SC notice to finmin & RBI on loan write-offs

New Delhi: Dissatisfied with the finance ministry reply on the steps to address rising NPAs, the Supreme Court sought RBI’s response on its role in regulating public sector banks on the non-recovery/ one-time settlement/write offs.  A bench headed by Justice DK Jain, while issuing notice to RBI, also asked MoF to file a fresh affidavit stating how it would enforce RBI circulars to monitor banks exercising discretion to enter into one-time settlements. Earlier, it had issued a notice to the ministry on a PIL filed by Shoaib Richie Sequeira, who runs an NGO, alleging that no guidelines are in place on writing off loans the debt recovery tribunal has failed to recover. Shoaib had earlier urged the Bombay HC to look into the public money foregone in write-offs and one-time settlements. Counsel R Chandrachud, appearing for the petitioner, argued that no vigil was maintained by the finance ministry and RBI while writing off loans. He pointed out that the absence of regulation had led boards of directors to misusing their powers. The petitioner also sought constitution of a high-powered panel to take steps to recover debts due to PSU banks, besides a panel of experts to formulate guidelines in this regard.The ministry had replied that RBI has framed norms and put in mechanisms to deal with recovery process so discretionary powers were kept in check. The affidavit filed by Rajiv Sharma, under secretary, MoF, had said that pursuant to the circular of July 28, 1995 prescribing guidelines in respect of compromise and negotiated settlement, each bank had framed its own loan recovery policy. Even other circular of October 2007 had stipulated that banks and FIs while entering into compromise should ensure that the net present value of the settlement amount should not be less than the net present value of the realisable value of the securities.  Even the Government of India had also prescribed the powers and limits of the CMDs and executive directors of nationalised banks for sanctioning write-offs, the affidavit had stated. Even RBI had framed a master circular dated July 1, 2011 defining willful defaulters, directing constitution of grievance redressal committees by banks and FIs, dealing with diversion and siphoning of funds and prescribing penal measures, the ministry said, adding that a scheme of corporate debt restructuring has been put in place and larger number of compromise settlements through lok adalats are being done. However, the ministry said that it was not feasible to micromanage and scrutinise every such settlement. It further said that out of the total reduction in NPA of R8,022 crore during 2009-10 by SBI, R2,059 crore was actually recovered, R 3,972 crore was on account of upgradation of accounts and R1,990 crore was on account of write-offs.

FE

The tough journey to Basel 3

Indian banks will have to raise a mountain of capital over the next few years if they have to maintain loan growth as well as meet new international norms. Can they do it? Last week, the Reserve Bank of India (RBI) issued draft guidelines for Indian banks to migrate to the so-called Basel 3 regulatory framework, which defines how much capital buffer banks need to protect themselves against sudden shocks to profitabililty. According to the RBI norms, local banks will need common equity Tier 1 capital equal to 5.5% of their risk-weighted assets (RWAs), up from the current 3.6%. The overall Tier 1 capital should be 7% of RWAs. Banks have to meet this target by 2017; banks in most other countries have time till 2019. According to a study done by rating agency Crisil, Indian banks will need to raise equity capital of Rs.1.4 trillion by March 2017 to raise their capital ratios based on current size of their loan books. This requirement can increase by another Rs.1.3 trillion in case investor appetite is low for non-equity Tier I capital instruments. According to a report on banks and financial institutions by Kotak Institutional Equities, Indian banks have delivered return on equity (RoE) of about 15% over the past few years, and it estimates that every additional 100-120 bps of increase in core equity is likely to impact RoEs by 150-180 bps.  Public sector banks are likely to account for the bulk of the requirement to raise the equity and, therefore, are likely to seek a capital infusion from the government, which is already struggling to keep its deficit within safe limits. An infusion of capital by the government goes against the recommendations of the two committees headed by former RBI Governor M.Narsimham, which submitted their reports on banking reforms in 1991 and 1998. The two reports had argued against recapitalization through budgetary provisions, and instead recommended the creation of asset reconstruction funds or companies to take over the bad debts of banks. There are growing fears in the financial markets about the declining asset quality of Indian banks and pressure on the capital adequacy of a few public sector lenders. This and the move to Basel 3 norms could be a tough challenge, especially if the Indian economic slowdown persists.

Mint

Basel III overlooks our growth needs

The Reserve Bank fulfilled its promise of releasing by 2011 the draft guidelines outlining proposed implementation of Basel III capital regulation in India. The guidelines require achievement by March 2017, of minimum capital requirements to risk weighted assets .............

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Fixed deposits may lose edge as RBI looks to whittle down rates

Fixed deposits (FDs) never looked so alluring, especially given the uncertainties in the current economic landscape. But the sting in the tale is it may be a different scenario post January 24, when the Reserve Bank of India reviews its monetary policy. And chances are that the apex bank may go in for a cut in the cash reserve ratio (CRR), which is the amount of funds that lenders need to keep with the central bank. A reduction in it means banks have to park less money with the RBI. This, experts say, will leave banks with more elbowroom to deploy funds and, more importantly, can afford to cut deposit rates. “If CRR is reduced, then there will be an immediate impact on money market rates. Money market rates will fall, with a lag getting transmitted to bank fixed deposit rates. If CRR is cut by 50 basis points, then deposit rates may fall by 25 basis points,” said Mohan Shenoi, head of treasury, Kotak Mahindra Bank. Analysts believe it’s the rates of fixed deposits with a tenure of up to two years that will see an instant decline. “Bank FD rates may not initially fall by more than 50 basis points. So, we can expect that by March, it may fall by 25-50 basis points in tenures of up to 2 years,” said Vaibhav Agrawal, vice-president (research), Angel Broking. But the fall in rates will not be as quick for longer tenure deposits, said Parthasarathi Mukherjee, president (treasury and international banking), Axis Bank. His prescription is clear: Before the expected CRR cut in January, this may be the last chance for customers to lock in funds in bank FDs. Last year, high deposit rates have been a handy tool for banks to woo customers. Even some FD products offer rates above 9% on a 1-year deposit. “A 1-year bank FD fetches about 9.25%. The post-tax returns are in the range of 7.1-8.3%, depending on the tax slab of the customer. It is not just bank FD, the returns of a few other investment instruments may also start falling with the fall in interest rates,” said Suresh Sadgopan, who runs Ladder 7, a financial advisory firm. During the fortnight ended December 16, bank deposits grew 18% year on year to `56,72,592.36 crore.

DNA

Little to bank on

Though the number of bank branches is growing by leaps and bounds and ATMs are mushrooming in cities and towns, the banking revolution has largely remained an urban phenomenon...................

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Inflation slowing, indicators suggest: RBI Deputy Governor

India's inflation is slowing, as suggested by momentum indicators, and the ceiling for interest rates has been reached, the Reserve Bank of India (RBI) Deputy Governor Subir Gokarn said on Thursday. Gokarn, who handles monetary policy, said the rupee appears to be stabilising as REER (real effective exchange rate) moves towards neutral. REER is the rupee's value against a basket of currencies of India's largest trading partners, adjusted for inflation. Gokarn was speaking at a conference in Singapore. The annual food inflation eased for a ninth straight week to its lowest in nearly six years in mid-December on improved supplies, bolstering hopes of a cooling in overall inflation which should allow the central bank to cut rates. The RBI, which has raised its interest rates 13 times since March 2010, left its key lending rate, the repo rate, steady at 8.50% last month.

Moneycontrol

Is food inflation over? Well, maybe. But we need more cows

....... In fact, the chairman of the PM’s Economic Advisory Council (PMEAC), C Rangarajan, considered by many to be an inflation hawk, has turned dove of late. He said the “environment appears to be in favour of the Reserve Bank reversing its monetary policy stance.” Governor Duvvuri Subbarao will surely agree........

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Food inflation turns negative but don’t expect a rate cut just yet

...........Food prices plunge to (-) 3.36 %, RBI Dy Guv Subir Gokarn says while monetary policy has " reached its peak", it does not mean a reversal in stance as " inflation risks are still high"...............

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Onion gives a smile, drives food inflation to negative

.....The current inflation situation is seen as an impetus to reversing the tight money policy of RBI. But if the tight money policy is reversed, it would not be because of declining inflation. “It would be because there is concern about GDP growth,”............

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RBI managing banks well: Raghavji

Bhopal : Better bank management plays a significant role in any country’s development and Reserve Bank of India is performing this role very well. This was stated by finance minister Raghavji, while addressing a programme held in village Gondarmau of the city, organised by Reserve Bank of India (RBI) on Monday. Raghavji in his address gave detailed information on banking extension and its benefits to common man. He said no nation can progress without better bank management. It is necessary that every person must understand banking system and bring them in practice. He said payment in several schemes of the government is being made through bank. Emphasising on safety of money he said bank is the only measure for protection from loot, theft and fraud.




Financial awareness needed, says H.R.Khan, RBI Deputy Governor



RBI Deputy Governor, H R Khan focusing on financial awareness said the main objective of this programme is to link more and more people with banking system. He said nearly 6,000 villages having more than 2000 population, are covered under this banking system. He appreciated the role of the state government in taking initiative in imparting of financial education in general education. Khan, explaining about various online facilities, said that banks are providing facilities of business facilitator and delivery banking. Small savings are being promoted. Banks through NGOs are working to develop womens interest towards banking. The facility of money transfer is being streamlined. Chief secretary Avani Vaish said students should be informed about banking system as they are the future. RBI Regional Director P K Panda spoke on smart card and other facilities. Bhopal divisional commissioner Pravin Garg, collector Nikunj Kumar Shrivastava, SSP Yogesh Chaudhary, Banking Lokpal Karunakaran were present on the occasion.

FPJ 

Row over parking space at Bakery Junction

THIRUVANANTHAPURAM: Ownership of the vacant land beneath the Bakery Junction Flyover sparked off a bitter row on Monday morning after local traders and political parties objected to Reserve Bank of India (RBI) taking possession of it. The agitators forcibly removed a signboard and chains the RBI had used to cordon off three slots of parking space for its own use. Things cooled down down after the police arrived on the scene and held talks with both parties. The land in question is opposite the RBI office. The agitators maintained that the RBI had illegally cordoned off public space. But RBI officials, who had also posted two guards in the area, said the plots were allotted to the RBI as compensation for surrendering land free of cost for road-widening. ‘’They have illegally taken possession of public land. It was not merely the RBI, but traders nearby too had given up land for widening the road,’’ said T S Binukumar, CPI local committee secretary. ‘’There is little parking space in this neighbourhood. So, the RBI monopolising the space is unfair. They have asked two days’ time for presenting documents, which we don’t believe they have,’’ he said. But RBI officials denied this, saying that they had proof in writing. According to them, the State Government had allotted them the land for parking six four-wheelers and a smaller section between two pillars of the flyover for parking two-wheelers. ‘’The RBI surrendered 16 cents of land for widening of the road. The State Government had in writing given us the commitment for substitute land,’’ said RBI assistant general manager (Estates Department) R Sudeep. The Kerala Road Fund Board (KRFB), which developed the road in question, supported the RBI view. ‘’It is true the commitment was given. The argument that traders there had also surrendered land is, however, not true, as only RBI land was acquired,’’ KRFB chief operating officer P C Harikesh said. There, in fact, are three parking slots in the disputed area, half of which was earmarked for the RBI and the other half for public use, he said. RBI officials said they had temporarily withdrawn from taking possession of the land owing to the outcry.

IBN Live

Subbarao's multi-recipe problem

.......... Many economists believe although liquidity is not a problem, RBI should cut banks’ Cash Reserve Ratio (CRR). However, some finance ministry officials say cutting the Statutory Liquidity Ratio (SLR) and increasing the use of open market operations (OMO) would be a better way to manage liquidity. The sector has not been hit by a liquidity crunch, but bankers their margins are under pressure and slashing CRR would be right in this environment...........

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ATM devised for sightless customers

MUMBAI: A group of organizations working to make the city disabled-friendly would have made Louis Braille proud on his birth anniversary Wednesday. Having devised a range of software programmes and gadgets that could be used by visually handicapped people, they unveiled the collection at a special function in Bandra, held to mark his birthday. Among them was an automatic teller machine (ATM) that blind people can use to withdraw money. "We inaugurated an online Braille library that allows students to download files and print them to read. There is a full display of access technology like low-vision aids and teaching aids," said Sam Taraporevala, head of sociology at the Xavier's Resource Centre for the Visually Challenged ( XRCVC). The institute partnered the National Association of Visually Handicapped (NIVH), Dehradun, in this exhibition. NCR Corporation, which manufactures ATMs, demonstrated a machine that can be used by sightless customers. "It is a regular ATM fitted with auto-guidance software," said Nagesh Nayak, professional services practice manager of NCR. "One can use a regular headphone and plug it into the jack to receive instructions and operate the numeric keypad on the machine." Operative buttons like 'Enter' and 'Cancel' are embossed and codified. It would help to have Braille stickers affixed to the numeric keypad, though Nayak says that just about 10% sightless people read the script. "The raised dot on the number 5, which is a feature of most keypads, comes in handy to detect the rest of the numbers. People who go blind later in life are scarcely familiar with Braille, it is mostly the young who read it," he said. As for security, should a sighted person catch a glimpse of the screen while a visually-challeged person is operating the machine, all he would see is a blank screen. Unfortunately, banks have been slow to take to this technology primarily for the initial investment it would entail. "However, the Reserve Bank of India has issued guidelines to say that one-third of all the new ATMs must be accessible to the blind," says Taraporevala. 

TOI

New CMD for Andhra Bank

Mr B A Prabhakar, the newly appointed Chairman and Managing Director of Andhra Bank has assumed office. Prior to joining the bank, he was Executive Director of Bank of India for three years. A graduate in commerce and a CA, Mr Prabhakar started his banking career with Bank of Baroda in 1977 as a direct recruit officer. He worked in the UK and Zambia also, said a press release from Andhra Bank.

HBL

Bank of India gets new ED

Mr M. S. Raghavan has taken over as Executive Director of Bank of India. Prior to his elevation as ED, Mr Raghavan was General Manager with Indian Overseas Bank. He has worked extensively in the areas of Credit, Operations and Information Technology.

HBL

Reviving loan growth to top agenda in RBI-bankers meet

Central bank to seek feedback from banks on liquidity situation, deposit growth and recent policy changes. Revival of credit demand is likely to dominate discussions when bankers meet top officials of the Reserve Bank of India (RBI) next Tuesday. The meeting will take stock of economic parameters ahead of the central bank’s third quarter review of annual monetary policy on January 24. The central bank is expected to seek feedback from banks on loan demand, liquidity situation, deposit growth and some recent policy changes with respect to deregulation of savings bank deposit rate and non-resident (external) deposit rates. “The recovery in credit growth is critical for the economy. The growth in bank loans has remained slow, partly because of rising interest rates and partly due to uncertain macroeconomic environment, which has restricted business activities. We are planning to discuss this issue and find a solution,” said the chairman and managing director of a public sector bank. The high interest rate regime has slowed down credit offtake. The growth in bank advances fell to a 21-month low in mid-December. According to data released by RBI, bank credit expanded 17.08 per cent annually as on December 16. It was below the central bank’s 18 per cent growth forecast for 2011-12. With inflation easing, bankers said, there was a strong case for the banking regulator to cut interest rates. This will, in turn, help revive the demand for bank credit. “It’s too early to forecast if RBI will actually cut the rates later this month. But the market widely expects a rate cut. This is reflected in yields that have come down sharply in the past few days despite talks of higher government borrowing. We think it is the right time to cut rates, as inflation appears to have peaked and credit growth is slow,” said a senior official of a city-based bank. The yield on 10-year government bond closed at 8.36 per cent on Wednesday, compared to 8.57 per cent on December 30. The central bank raised its key policy rates 13 times between March 2010 and October 2011, before taking a pause in the mid-quarter review in December. RBI has signalled a reversal policy stance amid mounting concerns over economic growth. “From here on, we could expect reversal of monetary tightening. But it’s difficult to say when that will take place and in what shape it will roll out,” RBI Governor Duvvuri Subbarao said in an interview published on the BBC website on Monday. A moderation in inflation has raised hopes RBI may start reducing its key interest rates in the forthcoming credit policies. Headline inflation dropped to 9.1 per cent in November, from 9.73 per cent in the previous month, while food inflation declined to 0.42 per cent. In a recent interaction with economists, RBI indicated there was no structural or systemic risk to the liquidity position in the money market. This was despite liquidity deficit hovering around Rs 1 lakh crore, above the central bank’s comfort zone of +/- 1 per cent of net demand and time liabilities. “RBI officials reiterated they did not see any systemic or structural risk to the liquidity position in the money markets. The officials argued if liquidity was indeed structurally tight, then the associated stress would have been visible in the marginal standing facility window — an emergency facility which market participants can tap to avail liquidity, albeit at a higher cost than the liquidity adjustment facility window,” Taimur Baig and Kaushik Das, economists at Deutsche Bank, who met senior RBI officials, said. The economists also said RBI officials noted cuts in the cash reserve ratio (CRR) were advisable at this juncture, as such a move would be tantamount to giving a monetary easing signal, which in the central bank’s assessment, was premature at this stage, given the evolving growth inflation dynamics. “RBI seemed to be indicating that probably, the CRR tool would be used only as a last resort, in case any major external risks were to pose a destabilising threat to domestic financial markets,” the economists said. According to bankers, other topics of discussion may include some long pending reform in the banking sector, including new banking licences and holding company structure. 

BS

Expect RBI to maintain liquidity: Central Bank of India

...... "As a banker I would say that the basic requirement which the central bank has to take care is that despite borrowing from the government would there be adequate liquidity available for the private sector, the markets."..............

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NSI to probe black money invested in post office savings schemes

However, NSI is expected to face several challenges in the job. The move was initiated in August, but NSI officials are yet to be trained, so inspections have not been started. A decision has now been taken to train officials through the financial intelligence unit (FIU), which does the job for Reserve Bank of India (RBI) officials too............

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After dissaving, get ready for cost-cut measures

........Reserve Bank of India Governor Duvurri Subbarao was left with little option to counter that, so he raised interest rates. And, as the months went into double digits, so did interest costs.....

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SIB M-Pay launched

Kochi, Jan. 4: Mr B. Sambamurthy, Director, IDRBT, the technical arm of the Reserve Bank of India, has launched South Indian Bank's mobile banking service — SIB M-Pay — on CBS platform, which enables fund transfer round-the-clock throughout the year. The scheme facilitates the convenience of fund transfer to other banks even on holidays. The customer receives the money instantly to the account from anyone without sharing the account number. All transactions are followed by an instant SMS confirmation . All the facilities offered are without any additional charge. Mr Gigo Joseph, CEO, Infopark, released the wallet size ‘User Guide' on SIB M-Pay by handing over a replica to Mr Abraham Thariyan, Executive Director, South Indian Bank. Mr P. J. Jacob, DGM, DICT, South Indian Bank, welcomed the gathering and Mr A. Sony, AGM, Marketing, SIB, delivered the vote of thanks.

HBL

Depositors in urban India not aware of interest rate: Nielsen

MUMBAI: A huge section of depositors in urban India are not aware of the interest rate they earn on their saving rate deposits even as the banking regulator recently deregulated the rates resulting in several banks offering higher rate to attract customers. A research by Nielsen shows that nearly 46% did not know interest they are earning from their bank while 54% of the account holders were aware of the savings rate they were earning from their bank. Of this, 18% knew the correct savings rate. Saving account was in the news a month ago after the Reserve Bank of India freed deposit rate, which was capped at 4% earlier. As a result, banks like Yes Bank and Kotak Mahindra Bank began offering 6% on savings account deposits. However State Bank of India and HDFC Bank, which have almost 50% of their deposits in form of savings and current account, continue to offer 4% on saving account deposits. The research was conducted in November- December across 9 cities -Mumbai, Chennai, Delhi, Kolkata, Bangalore, Ahmedabad, Coimbatore, Ludhiana and Bhubaneshwar, which involved face to face interviews among 738 respondents, said a statement by Nielsen.  The study revealed that 57% of savings account holders kept money in their savings account for medical emergencies. Half of savings account holders said keeping money in savings account made them feel confident about accessing their money any time.

ET

Reversing India's downward trajectory

... The Reserve Bank of India (RBI) does not need the approval of our contentious politics, nor of the public. All it needs is the understanding and willingness to reduce interest rates. If this happens, large businesses can concentrate on domestic investment instead of being driven offshore to protect their future, while small and medium businesses are not emasculated by high interest.......

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Market is expecting more than RBI can deliver: DSP BlackRock

......... As you may be aware of the fact that post the Reserve Bank of India Governor's comment on Monday regarding reversal of the credit policy, the market participants have assumed that the Reserve Bank of India is likely to cut rates faster than earlier anticipated date of March or April. And as a result of which,...........

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RBI asks Banks to acknowledge loan applications of MSMEs

January 4, 2012: The Reserve Bank of India (RBI) has today issued a notice to all scheduled commercial banks advising them to devise a system of giving acknowledgement for receipt of all loan applications. RBI has received complaints from the industry associations that banks are not acknowledging loan applications. “It is therefore, reiterated that the banks should mandatorily acknowledge all loan applications, submitted manually or online, by their MSME borrowers”, RBI said. Banks are also asked to ensure that a running serial number is recorded on the application form as well as on the acknowledgement receipt. Earlier the banks were also advised to put in place a Central Registration of loan applications and to use same technology for online submission of loan applications as also for online tracking of loan applications as recommended by the Working Group on Rehabilitation of sick MSME Units. 

Microfinance Focus

Vijay Sai Reddy clever, but CBI proves too smart

V Vijay Sai Reddy,

Honorary Consul General of Georgia,

Director, Reserve Bank of India

This was probably how Vijay Sai Reddy's visiting card would have read had the Central Bureau of Investigation (CBI) not registered a case against him and arrested him on Monday.....

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Govt whips PSBs for priority sector lending target slippages

..... According to RBI data, though priority sector lending saw growth of 18 per cent in 2010-11, that in agricultural advances decelerated to nine per cent as compared to 23 per cent in the previous year. In 2009-10, only two PSBs missed the targets and in the year before that, only one had done so. In 2007-08, all PSBs met the target............

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Recession is a state of mind

.......The stock markets are in doldrums, which means that the one hope of raising relatively cheaper money is gone. The tailwind of the RBI's brutal monetary tightening cycle of last year is still lashing the money markets, which means that money for businesses to operate and grow is still hard to come by and extremely expensive...........

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Policy deficit

.............Given this background, what are the policy options available? Well, not much in the short term, even while one must commend the RBI for not draining away its forex reserves in a futile intervention to defend the rupee. ...........

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Rupee on a weak wicket despite RBI moves

.....despite the Reserve Bank of India (RBI) having taken a series of measures aimed at boosting dollar inflows to prop up the rupee. While the momentum may have been arrested, the slide has continued.............

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Bengal to set up panel to finalise annual credit plan

Kolkata, Jan. 4: The West Bengal government plans to set up a committee to finalise the annual credit plan for the State for the year 2012-13. The committee will have various stakeholders including banks, government officials, National Bank for Agriculture and Rural Development (Nabard) and Reserve Bank of India, according to the State Finance Minister, Mr Amit Mitra...........

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FINSTREET MEN TO WATCH OUT FOR IN 2012

Rise and Be Counted...

Banking as a business is getting boring after all the excitement of the past many years. When it comes to expectations, most bankers just shrug their shoulders saying ‘nothing much’. But it is not necessarily so. There will be events elsewhere that will force some reaction here; there are people who are set to make it bigger and better; there could be a revolution brewing in the industry though it may not catch the fancy of financial wizards who sank the world. ET’s Banking Bureau chooses a few who deserve a close watch as the year unfolds because they could make a difference to your life, fellow citizens


Waiting for an Encore



The second most important job in any country from an economics viewpoint is that of the central banker. In India’s case, it could be said that the Reserve Bank of India governor Duvvuri Subbarao’s job has assumed a more critical role than that of finance minister Pranab Mukherjee’s, given that hardly anything moves in New Delhi these days. Unlike other chiefs, Subbarao not only has to manage the monetary policy to ensure growth and contain inflation, but also the Indian currency that’s getting pummelled because of the nation’s profligacy, ensure that government’s borrowing costs don’t rise, and banks behave. His stubborn belief that the inflation monster needs to be put down before anything else drew a lot of criticism, but many now agree what he did was right when he ignored calls for a pause or a reversal in monetary tightening. This year, he has promised to cut interest rates, provided inflationary pressure eases. But more than that, all eyes would be on how he manages the rupee for which his measures are yet to show the desired impact. But as in any policy issue, the reaction may lag. Even if he effectively manages the market forces, or puts them down with regulatory power, one imponderable has become the government. His calls for fiscal prudence have so far fallen on deaf ears. Will he get the attention this year? With the tools available with him such as Open Market Operations, he has managed to hold the yields. But for how long? In 2011, he appeared to manage the fight despite little help from the government. Can he repeat the performance?



Customer is King



Reserve Bank of India’s Deputy Governor K.C.Chakrabarty is many things to many segments of the banking world and its customers. It is common knowledge that the former chairman of Punjab National Bank is more on the side of customers, than on the side of bankers. Appointed in June 2009 to look after supervision, customer service, payments and settlement systems, his term will come up for review in June this year. An extension or not, can indicate the government’s priority. For the suave international banker, he may come across as crude central banker, but with his wit and retort he can silence any global banker who sells fancy concepts, be it at seminars or private meetings. It is not that the opposite side falls silent because of his position and power, but due to his logical arguments. When even the political class could not explain why farm loan waiver, Chakarabarty convinced international investors in a conference in Singapore that it was essential, and not all that bad for an economy. His continuation, or not, can reflect how much the customer matters.

ET

RBI nixes banks' subsidiary plans

Bank of India, South Indian Bank, Lakshmi Vilas Bank’s proposals rejected, to add to the earlier ones of ICICI Bank and Axis Bank. The Reserve Bank of India (RBI) has rejected several banks’ proposals to launch wholly-owned subsidiaries, as the regulator did not find any merit in floating such arms. Public sector lender Bank of India, which wanted to float a subsidiary to train human resources and recruit professionals, did not find favour with the regulator. State-run banks have to follow a uniform remuneration package, which is unattractive compared to their private sector counterparts. However, a bank could offer market related pay package for the employees that are hired by its subsidiary. RBI, however, was not convinced by the idea.

FALLING FLAT
Banks	Subsidiary planned
Bank of India	Human resources
South Indian Bank	Gold loan
Lakshmi Vilas Bank	Housing loan
ICICI Bank	Infrastructure finance
Axis Bank	Infrastructure finance

Similarly, South Indian Bank wanted to open a subsidiary to exclusively offer gold loans. RBI has also nixed that plan, as a bank is allowed to offer gold loan directly through its branches and a subsidiary route is not required for this activity, the regulator felt. "We had initially taken shareholders' approval to launch a gold loan subsidiary. The idea was to gold loans through this subsidiary in areas where we don't have a branch," said VA Joseph, managing director and chief executive officer of South Indian Bank. The Thrissur based lender is a major player in the gold loan market and gold loans account for 20 per cent of its credit portfolio. Another south India-based lender, Lakshmi Vilas Bank wanted to float an arm to sell home loans, again an activity which a bank is allowed to undertake through its branches. This proposal was also rejected by the regulator on similar grounds. As a result, Lakshmi Vilas Bank scrapped its plans to set up a housing finance subsidiary. The bank’s housing loan portfolio is currently around 2.5 per cent of its total advances. Its credit portfolio was Rs 8,813 crore as of September 30, 2011. “RBI is of the view that those businesses, which are possible through bank branches, should be done directly by the bank. There is no need to create a separate non-banking finance subsidiary for those businesses. Hence, for businesses like gold loan, housing finance, etc RBI is not keen to allow banks form a separate subsidiary,” said a top executive of a private sector bank. Earlier, proposals from ICICI Bank and Axis Bank to float an infrastructure subsidiary also did not find favour with the regulator. In the last couple of years, RBI has given its permission to open subsidiaries to undertake those activities which a bank cannot do directly through its branches. These businesses include securities broking and insurance underwriting. In addition, the regulator has also approved Bank of Baroda’s application to convert its credit card subsidiary into a joint venture by selling 51 per cent stake to the second largest bank of Spain, Banco Bilbao Vizcaya Argentaria.

BS

Portability Punch

After mobile telephones and medical insurance, will we have the option to move our savings bank accounts? There are green shoots of this, subject to banks falling in line.

It's an overdue move and can be implemented easily considering that most banks have managed to collaborate around automatic teller machines anyway. Technology is the easier part. Mindsets of banks are such that the Reserve Bank of India (RBI) will need to give them more than a gentle prod. No bank manager will let go of an account holder unless there are overriding disincentives to torpedo a portability application. There is social incentive in delivering portability to banking consumers. Standards of service in many banks (I do not think private and foreign banks are general exceptions to uneven quality) are really very poor. The consumer deserves to be able to penalise such banks. The disincentive normally is that the ‘other’ bank will demand the entire paperwork one more time. So, we often grumble and groan, but we usually stop short of severing our account with a lousy bank. The banker knows that! As we’ve often experienced, before the breaking point is arrived, the astute branch manager steps in at a crucial moment and her assuaging glass of water in the cabin (a cup of tea, if she's really kind!) usually forces us to change our mind. Portability, which is based on an integration of KYC (know your customer) data, can empower us to enjoy the tea, but press for a change anyway. Once integrated with ‘aadhar’ data, even less advantaged cutomers will have the option to revolt. The real advantage will kick in if performance metric of senior managers get linked to data on how many accounts moved on. I emphasise on senior folks, because the front-facing bank executive could be losing customers due to reasons beyond her control. For example, the excellent staff at Standard Chartered Bank I am familiar with have been saddled with a lousy software, which penalises account holders visiting in person! Mysteriously, the electronic hailer allows peons and drivers carrying memsaheb’s cheques get faster service! After protests from account holders, the poor tellers are back to identifying ‘known’ customers in person to break out of the queue. Clearly, someone higher up in the chain needs to be penalised here. Portability can help. Benchmarking the top guy is rationale behind performance management secretary Prajapati Trivedi trying to sign performance MoUs with secretaries to Government of India. There have been some counter comments. None appear to be unsurmountable. The principal opposition is that if portability is allowed, shady customers will get a chance to flee from bank to bank. This is trying to throw the baby with the bathwater. If KYC is indeed a unique ID, how can the crooks flee, leaving millions of honest customers paying the penalty? Rather than reinventing the wheel, extant experience with telecom and insurance portability can be useful. There are hard numbers to show that despite an aweful number of call drops, 98 per cent of us continue to suffer the same mobile provider. There’s a message hidden here for RBI. The telecom regulator has had to slap notices on some of the biggest operators for stalling portability requests.Some have erected unsurmountable walls, even informal non-compete arrangements, nixing our attempts to escape!

Rohit Bansal, CEO and Co-Founder, India Strategy Group, Hammurabi & Solomon Consulting LLP  – The Pioneer

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ICICI Bank to join Facebook bandwagon

New Delhi: The country's largest private sector lender ICICI Bank will soon join social media platform Facebook, where it plans to allow its customers to access their bank accounts, among other services. "... ICICI Bank will soon be present on Facebook. The ICICI Bank page (on the social media website) will include a one-of-its kind 'Your Bank Account' app through which you can access your bank account information while on Facebook," the bank's Executive Director Rajiv Sabharwal said. In a new-year message to the bank's customers, Sabharwal said that the customers would also be able to get updates on exclusive offers through Facebook. The bank is planning to join Facebook as part of its efforts to continue to provide "superior banking services" in 2012, in line with its 'Khayaal Aapka' (Your Care) philosophy, he wrote to the customers. A number of companies in India and abroad are establishing a presence on social media platforms like Facebook to reach out to their customers and get new businesses.  A survey by workplace solutions provider Regus had said that Indian companies increased their usage of social networks like Facebook, blogs, microblogging site Twitter and other online platforms in 2011 to win new business. As per the survey, 83 per cent companies in India agreed that their marketing strategies might not succeed without social media activity, while 74 per cent companies globally endorsed this view.  Another study by global consultancy major KPMG last month said that businesses in India and other emerging markets are using social media platforms more than their developed-market peers for expanding their customer relationships.

IBN Live

Banks to require up to Rs 2.7 trn under Basel-III: Crisil

................. "The RBI norms are stricter than those proposed by the BCBS (Basel Committee on Banking Supervision), with respect to stipulated capital and leverage ratios being higher by 1 % and 2% respectively, and the implementation period being shorter by two years,".............

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Banking services plan lags behind

Anantpur : Financial inclusion, a government programme to ensure access to financial services for villagers, and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups in rural areas is lacking the support of bankers. The programme was mooted to extend banking services in rural areas where such services are not available. Under the plan, all bank branches working in the district, will have to appoint business correspondents in villages allocated to them to provide banking services. Business correspondents, working like a bridge between banker and customer, help in making and receiving payments, collecting small scale deposits, habituating the customer to savings. They will get honorarium apart from commission from the banker. Though the programme was initiated by the Reserve Bank of India (RBI), it remained a lacklustre plan with bankers showing no interest. In 806 villages in the district, bankers have appointed only 268 business correspondents so far. The Nabard, in its recently released loan plan schedule, said that the district needs five more banks.

Deccan Chronicle

Banks: slowing credit growth, increasing slippages pose concerns

.... RBI governor D. Subbarao is worrying that even audited books of banks might be understating bad loans. With the slowdown likely to drag on, incremental NPAs are expected to grow. While that in itself puts pressure on capital adequacy ratios for banks, the new set of Basel-III norms introduced by RBI will require a further round of fund-raising......

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Due south

A leading corporate group headquartered in north India has accused a south Indian lobby of running the country’s top regulators. The group has written to the prime minister saying this lobby, which worked across the Reserve Bank of India, the Securities and Exchange Board of India and ministry of corporate affairs, has managed to add provisions in the Companies Bill that are harmful to north Indian business interests. The grapevine has it that this letter was instrumental in preventing the Bill being passed in Parliament. The group has also demanded MPs of its choice be part of the standing committee that will review the Bill. Now, if these MPs actually end up being members of that standing committee then we can be sure that writing letters to the prime minister is a good way to get things done.

BS

Reserve Bank allows revision of govt- securities price band

The Reserve Bank of India (RBI) allowed relaxation of price band limits of government securities that were traded on Monday. Following this the Fixed-Income Markets and Derivatives Association (FIMMDA) revised the price band thereby preventing reversal of Rs 5,000 crore worth of deals struck on the first trading day of the year. A rally in bond prices on hopes that RBI may opt for rate cuts sooner than expected had led to breach of the price band. According to the code of conduct on RBI’s Negotiated Dealing System-Order Matching (NDS-OM) platform, the permitted price range of bids and offers for a liquid security is within 1 per cent of its previous close. For an illiquid security the limit is at 1.25 per cent of its previous close. This was introduced in October 2011 in order to prevent any “big figure” mistakes. “This was the first instance of large volume trades breaching the limits since the price band was introduced,” said N S Venkatesh, head of treasury, IDBI Bank. RBI had ordered reversal of such trades that ended above the permissible limits on Monday. However, market participants met up with the regulator today to seek relaxation on the same. Yields on the 10-year benchmark government bond fell 18 basis points on Monday despite last week’s announcement of higher government borrowing. “Markets had factored in the possibility of increase in government borrowing plan last week but hopes of early rate cuts and more bond purchases by RBI resulted into a rally,” said a bond dealer with a public sector bank. Yields on 8.79 per cent government security maturing in 2021 closed at 8.38 per cent or Rs 102.65 on Monday compared with the close of 8.56 per cent or Rs 101.49 on Friday. FIMMDA on Tuesday said revised the price band to 1.3 per cent for the 8.79 per cent government bond maturing in 2021, 1.45 per cent for 9.15 per cent government bond maturing in 2024 and 1.4 per cent for 8.28 per cent maturing in 2027. The revision is applicable for deals struck on Monday only.

BS

Cabinet likely to take up issue of NHB stake transfer tomorrow

NEW DELHI: The Union Cabinet is likely to take up tomorrow the proposal for transfer of RBI's stake in National Housing Bank (NHB) to the government. "The Cabinet will tomorrow discuss amendment to National Housing Bank Act, 1987, for transferring Reserve Bank of India's (RBI) stake in the NHB to government," sources said. At present, the NHB is wholly-owned by RBI with a paid-up capital of Rs 450 crore. The government had made Budget provision of Rs 450 crore in the last Budget for meeting the expenditure for acquiring RBI's holding in NHB. It is to be noted that the government has already acquired stake of State Bank of India and National Bank of Agriculture and Rural Development (NABARD) from RBI. In 2007, the government acquired the 59.73 per cent stake held by RBI in the country's largest bank, SBI, for Rs 35,531.33 crore. However, NABARD stake transfer happened in 2010. It was the Narasimhan Committee that recommended the transfer of RBI's stake in State Bank of India, NABARD and NHB to the government to differentiate the central bank's role as the owner of banks and the sector regulator. After getting ownership of NHB, the government would also have a greater say in the boards of these institutions and the flexibility to issue directions to meet its credit objectives for the priority sector.

ET 

The mystery of the falling rupee

The rupee is now undervalued, so appreciation might be around the corner

Is something strange afoot in the rupee-dollar market, or am I just imagining things? The rupee continues to remain under pressure and apparently there is fairly heavy intervention by the Reserve Bank of India (RBI) to stop it slipping past 54 to the dollar again. Yet, if you ask any trader in a bank treasury, he is likely to tell you that there is hardly any shortage of dollars in the markets. Thus, the momentum of the rupee doesn’t seem to be driven by a large mismatch between the supply and demand for dollars. The only way to explain its frailty is to attribute it to weak sentiment, which keeps it offered. One clear indication of this is the way forward premiums have behaved. As anyone who has taken a basic course in international economics would know, forward premiums reflect the difference in interest rates across economies whose currencies are involved. Thus, the forward premium for the rupee is the difference between rupee interest rates and dollar interest rates — relevant, of course, to the tenure for which the premium is calculated. One way to interpret a forward premium is as a gauge of the relative availability of rupees vis-a-vis dollars. If rupees are abundant and dollars are in short supply, then rupee interest rates are likely to be low and dollar rates high, pulling forwards down. In the extreme case, when there is a famine of dollars, forwards go into discount as traders seeking dollars offer the sky in terms of dollar interest rates relative to rupee interest rates. In fact, our analysis of episodes of sharp depreciation since 2004 shows that they were preceded by periods of discount. Yet, strangely enough, the current episode of depreciation that took the rupee to an unprecedented low was not preceded by a period of forward discounts. Right through the period, forwards have kept rising. This would imply (if you are comfortable with my interpretation of forward rates) that the depreciation has taken place when rupee liquidity has actually been short relative to dollar liquidity — and not the other way round, as, theoretically, should have happened. The other way to look at this conundrum is to try and map the relationship between dollar flows and the exchange rate and check whether the exchange rate is in line, or completely out of whack, with the balance of flows. To do this, you could use the balance of payments (BoP) deficit or surplus (published quarterly) and link it, as we did at HDFC Bank, to the rupee-dollar exchange rate through a formal statistical model. The BoP is incidentally a summary of the inflows and outflows of dollars into the system for a period and the final balance reflects the excess demand or supply of dollars. Here’s what we found. To start with, even if we were to assume extremely aggressive outflows, we get a deficit of roughly $22 billion over 2011-12. (The April-September period for which hard data is available, incidentally, yielded a small surplus). The second step we took was to assume that this deficit is concentrated in the period between the end of September and December, that is, the period over which the depreciation pressure was most acute. Our model, which is based on a long-term relationship between the BoP and the rupee-dollar exchange rate, predicts an exchange rate of 49.40. In short, a range of 49-50 appears to be the “equilibrium” exchange rate of the rupee. Sceptics would argue that our entire prognosis rests on a somewhat flimsy assumption regarding the BoP position. To counter this, here’s what we wrote in a recent report titled “INR: no more depreciation left?”: “One possibility is that our BOP estimates are too conservative. The actual deficit, one could argue, is possibly much higher. There has been, as we know, a paucity of foreign currency credit and redemptions are high this year. That could be driving a gap that is higher than we predict. Similarly the current account deficit could be higher than $67 billion, or 3.3 per cent of GDP, that we are working with. Our argument is that while that is theoretically possible, it does not quite square up with the situation on the ground, where outflows seem to be matched by adequate inflows.” What’s the bottom line then? For one thing, if you are using the demand-supply balance to “value” the exchange rate, then the rupee seems undervalued or oversold. The move beyond 50 to the dollar seems to be driven by adverse news-flow and sentiment, rather than a genuine excess demand for dollars. Were that indeed the case, RBI’s measures to curb speculation are likely to be effective. Second, it is possible that like all other financial assets, the rupee is pricing in a future shortage of dollars — perhaps based on the fact that portfolio flows will be scanty next year. We buy this argument, but argue that at a level of over Rs 3 above the fair value, a lot of the potential bad news is already priced in. Thus, even if fundamentals were to worsen, there might not be further depreciation. If the rupee is indeed stuck in a fragile equilibrium, then any surge in inflows could lead to a quick turnaround in the rupee. Non-resident deposit rates have been deregulated, and banks have jacked up the rates on these deposits. If non-resident Indians respond to enormous arbitrage possibilities that this entails, a phase of quick appreciation might not be too far away. 

Abheek Barua, Chief Economist, HDFC Bank (BS)

The coming dollar crunch

.....In its latest Financial Stability Report released at the end of December, the Reserve Bank of India flagged its concerns on this front: “The current environment of risk aversion and depreciation of the Indian rupee could complicate the refinancing challenges faced by Indian corporates with regard to their foreign currency convertible bonds (FCCBs) and external commercial borrowings (ECBs). FCCBs raised in pre-crisis years at zero or very low coupons will need to be refinanced through domestic sources at the higher interest rates prevailing currently.”.................

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Indian firms lose payment power

Crisil Ratings on Tuesday said the repeated interest rate hikes by the Reserve Bank of India (RBI) and lower operating profits due to high input costs have pulled down Indian firms’ interest-paying ability to a five-year low.......................

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RBI governor D Subbarao hints at soft monetary policy

NEW DELHI: Concerned over the declining growth, Reserve Bank Governor D Subbarao has indicated that the central bank could reverse the tight monetary stance adopted by it since March 2010 to tame inflation. "From here on we could expect reversal of monetary tightening," Subbarao told the BBC in an interview. The RBI Governor, however, added it was "difficult to say when that will take place and in what shape it will roll out". The central bank is scheduled to announce the monetary policy review on January 24. RBI has hiked key interest rate 13 times since March 2010 in its bid to check rising inflation, but it took a pause in its December monetary policy. Moderation in inflation witnessed in November-December has raised the hopes that RBI may start reducing key interest rate in its forthcoming credit policies. Headline inflation dropped to 9.1 per cent in November from 9.73 per cent in the previous month, while as per the data food inflation has declined to 0.42 per cent. Subbarao said that although inflation still remained a risk, RBI was aware that it needed to boost growth amid an uncertain global economic environment. "We have always been mindful of growth concerns, contrary to popular perceptions," Subbarao said adding "in fact, in our December statement we said that growth is a serious concern. So I think the balance between growth and inflation will shift in 2012". While the high interest rate has helped in moderating inflation, the high cost of credit has taken its toll on the economic growth. The GDP slowed to 6.9 per cent in the second quarter of 2011-12 from 7.7 per cent in the previous quarter.

ET