mobile phone recharges.) There are several hurdles to widespread mobile banking usage in India. Besides issues of security, there are also issues with platform and standardization. Many of these could be solved if banks collaborate more closely with technology providers. But RBI continues to be wary of allowing telcos dabble in banking. A joint venture between the State Bank of India​ and Airtel fell through this week after RBI felt this was a back-door entry into banking without licences. The banks can’t roll out technology. The telcos can’t roll out banks. Who will roll out mobile banking?

Mint

Chief executives named for two public sector banks

New Delhi: The Centre has appointed Mr D Sarkar, Executive Director at Allahabad Bank, as the next Chairman and Managing Director of Union Bank Of India.  He is expected to assume charge in April. Mr Sarkar will replace Mr M.V.Nair, incumbent CMD, who is due to superannuate in end March.  The Government has also appointed Mr S.L. Bansal, Executive Director of United Bank of India as Chairman and Managing Director of Oriental Bank of Commerce (OBC). He will take over on March 1 next year and replace Mr Nagesh Pydah, who is due to superannuate in end February. The Finance Ministry has also elevated Mr B. Raj Kumar, General Manager at Andhra Bank, as Executive Director of Indian Bank. He will assume charge of his new role on January 1. Mr Kumar will replace Mr V. Rama Gopal, an incumbent executive director, who is due to superannuate on December 31. The Department of Financial Services in the Finance Ministry has also appointed Mr M.S. Raghavan, General Manager at Indian Overseas Bank, as Executive Director at Bank of India. He will assume charge of his new role on January 1. Both Mr Kumar and Mr Raghavan have been placed at the disposal of Indian Bank and Bank of India respectively as General Manager on attachment basis with immediate effect. Meanwhile, Mr K.K.Mishra, who was General Manager at Canara Bank, has joined as Executive Director of Andhra Bank at Bangalore today.

HBL

Perils of the banking system

The timing of your edit analysing the banking sector’s negative indicators is significant since it comes soon after the Reserve Bank of India’s reassuring Financial Stability Report 2011 (“Fearing financial feedback,” December 28). The regulator’s optimism stems from the robust numbers generated by banks over the last four quarters. But banks have been resorting to window dressing to cover their operations despite RBI’s repeated calls to stop such practices. Three sectors – real estate, infrastructure and power – contribute to 85 per cent of the total non-performing assets (NPAs). RBI has agreed to the restructuring of those exposures since such restructured loans do not figure under the NPA data. This greening practice has helped both the banking sector and the regulator. Some time ago, RBI mentioned the problems at the individual bank level, but it should be noted that over-leveraged sectors are a potential threat to the banking sector on the whole. So far, we have had only over-leveraged companies but now we have over-leveraged sectors, too. For instance, look at the aviation sector — promoters can simply walk out, while banks stand to lose everything. The growing disconnect between accounting profits and real profits is likely to ruin the banking sector. The remedy lies in surprise audits of bank branches with large corporate exposures on a random basis in addition to regular year-end audits.

K V Rao Bangalore (BS)

Tumultuous year for rupee

........The rupee will continue to see a period of high volatility, because of the bad news from the Euro zone. However, the domestic currency could appreciate to 50 in two months' time if the RBI maintains its dovish stance, as was seen in the last monetary policy.............

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Income tax deductions that you should not miss

As we approach the last quarter of the financial year, most salaried individuals would have received a deadline from their employers to submit their proof of investments that qualify for deductions from their taxable salary income. It can be a taxing affair if you don't plan ahead.................

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Interest rates to soften as economy starts to cool

…Some analysts said even if RBI hikes rates further to stem inflation, banks are unlikely to pass on the burden to borrowers given the poor demand for credit. Besides, any further hike would put more pressure on the asset quality of the banks by lowering the ability of companies and individuals to pay back their debts. “Even if RBI hikes rates now, banks will not be able to follow when the demand for loans is already low given the current high interest rates in the system,”………..

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Reversal of rate cycle seen as Union Bank blinks first

….“Even if deposit rates are lowered, it will take some time for any significant reduction in the overall costs. We will wait for the RBI’s rate action,”……

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NRIs can hedge currency risks with banks

The Reserve Bank of India has allowed non-residents to hedge their currency risk in respect of external commercial borrowings (ECB) denominated in rupees, with AD Category-I (authorised dealer) banks in India. In its notification on Thursday, the apex bank said the amount and tenor of the hedge should not exceed that of the underlying transaction. Besides, it should be in consonance with the extant regulations regarding tenor of payment or realisation of the proceeds. The NGOs (non-Government organisations) engaged in microfinance activities have been permitted to avail themselves of ECBs designated in Indian rupee under the automatic route from overseas organisations and individuals as per the ECB guidelines. The RBI said that the contracts, once cancelled, cannot be rebooked. The contracts may, however, be rolled over on or before maturity. On cancellation of the contracts, gains may be passed on to the customer.

HBL

NRE rate war could raise cost of funds for firms

As Kerala banks scramble to mop up NRI money following the Reserve Bank of India (RBI) freeing interest rates on December 16 to stem the massive slide of the rupee, the perennial challenge of bagging new customer deposits seems to be at bay for now. But cost of funds could rise significantly, as banks end up paying higher interest of 125-300 basis points on new deposits, say financial experts………….

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Kanakamahalakshmi Co-op bank to up presence

City-based Kanakamahalakshmi Cooperative Bank Limited (KCB) has got approval from the Reserve Bank of India to open branches across Andhra Pradesh. KCB initially started its operations in Visakhapatnam district and later got permission from the RBI to extend its jurisdiction to West Godavari district. “Now, we are eligible to start operations across the state. The bank is, therefore, planning to set up operations in other districts too,” P Raghunadha Rao, chairman of KCB, told Business Standard. It operates five branches at present of which three are in Visakhapatnam and two in West Godavari districts. Last fiscal, it took over loss-making Palakol Cooperative bank, and later opened a branch in Bhimavaram in West Godavari district. “This year we have opened two new branches at Anakapalli and Narsipatnam in Visakhapatnam district and are going to open two more branches by the end of February at Chodavaram in Visakhapatnam district and Eluru in West Godavari district,” Rao added. This apart, KCB has applied for licence to open two more branches in Visakhapatnam. The branches will begin operations before July. It is expecting significant growth in deposits on the back of these new branches. The bank has deposits of Rs 115 crore and advances at Rs 85 crore. “We are aiming to touch Rs 150 crore deposits by the end of this fiscal and next fiscal we would add another Rs 100 crore deposits,” he said.

BS

Insurance made child's play, with comic books

......The country's insurance regulator will use the power of comic books to drive home the basic concepts, needs and importance of insurance in one's life, starting right from the school level.........

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Banking grievances should be resolved at branch levels says Ashok Rawat

..........However, what is deterrent and what has not come out even in the Damodaran Committee report is that there are internal auditors in each bank wherein some banks say that if there is some compensation given to the customer, the branch manager will have to justify it. The justification is because if the branch manager compensates the customer, it would reduce the bank’s profit. This is a deterrent for branch managers while dealing with grievances. ........

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RBI Dy Governor inaugurates 'Mahabank Gram Seva Kendras' (MGSK)

Bank of Maharashtra, which has highest branch network in rural and semi urban areas of Maharashtra has pioneered in taking the banking to the door steps of remote villagers in real sense when its SIX Mahabank Gram Seva Kendras were inaugurated at the hands of Dr K.C.Chakrabarty, Dy Governor, RBI at Navghar village near Uran of Raigad District on 26-12-2011. As an innovation under the financial inclusion plan embarked by the Bank, Bank of Maharashtra established six Mahabank Gram Seva Kendras in the remote villages like Navghar (Raigad), Dhuktan (Thane), Panoli (Ahmednagar), Koli Boddkha (Aurangabad), Solu (Pune) and Survadi (Satara) on pilot basis. The Bank’s permanent staff member of the nearest parent branch, equipped with a laptop will be available in these villages to render all types of banking services on specified days every month, so that the villagers can avail the same at their doorsteps. This is an alternative model (others being Business Correspondents and CSP models) only under which Bank staff will directly be extending personalized banking services with the help of IT. The customers can do all kinds of their transactions including remittances through these Gram Seva Kendras. Dr Chakrabarty, who has been a force behind the implementation of Financial Inclusion Plan by Banks in India has appreciated the initiatives being taken by Bank of Maharashtra. He expressed that all banks in the Maharashtra and also in other states will take similar initiatives for early reaching of banks to the remote villages. He urged the people to take benefit of these facilities and participate in the process of financial inclusion. The technology has now facilitated out reach of banking services to remote villages. Shri A S Bhattacharya, Chairman & Managing Director of the Bank, speaking on the occasion informed that Bank is using state of the art technology to reach the unbanked areas for taking care of their banking needs and to support them to be in the mainstream of economy. He informed that under financial inclusion Bank of Maharahstra has covered all the 1215 villages allotted to them in India and is in the process of stabilizing services through the Business Correspondents and MGSKs. He thanked Dr Chakrabarty for the guidance being given by him to Bank of Maharashtra in implementing such new initiatives. The function was attended by the top management members of the Bank. Shri M G Sanghvi, Executive Director, Bank of Maharashtra in his address, assured that Mahabank will continue to take all the steps which enable it to reach out the remotest villages in the country for fulfilling their banking needs. Bank of Maharashtra, as Convener of the State Level Bankers’ Committee of Maharashtra state has already ensured effective implementation of Financial Inclusion Plan by coordinating with other banks and state government officials in the state. As a result, all banks in the state have covered 3380 (80%) unbanked villages out of 4292 villages allotted to them. Residents of Navghar village and many of the residents of surrounding villages participated in the function and visited the Bank’s stall put up in the village to know about other rural development programmes of the Bank.

BS

Plea to improve credit flow to Agri sector

Kochi, Dec 28 (PTI): The credit flow to the agriculture sector needs improvement as it was essential for the success of the Food security programme of the government, Ernakulam District collector, P I Sheik Pareeth today said. Presiding over the District level Review committee meeting of the banks, here, he said educational loans are not being extended by all banks as per norms. Some banks are deviating from the rules and delaying sanction of the educational loans, he said adding he was getting several complaints in this regard. The next bank adalat in the district would be held on Jan 21 for settlement of small value loans in default. Pareeth sought the banks support in achieving the target set for employment to one lakh persons by starting small cottage and village industries. Ajith Patil, Secretary Kochi corporation, urged banks to promote schemes under USHUP and BSUP which are for the betterment of the poor. The corporation was planning to have a street vendor development scheme in national prespective to provide hygenic vendors in the city. Bank deposit increased by rs 685 crore during June to September this year to a level of total deposit of rs 38,463 crore. Advancse decreased by rs 3882 croer during the period to a level of rs 52,304, a bank press release said. Mayank Mehta, Deputy General Manager Union Bank of India; Jayaprakash K R, Lead District Manager; K D Joseph AGM Reserve Bank of India, were among those who participated in the meeting.

IBN Live

Fake phone banking scam: Woman cheated out of Rs 80,000

NEW DELHI: Watch out if you receive a call from an unknown number claiming to be your bank's customer care service asking for your credit card details. A female doctor in New Friends Colony became the latest victim of a 'fake phone banking' scam when she received a call from a person claiming to be a customer care executive representing a bank and enquired about an ongoing transaction on her credit card. When the victim denied carrying out any such transaction, the "executive" asked for her credit card details to stop the transaction. The victim soon learned that Rs 80,000 had been withdrawn from her card. As per the complaint lodged by the victim a few days back, a man claiming to represent her bank, called and informed her that a high value transaction in dollars was being carried out from her card. The person asked if she was the one carrying out the transactions, which the victim denied. He further explained to her that as per new RBI guidelines the bank had to take the customers approval before allowing such transactions. The man then transferred the call to the "customer service department" which would assist the woman in stopping the transaction from being processed. The woman told cops that, after holding the call for a minute, a woman, who claimed to be another 'bank executive' came on the line and enquired about her identity. The executive then asked for the victim's credit card number, date of birth, card expiry date which she readily gave in order to stop the 'fraudulent transaction'. "The executive directed me to send an SMS 'REFUND' along with some other information to a number within the next two minutes to stop the transaction, which I did," the victim told cops. The victim also received an SMS from that number the next minute in which it said that her card had been blocked. But soon to her horror, the victim received another message after some time - this time from her real bank informing her that a transaction of Rs 40,000 on her card had been made at one 'Techprocess Sol'. "I immediately called up the customer care number of my bank to ?enquire about the status of my request to decline the transaction.  It was then that I discovered that I had been cheated as the customer care executive gave me the details of two transactions which had occurred earlier that day of Rs 40,000 each and also informed that the bank had never called her," the victim said. The cops have now registered a case of fraud and are investigating the matter. Interestingly, the victim also received SMS from her bank informing her that her request for credit limit enhancement on her card been registered and that it would be processed within a week. The victim had never made this request. 

TOI

Financial reporting in the context of financial stability – a regulator’s view on some accounting issues – Anand Sinha

Address by Mr. Anand Sinha, Deputy Governor of the Reserve Bank of India, at an event organised by Muscat Chapter of the Institute of Chartered Accountants of India (ICAI), Muscat, Sultanate of Oman, 21 December 2011.

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RTI RESOLUTION OF THE YEAR: Pune becomes the leading example

The prestigious Central Information Commission (CIC) annual convention in New Delhi in October witnessed Pune becoming a role model for some of its resolutions. Pune is the first city in the country to make a library for RTI. This is located in the Pune Municipal Corporation building and was the brainchild of leading RTI activist Vijay Kumbhar. Open Days in government offices is also a unique feature of Pune. Again thanks to Mr Kumbhar and other activists, the Pune Municipal Corporation keeps all its departments open for inspection of files under Section 4 of the RTI Act every Monday, between 3pm and 5 pm. The Pune Collector’s office is also open for such inspection every Friday. Also, State Information Commissioner Vijay Kuvalekar’s special initiative wherein he brings together the applicant, PIO as well as the first appellate authority for quicker disposal of appeals was well appreciated. The CIC Convention decided to adopt all these three unique practices in other parts of the country.

Sharad Phadke: He suffered a loss of Rs1,000 when he put in his ATM card to withdraw money. He did not get the cash, but the amount was debited from his account. He used the RTI to demand information regarding action taken against the bank officer who did not credit Rs1,000 to his bank account within the mandatory 12 days period as per the Reserve Bank of India rules. Mr Phadke also asked for information about the penalty which the bank had to pay him at the rate of Rs100 per day, for delay in not resolving the issue within 12 days. Bank of India, where Mr Phadke had account, subsequently was compelled to pay the penalty of Rs6,500 for a delay of 65 days. Mr Phadke did not stop at that. Stating that thousands of customers would be going through such harassment of banks, he has been filing RTI against several banks seeking information on the amount of penalty paid by them in such cases. The RBI has now reduced the number of days to 6 for crediting the wrongly debited amount beyond which the concerned bank has to pay the penalty of Rs100 per day to the customer. A couple of banks have installed software wherein the customer’s money gets automatically credited instantly in case of such faulty debit transaction from the customer’s bank account. All this was possible thanks to Mr Phadke’s tenacious campaign.

Moneylife

Regional rural banks still play an insignificant role in agricultural credit delivery

... RBI has been working on improving RRBs’ financial health through amalgamation and recapitalisation. At the same time, efforts are being made to increase the efficiency of services through computerisation and linking to the National Electronic Fund Transfer system. Despite the uneven performance of RRBs, they continue to be an important tool for the government in its financial-inclusion drive.

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RBI allows coop banks to fix NRE deposit rates

The Reserve Bank of India (RBI) today allowed cooperative and primary urban cooperative banks to fix their interest rates on various non-resident deposit schemes. Extending the ambit of its recent decision to deregulate deposit rates, RBI said, "Banks are free to determine their interest rates on both savings deposits and term deposits of maturity of one year and above under Non-Resident [External] Rupee deposit accounts and savings deposits under Ordinary Non-Resident accounts with immediate effect." The RBI issued two separate circulars addressed to primary urban cooperative banks and state and central cooperative banks. The apex bank, earlier this month, freed interest rates on various non-resident deposit schemes by scheduled commercial banks, a move intended attract more funds from NRIs and arrest the slide in rupee in the forex market. It had also put restrictions on forward contract in rupee to check speculations in the forex market. The RBI had already freed the saving and deposit rates for resident bank customers. The deregulation in rates on NRE and NRO deposits is intended to make such funds more attractive at a time when the rupee has depreciated sharply during last few months. The RBI in its last monetary review said it is closely watching the rupee situation and will respond to it as appropriate. The rupee has depreciated by over 15% in 2011 so far against the US dollar.

BS

RBI cautions banks on NRE deposit rates

Following the deregulation of interest rates on non-resident (external) rupee (NRE) deposits by the Reserve Bank of India, many banks have queued up to increase the interest rates on NRE and NRO (ordinary non-resident) deposits. Some of the banks have gone on to increase the rates by three-fold. This has, predictably, forced the Reserve Bank to advice banks to exercise caution. In a circular, the apex bank has made it clear that the interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits. It has further said that a prior approval of the board/ asset liability management committee may be obtained by banks while fixing interest rates on such deposits. At any point of time, individual banks should offer uniform rate at all their branches, the circular has said. “The revised deposit rates will apply only to fresh deposits and on renewal of maturing deposits. Further, banks should closely monitor their external liability arising out of such deregulation and ensure asset-liability compatibility from systemic risk point of view,'' the circular has said.  The RBI has also directed that state co-operative banks (StCBs) and district central co-operative banks (DCCBs) are free to determine their interest rates on NRE and NRO deposits of one year and above with immediate effect. Many banks have come out with attractive offers in the past few days. These include State Bank of India (SBI), ICICI Bank, Kotak Mahindra Bank and Indian Bank. The aim is to boost foreign currency inflows amid a depreciating rupee. SBI raised the interest rates on fixed deposits by NRIs of less than Rs. 1 crore with a maturity of one to two years to 9.25 per cent from 3.82 per cent earlier. Kotak Mahindra Bank has also hiked interest rates on deposits of one to two years to 9.25 per cent. The latest to join the rate hike bandwagon is ICICI Bank, which raised the rates by up to 9.25 per cent. Indian Bank has fixed rates on NRE term deposits. at 9.50 per cent for one year and above up to three years for deposits of less than Rs.15 lakh, and at 9.25 per cent for Rs.15 lakh and above and up to Rs.5 crores.

HBL

Watching the economy

............... As we approach the end of another year, the economy is being buffeted by multiple challenges on several fronts. While some of these problems are of our own making, there are others beyond our control..................

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New bank licences: The licenses that never came!

They were to come in 2011, they didn't. Will the elusive new bank licences ever come? Will it be a loss for the system if these new banks don't come up soon, or will it be a better place without them? If the optimism prevalent at the beginning of the year remained, then not having a bank licence would be a great opportunity lost. But with the slide in entrepreneurial spirit, many are thanking their stars that they did not have had to lock in hundreds of crores of rupees in capital with little business to show. To be fair to the Reserve Bank of India, it came out with the draft guidelines. The government, which is hardly able to push through any legislation, has to be blamed for not making it happen. Is that all? Even if the government is able to pass the required legislation for the RBI to begin issuing new licences, there may not be many takers. Thanks to the stringent guidelines, many entrepreneurs would choose to be just borrowers in these times of stress rather than risk their own capital. Enthusiastic investors were lapping up any stock with a potential to turn into a bank, including Shriram Transport and even Reliance Capital, after Finance Minister Pranab Mukherjee revealed in the last budget speech that new licences are round the corner. "The Indian banking system has emerged unscathed from the crisis," Mukherjee had said. "We need to ensure that the banking system grows in size and sophistication to meet the needs of a modern economy."  The draft guidelines seek to attract only serious players and they may not enthuse entrepreneurs who want to make a quick buck, or have an eye on the huge deposits they could access for their businesses.  More than anything else, the lessons of credit crisis (not the current one, but 2008's) have made RBI design the guidelines in such a way that there is little scope to make banking a casino as it happened in the West. Going by the rumours in the cocktail circuit, neither the potential bank promoters nor the central bank is feeling the absence of new banks. Will 2012 be a new dawn, or are we just waiting for Godot?

ET

10 million poor rural borrowers in AP may soon be labelled defaulters

HYDERABAD: Even as the Reserve Bank of India (RBI) attempts to address a large part of the concerns of the Andhra Pradesh government pertaining to the microfinance sector through a comprehensive regulatory framework, millions of rural poor borrowers in the state are running the risk of losing access to formal credit......

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Obituary

B.L.N.MURTHY(72) Retd RBI Manager Passed away on 25.12.2011 at Besant Nagar.

Contact: Sandhya Sekar- 24529686 / 9445154570 / sandhyasekar68@gmail.com

Hindu 

NAFSCUB: RBI’s frequent penalty disturbing

Echoing popular sentiment related to Urban Cooperative Bank, Mr Subhas Gupta Chief Executive of NAFSCUB said that it is a matter of concern for us that Urban Cooperative banks are frequently found faulting on banking norms by Reserve Bank of India. Readers can recall that RBI, the watchdog of banks on average penalizes a dozen Urban Cooperative banks per month on the issue of flouting of apex Banks’ norms. There are also frequent cases of cheating with depositors and banks going bust. Gujarat Mercantile Bank or Beed Central Cooperative bank or Maharashtra State Cooperative Bank are still fresh in our memories. Earlier Pen Cooperative Bank hogged media headlines for quite some time duping the helpless depositors of their hard-earned savings. In a free-wheeling chat with Indiancooperative.com Subhash Gupta Chief Executive of national federation of urban cooperative banks and credit expressed anguish at frequent imposition of penalities of Urban Cooperative Banks. He told that nafscub takes the RBI’s imposition of a penalty on the cooperative banks seriously. Nafscub is the apex body of Urban Cooperative Banks which is headed by H K Patil. Subhas Gupta is the Chief Executive of the Federation. G Krishna who occupied this position for a long time retired last year but has been retained as Advisor given his vast experience in handling Urban Cooperative Bank issues. The primary job of nafscub involves coordination between its member banks and government. Caught in a peculiar position between a corporate bank and rural bank, Urban Cooperative banks grapple with host of challenges in the fast moving economic scenario. The issue of imposition of income tax on cooperatives and cooperative banks is one of them. Provision of Direct Tax Code is another issue UCBs are dismayed with.The federation intends soon holding a seminar in cooperation with the economic intelligence unit of the RBI to identify the reasons responsible for the penalty as well as streamline the financial reporting. When asked about the election of nafcub, he made no comments saying the matter is sub judice. He informs that all possible preparations are underway to make the international year of cooperatives a success.

http://indiancooperative.com/?s=NAFSCUB%3A+RBI%E2%80%99s+frequent+penalty+disturbing+&.x=4&.y=8

RBI asks banks to issue Cheque Truncation System 2010 standard cheques from April 1

MUMBAI: The Reserve Bank today directed all banks to issue cheques conforming to Cheque Truncation System (CTS) 2010 standard with uniform features from April 1, 2012, onwards. The new cheque standard 'CTS 2010' with set of minimum security features would ensure uniformity across all cheque forms issued by banks in the country and also help presenting banks while scrutinising and recognising cheques of drawee banks in an image-based processing scenario, RBI said in a notification. The homogeneity in security features is expected to act as a deterrent against cheque frauds, while the standardisation of field placements on cheque forms would enable straight-through-processing both under CTS and MICR clearing, it said.  It has been decided to prescribe a cut-off date for implement the 'CTS-2010 standards' across the country, it said.  All banks providing cheque facility to their customers, are, therefore, advised to issue only 'CTS-2010' standard cheques not later than April 1, 2012 on priority basis in northern and southern region which will be part of the northern and southern CTS grids respectively and across the country by September 30, 2012 through a time bound action plan, it said.  The introduction of new cheque standards 'CTS 2010' was warranted on account of several developments in the cheque clearing namely growing use of multi-city and payable-at-par cheques at any branch of a bank, increasing popularity of Speed Clearing for local processing of outstation cheques and implementation of grid based Cheque Truncation System (CTS) for image-based cheque processing etc, it said.

ET

RBI to issue special coins on century of civil aviation

NEW DELHI: The Reserve Bank of India Tuesday said it will shortly circulate coins of Rs.5 denomination to commemorate 100 years of civil aviation in the country. The apex bank in a statement said the commemorative coins will be a legal tender under the provisions of the Indian Coinage Act, 1906. According to the bank, the reverse side of the coin will bear the picture of an aircraft and 100 years. It will also have 'civil aviation' on the top and the years 1911-2011 at the bottom. "The face of the coin shall bear the picture of an aircraft and figure '100' with words 'years' in the centre flanked by words on the upper periphery and 'Civil Aviation' followed by 'India' below the figure '100'," the statement said. The country is celebrating 2011 as the centenary year of the first commercial flight in the country which took place on Feb 18, 1911, between Allahabad and Naini. The existing RS.5 coins will also continue to be legal tender, said the RBI.

ET

B'lore: NABARD Pegs State's Credit Potential at Rs 51,168 Cr for 2012-13

Bangalore, Dec 27: The National Bank for Agriculture and Rural Development (NABARD) has estimated Karnataka’s credit flow potential for 2012-13 to be of the order of Rs. 52,168 crore, marking an increase of 27 per cent over the previous year. The projected a credit potential was Rs. 41,085 crore for the farm and non-farm activities in the State in 2011-12. Karnataka’s Chief Secretary S V Ranganath released the State Focus Paper 2012-13 brought out by NABARD at a state credit seminar here on Tuesday. The State Focus Paper estimated a credit flow potential of Rs. 52,168 crore in the State for the year 2012-13, an increase of 27 per cent over the previous year. The projected share of crop loan is Rs 24,290.13 crore, formed 47 per cent of the total potential estimated, followed by other priority sector – Rs 14,228.27 crore (27 per cent), agricultural term loan – Rs 9848.58crore (19 per cent) and non-farm sector – Rs 3801.14 crore (7 per cent). The credit flow to crop loan sector for the year 2010-11 was Rs 17,982.25 crore and the target is Rs 17,440.67 crore in 2011-12. The State government has declared the decade 2011-20 as the `Irrigation decade’ and set a target to mobilise Rs. 50,000 crore for creation of irrigation potential to enhance agricultural operations. The credit flow to water resources sector in 2010-11 was Rs 1054.59 crore and the target for 2011-12 is Rs 1088.05 crore. The potential assessed for financing during 2012-13 is Rs 1096.02 crore. In his keynote address at the seminar, NABARD Executive Director B S Shekhawat highlighted the need for improving the per hectare credit in the State from the present level of around Rs. 23,000. Shekhawat said increased flow of agriculture term loans would facilitate capital formation in farm sector. He told bankers to exploit the full potential of around Rs. 3750 crore in the micro-finance sector as compared to the ground level credit flow of around Rs. 1400 crore at present. CEOs of public and private sector banks attended the seminar. Agrarian distress could be effectively addressed by ensuring enhanced credit flow to three lakh hectare of dry land developed on watershed basis in the State. He suggested that the state government may consider strengthening investment in areas of drinking water, setting up technical universities, post harvest management, and processing infrastructure. Uma Shankar, Regional Director, RBI, Bangalore, Syndicate Bank Chairman and Managing Director Basant Seth, CEOs of public and private sector banks, principal secretaries and secretaries of various departments and representatives of NGOs participated in the seminar.

http://www.daijiworld.com/news/news_disp.asp?n_id=125847

PSU banks'credit panel can now approve loans up to 400 crore

The government has directed banks to set up a credit approval committee - comprising chairman, executive directors and three chief general managers who handle credit, finance and risk management functions. This group can approve credit proposals up to 400 crore.............

"Though a credit approval committee has replaced the board's management committee, the two are significantly different. The MCB has outside members such as RBI nominee and independent directors; the new committee comprises two EDs and chief general managers, who report to the CMD," said another retired chief of a nationalised bank.......

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Capital infusion in banks linked to targets

NEW DELHI: The government has put in place a mechanism for statement of intent (SoI) signed with public sector banks that sets out new targets for three years besides linking future capital infusion to meeting these yardsticks.  Sources said that banks are in the process of getting their boards to agree to the targets set by their managements and the finance ministry. In October, the revised SoIs with new parameters such as employee productivity were finalized.  SoIs were started more than five-years ago with chiefs of banks that meet the targets entitled to a year-end bonus. Although the practice did force banks to plan, annual targets were seen to be short-term planning. This prompted the finance ministry to review the system and put in place a mechanism spread over three years. "At least, medium term goals are required. Short-term issues such as strategy for particular sectors would be dealt with separately on a quarterly basis," said a government official. The move to tweak the parameters was also prompted by the change in the environment. For instance, the clause relating to productivity was the result of the enhanced use of technology and the sharp increase in wage bill in recent years. In fact, even the RBI has expressed concern over the issue. "There used to be a gap between new generation banks and public sector banks. That gap has disappeared. Today, salary per employee in a public sector bank is not that different from a private bank but productivity level is very different. So, that means that the governance standard is deteriorating. If public sector does not follow governance standards, the burden is borne more by the society. There is a moral hazard since the state has to bail them out in period of crisis," RBI deputy governor KC Chakrabarty told ToI. As a result, at least three staff-related criteria have been bundled in. These include net profit per employee, employees' cost-to-income ratio and staff ratio at branches.

TOI

Rash of banking reforms: Move aimed at improving solvency

...........“Off-balance sheet exposures of NBFCs have increased with the increased participation in currency options and futures and interest rate futures. It is therefore necessary that NBFCs move over to modern techniques of risk measurement to strengthen their capital framework,” RBI said in a notification. The decision is expected to improve solvency of the NBFCs though it might put additional financial burden on them. NBFCs will have to assign adequate weights to both on and off-balance sheet items while maintaining the mandatory CRAR (Capital to Risk Asset Ratio).............

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Mirwaiz urges RBI to facilitate Islamic Banking

....... “We will not refrain from meeting RBI and other government agencies if needed for establishing Islamic Banking. We have to make serious efforts for it and soon we will constitute a team of economists to come up with the contours of establishing the system................

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RBI asks banks to set aside more capital for investing in financial entities

.... "The performance of the subsidiaries affects the balance sheet of the bank,'' RBI deputy governor Anand Sinha said recently. "On account of varied activities carried on by the entities in the group which fall within the regulatory jurisdiction of multiple regulators, the risk to the system as a whole posed by such financial conglomerates is difficult to assess.''

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RBI cautions against fraudulent fund offers

GUWAHATI, Dec 27 – The Reserve Bank of India (RBI) has cautioned the public in general against falling prey to fictitious offers of cheap funds that are rampant in recent times. Often the fraudsters lure the public in the form of lottery prize money through letters, emails, SMS, etc., an official release stated. The RBI has observed that such fraudulent communications were even sent on fake letterheads of the Reserve Bank of India or other reputed organisations, purportedly signed by their top executives/ senior officials. It has also been noticed that many residents have fallen victims to such teasing and tempting offers and in the process, have lost huge sums of money. The fraudsters seeks money from people under different heads, such as processing fees, transaction fees, tax clearance charges, conversion charges, clearing fees, etc. They open multiple accounts in banks in the name of individuals or proprietary concerns in different bank branches for receiving such payments. The amount so remitted is withdrawn immediately, leaving the victims in the lurch. Evidently, the fraudsters’ strategy is to play upon the credulity of unsuspicious victims, the release added.

The Assam Tribune

Odisha cautions public against hoax banking, fraudulent offers

Bhubaneswar, Dec 27 (PTI) With hoax banking instances regularly hitting the gullible people in the state, Odisha government today cautioned the general public not to entertain fraudulent offers by e-mail, SMS and other modes, official sources said. "It is seen that fraudulent offers by e-mail, SMS and others pertaining to lottery/windfall payment, purported to have been sent with fabricated signature of high officials of Reserve Bank of India should not be entertained," finance secretary J K Mohapatra said in a statement. Stating that the RBI has on several occasions in the past have cautioned the members of the public not to fall prey to fictitious offers/lottery winnings/remittance of cheap funds in foreign currency from abroad by certain foreign entities, Mohapatra said certain individuals including Indian residents were also acting as representatives of such entities. "These offers are generally made though letters, e-mail, mobile phones, SMSs and other modes," Mohapatra said suggesting the people to read the ticker on the RBI's website (www.rbi.org.in) for details.  

IBN Live

Govt proposes unitary team to prevent financial crises

The Union Government aims to develop an early-warning system for the financial market. This has become important in view of the increased volatility in the currency and equity markets. Mr R. Gopalan, Secretary in the Department of Economic Affairs, chaired a high-level meeting on Monday to discuss structural issues of setting in place a Crisis Management Team for the financial sector. The meeting was attended by the Financial Service Secretary, Mr D.K. Mittal, the Disinvestment Secretary, Mr Mohammad Haleem Khan, and the Chief Economic Advisor, Mr Kaushik Basu, among others. A senior Finance Ministry official said, “The team will see, analyse and suggest measures to tackle any development which can stress the financial system.” This team will consist of five-six persons and will be a part of the Financial Stability and Development Council. The Government does not want to be taken by surprise, so early detection and co-ordinated efforts will help to carry over the crisis in most effective way, the official added. The Deputy Governor of the Reserve Bank of India has been proposed to serve as the Chairman along with senior officials from the market regulator, Securities and Exchange Board of India, the insurance regulator, Insurance Regulatory and Development Authority, the pension regulator, Pension Fund Regulatory and Development Authority, and senior officials from the Ministry of Finance as members. A senior Government official familiar with the development said the effort was to bring a “sufficiently high level of representation, so that prompt decisions could be taken for effective crisis management”. The official added that though every segment of the financial sector has crisis-prevention systems in place, still an integrated system was needed to avoid shocks which can quickly spread across market segments and institutions. The genesis of the crisis may be different from time to time, but the manifestation is similar. Timely management of the crisis requires early detection of fault lines based on information on diverse institutions and markets, the official explained.

HBL

Led by SBI banks hike NRI rates: Aim to attract US dollars from NRIs

....... "The current weakness in the rupee is majorly speculative in nature and may not continue for long. The RBI measures combined with India's relatively better fundamentals should stabilise the currency soon,"........

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The impact of rate cuts

.... Will the interest rate cuts lead to a rebound in the economy? If so, how long does it take for the cuts to take effect? Will banks start making more profits and will markets start to go up as monetary easing takes effect? History should provide a guide..................

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Fearing financial feedback

Its own report should remind the RBI there’s no room for complacency about the stability of India’s financial system

If the real economy is not doing well then the financial system will reflect it. What is important is that the financial system should not add to the problems of the real world by generating volatility of its own making. The regulatory system should be alert to the downside created by the real economy, and take steps to maintain the stability of the financial system. If it does this, market players will be confident about the ability of the system to handle the downside and go about their work in a non-speculative manner. The latest half-yearly financial stability report of the Reserve Bank of India (RBI) has done this — both identified the downside and measured the sentiments of players to find them self-assured. Over half the players in the financial system, an RBI survey finds, are either “confident” or “very confident” about the stability of the Indian financial system. So the message is that there is absolutely no cause for any kind of systemic concern. Yet, given the stresses on the financial system that the report outlines, the RBI and the government have no room for complacency. A good example of how adverse fundamentals create negative sentiments as well as expectations and lead to speculative put-down is the manner in which the deteriorating balance of payments situation led to a steep decline in the external value of the rupee. The RBI’s action in coming down sharply on speculation that was accelerating the decline is an equally good example of how the regulator has to act with firmness so as to rein in volatility and restore market stability. But it should be clear that this is good only so far as it goes. Ultimate deliverance from problems created in the real world cannot come from firm financial management. The latter in fact slows down already slowing economic activity —and points to an inevitable period of grimness. Deliverance has to come from hard decisions taken to set the real world right. All the self-indulgence that India can allow itself is the thought that its financial system and its regulation are superior to those of China and so the pain of sharp, abrupt and somewhat draconian adjustment can be avoided. But the bad news from the real economy is real. Weakening growth is affecting the asset quality of banks and lowering capital adequacy, though it is claimed that this remains above regulatory levels. Continuing high inflation has been exacerbated by a depreciating rupee. Domestic firms’ reliance on foreign currency finance to take advantage of interest rate differentials is now coming home to roost with the rupee depreciation raising the cost of servicing such finance. The feedback loop from the real world to the financial world has taken down the stock market and, what is more worrisome, has lately been accompanied by derivatives volumes surging ahead of cash volumes, fuelled by proprietary trading. As the RBI itself acknowledges, this needs close watching.

BS

Reserve Bank, refocus

When the world economy faced a crisis in 2008, India prided itself on escaping relatively unhurt. Now that the Indian economy is slowing down, owing to the impact of both the global slowdown and uncertainty, and the policy framework in the domestic economy, a part of the blame is being put on monetary policy...............

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2012 could see lot more evolving regulations, better supervision for banks: Prabhat Gupta

..............The Reserve Bank of India (RBI) and other banks will be estimating the capital requirements under Basel III once the guidelines for implementation are released by Dec. 31, 2011. While implementing Basel III, the RBI`s main questions will be if they should continue with more stringent capital regulations and if should they adhere to the extended timetable or step up the implementation schedule, given the fact that the banking system would be comfortable at the starting point, i.e. at transition?...........

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Exchange blow

........................ In the first week of December, a surge in demand for capital and consumer goods led to higher imports, eating up $12 billion of India's foreign currency. The RBI reacted quickly and allowed banks to pay prevailing deposit rates on NRI accounts. This would create a natural arbitrage for those receiving dollar loans abroad and making bank deposits in Indian banks to earn higher interest returns, thus ensuring higher dollar inflows. Rating agency Moody's says the rupee would stabilise below 050 against the dollar in six months. But till then, the RBI will keep a close watch on it.

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2011: a year of positive regulations

..........Recommendations made by the Shyamala Gopinath committee to make small savings scheme market linked got accepted and implemented from December this year. The rate of interest on various small savings instruments is now pegged to the government securities (G-sec) rates of similar maturities. But don’t worry, you don’t have to track G-secs or ................

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"Short Term Cooperative Credit Structure and Financial Inclusion”

The Keynote Address delivered by Mr. V.K. Sharma, Executive Director, Reserve Bank of India, at Central Zone Cooperative Conference at Raipur, Chhattisgarh State, India, organized by National Cooperative Union of India in collaboration with Chhattisgarh State Cooperative Union Ltd. on 11^th December, 2011 on "Short Term Cooperative Credit Structure and Financial Inclusion”.   

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Bank of Maharashtra goes to doorsteps of villagers

Mumbai, Dec. 26: Bank of Maharashtra has launched a financial inclusion service as an alternative model to the Business Correspondents format. Under this model, bank staff will visit villages and offer banking services at the homes of the villagers. The bank has launched six of these Mahabank Gram Seva Kendras (MGSKs) in villages in Raigad, Thane, Ahmednagar, Aurangabad, Pune and Satara districts on a pilot basis, said a press release issued by the bank.  The MGSKs were inaugurated by the RBI Deputy Governor, Dr K.C. Chakrabarty, in Raigad district. The bank's permanent staff member of the nearest parent branch, equipped with a laptop will go to these villages to render banking services on specified days every month. Mr A.S. Bhattacharya, Chairman and Managing Director, Bank of Maharashtra, said the bank has covered all the 1,215 villages allotted to it and is in the process of stabilising services through the Business Correspondents and MGSKs. 

HBL

Need to review and recast legislations in banking sector: RBI

MUMBAI: Absence of a uniform law governing various lenders has led to an uneven playing field, necessitating the need to review and recast the legislations governing the banking sector, says the Reserve Bank. Speaking at the 'Financial Planning Congress 2011' here RBI Deputy Governor Anand Sinha said each of the statutes was crafted in a contemporaneous setting, reflecting the needs and concerns of the time. "Since the origins of the banks have been historically different, they continue to be governed by the respective statutes as well as other general laws... However, the fact that different banks are governed by different laws has resulted in an uneven playing field which needs to be addressed," he said. The senior RBI official's recent speech here was released by the apex bank today in its website. "A single, harmonised and uniform legislation applicable to all banks will provide transparency, comprehensiveness and clarity and provide ease of regulation and supervision to the RBI... there is also a need to sort out the conflicts and overlaps between the primary laws governing the banking sector and other applicable laws," Sinha said. Banks are regulated and supervised under the Banking Regulation Act, 1949. Public sector banks like the State Bank of India (SBI), SBI's subsidiary banks and the nationalised banks, which are constituted under different statutes, are governed by their respective statutes. The provisions relating to the ownership and management of banking companies as contained in the Banking Regulation Act are not applicable to the public sector banks, he said. Similarly, cooperative banks are constituted by the respective state Cooperative Societies Acts and other legislations. Regarding the issue of management of banks, Sinha said RBI currently does not have the power to supersede the Board of Directors of a banking company and amendments for conferring such a power has been proposed in the Banking Laws Amendment Bill, 2011, which is now before Parliament.  "RBI should have the power to direct, by order, at any time that persons who are not fit and proper to hold equity or voting power in contravention of... provisions, shall not have voting power. The 2011 Bill proposes to confer such power on RBI. This will help prevent unscrupulous persons from exercising control over banks," Sinha said.  He said RBI should have the discretion to determine the level and intensity of regulation and supervision depending upon the risk to the system from entities like cooperative societies.

ET