RBI makes Public the Engagement Schedule of its Top Executives

From January 3, 2011, the Reserve Bank of India will place on its website, the public engagement schedule of the Governor and the Deputy Governors. The engagement schedule will include public speeches and outreach activities undertaken by the executives. The initiative is one more step towards demystifying the central bank and the offices of the Governor and the Deputy Governors.

Reserve Bank of India appoints M Sarkar Deb as director of State Bank of Mysore

State Bank of Mysore has announced that Reserve Bank of India has appointed M Sarkar Deb, Chief General Manager, Reserve Bank of India, Department of External Investments and Operations, Central Office, Mumbai as a director on the board of State Bank of Mysore in place of Ratna K Makhija with effect from 03 January 2011 until further orders.

Moneylenders should be out of the system: Dr K.C. Charabarty, Deputy Governor, RBI

The Reserve Bank of India's broad goal for financial inclusion is to ensure that there are only two players in the money-lending spectrum – banks and non-banking financial companies (NBFCs) – in the long term, Dr K.C. Chakrabarty, Deputy Governor, RBI, told Business Line, indicating that moneylenders should be out of the system. “Our broad goal is that NBFCs must capture the moneylenders' customers, and banks should capture NBFCs' customers,” he said. Banks must look at financial inclusion as a viable business, and should cover the six lakh villages that are still un-banked. Though banks have not made a spectacular progress, “there is a definite progress; every day something is happening,” he pointed out. The RBI is working out the eco-system, and “there is still a long way to go,” he added. According to him, 72,000 villages will be covered in the first phase of the financial inclusion, and the rest in the next phase. This will be done through brick and mortar branches and business correspondents (BCs) with the help of technology. “Through BCs, banks should provide four services — savings bank, pure deposit product, immediate/emergency credit and entrepreneurship credit. Each household must be given a kisan credit card or a general credit card. For those who do not deserve credit, start a financial educational programme, involve the society and the State governments and make them creditworthy so that everybody links with the bank,” said Dr Chakrabarty. Explaining the role of microfinance institutions (MFIs), he said though they were intermediaries, their role was important as they bring in people going to the moneylenders to the banks, he said. “Our focus is to bring in real competition. MFIs should reduce their interest rate, and commercial banks and RRBs must enter this field. That is the purpose of financial inclusion. On the present crisis in the MFI sector, Dr Chakrabarty said that there are some MFIs with good practices. “We have to identify good MFIs and encourage them, and also those who are not good and penalise them.” The Malegam Committee is already examining the grey areas, and “we will come out with the recommendations,” he said.

HC orders notice to RBI, bank on donations

The Karnataka High Court on Monday ordered emergent notice to the Reserve Bank of India (RBI) and Karnataka Bank in connection with a petition challenging the collection of donations by Karnataka Banks Employees’ Association (KBEA) from bank customers. The petitioners, the share holders of Karnataka Bank had moved the High Court over the collection of donation illegally by KBEA. They claimed that about Rs six crore was illegally collected.  The petitioners also submitted that the KBEA also owns a building worth Rs two crore in Mangalore. Mentioning that the KBEA also possess movable assets worth lakhs of rupees, they said the collection of donation is a violation of RBI directive and Apex Court order dated August 6, 1985.  The petitioners further submitted that despite the complaint no action has been taken by RBI or Karnataka Bank and sought directions to freeze the funds and prosecute the officers involved. The Division Bench comprising Chief Justice J S Khehar and Justice A S Bopanna ordered emergent notice.

Credit, debit card services hit in UP

LUCKNOW: Credit and debit card users had a tough time here on Monday as swiping machines at a number of outlets refused transactions. Apparently, the reason for the day-long snag was the ongoing upgradation work for meeting the deadline to implement the Reserve Bank of India (RBI) guidelines on card transactions. According to sources, the services remained affected throughout the state. As per the guidelines, banks should have a system for providing an additional authentication and validation of transactions made online or through interactive voice response (IVR) service. The step was taken in 2009 to enhance security of the online card transaction. The deadline to implement such a system was January 1, 2011 which the banks failed to meet. ''January 31, 2011 has been fixed as the new deadline for this,'' said Amarendra Sahoo, Regional Director, RBI.

The other side of the coin

Given inflationary conditions in India, withdrawing smalldenomination coins will only aggravate inflation in the economy. Consider this. If each one of the 1 billion Indians carries out an average of five transactions involving small change, it is rounded off to the nearest rupee. Assuming a minimum change of 20 paise per person for each transaction, this would amount to a loss of `1per person on five transactions every day. Add to this a loss of `500 crore owing to the rounding-off of amounts issued by bank cheques. So `1,000 crore is in hidden circulation, which will push up inflation by at least 5 percentage points. This can be avoided by reintroducing small-denomination coins irrespective of the cost, which is far lower than the inflation effect.  - Abhay Ekbote, Hyderabad

UID to replace PF account number

The Employees’ Provident Fund Organisation (EPFO) plans to replace the provident fund (PF) account number with a unique identification (UID) number, a move that would enable speedy transfer of subscribers’ funds in case of a job change and allow them to track their accounts online.  At present, if a subscriber changes his job, it takes months to transfer PF money from one account to another, as a transfer of records from one office to the other is required. Under these circumstances, alarge number of subscribers often withdraw the entire money in their account and go for a fresh account with the new employer. The replacement of PF account number with the UID number will be done after interconnecting all regional and suboffices of EPFO by March 2012.

BONGIRWAR NEW MD AND CEO OF IDBI CAPITAL

Abhay L Bongirwar, chief general manager, IDBI Bank, has been appointed as the managing director & CEO of IDBI Capital Market Services. He has taken over the charge from Nagendra Bhatnagar, with effect from December 31. A distinguished banker, Bongirwar has an experience of around three decades with IDBI Bank. He has been associated with project appraisals, investment banking and corporate banking, and has particular experience in infrastructure, retail banking, corporate debt restructuring and HRD/Training.

Discontinuing 25 paise coins is the right decision

RBI has notified discontinuing coins of 25 (and below) from June 30, 2011. It is time that RBI may plan for reducing sizes of other coins of 50-paise and one rupee to reduce minting-cost and to ease burden on pockets. However, two-rupee coins need to be discontinued because usually consumers have either to pay two-rupee coins in place of one-rupee coins, or shopkeepers gives unwanted items like candies etc in place of balance one-rupee coin to be returned. This is because of the fact that currency-chests often forces two-rupee coin-bags because of usual short supply one one-rupee coins. Most people in practice try to get rid of two-rupee coins. Design of bi-colour 10-rupee coins is not proper, and needs to be rectified. It will be better if it may also be attractively designed in a bigger size like single yellow-coloured five-rupee coins. It is time to discontinue printing of currency-notes of rupees five and 10 with more coins of these denominations put in circulation. It will not only save high printing-cost of low denomination notes with much lower life, but also will pave for further saving on currency-printing by reducing sizes of currency-notes of other denominations. It is not understood how and why RBI re-introduced five-rupee notes after they were once discontinued to be printed some decades ago! However, to practically check currency-related crimes like fake currency, black money, cash-loot etc, RBI should follow advanced countries by discontinuing printing of higher denomination currency of rupees 500 and 1000.

RBI fines Bombay Mercantile Rs 5 lakh

The Reserve Bank of India has imposed a penalty of Rs 5 lakh on Bombay Mercantile Co-operative Bank, Mumbai, for violation of instructions and guidelines of the RBI. The bank had violated the group exposure norms prescribed by the RBI by sanctioning 21 loans aggregating Rs 96.20 crore to Shah group of companies between November 17, 2008 and July 18, 2009, as against permitted ceiling of Rs 14.11 crore, the RBI said. The RBI had issued a show cause notice to the bank, in response to which the bank submitted a written reply. “After considering the facts of the case and the bank’s reply in the matter, the RBI came to the conclusion that the violations were substantiated and warranted imposition of the penalty,” the RBI said.

RBI mulls new ways for direct information flow from banks

Amid a surge in the number of bank scams, including the recent `400crore Citibank fraud, the Reserve Bank of India (RBI) is considering putting in place a system that will allow it to directly monitor all transactions at various banks. Once in place, the new system will enable complete automation for submission of transaction returns filed by banks to RBI, doing away with the need for manual intervention. RBI has begun the consultation process for implementing the new system, which could require banks to upgrade their computer hardware and software solutions, according to asenior official. Although the submission of transaction reports is already an automated process, it involves at least four steps that involve manual interventions. Currently, banks receive information from their various branches, then integrate the data and store it, followed by data conversion and then data submission to RBI. According to the proposed move, the entire data flow will be completely automated and will help banks in terms of enhanced data quality, timeliness, and reduced costs, besides a direct oversight by RBI for any possible fraud. Frauds in the banking sector had hit a record high of `2,017 crore in 2009-10. A fraud case, reportedly involving `400 crore, came to light last week. The police arrested a senior official at aCitibank branch in Gurgaon.  The new system will enable complete automation for submission of transaction returns filed by banks to RBI.

Extension for LIC chief? A test case for govt

When TS Vijayan, now the longest serving chairman of LIC, was appointed to the post in May 2006, he was given a five-year term till May 2011. At 53 then, he still had seven years to retire from the government-owned life insurer. Now very soon the government will have to take a call whether to give him another two years at LIC, make some other arrangement or let him retire two years before the prescribed age for superannuation. On Vijayan’s part, he has to overcome the taints from the recent scam that hit LIC as well as LIC Housing Finance, a subsidiary of the insurance major. For the government, Vijayan’s case will also be a test case since chiefs of two other PSU banks—MV Nair at Union Bank and KR Kamath at PNB—are also in a similar situation.

Bank account number is sole criteria for e-fund transfers now

Looking to speed up the transfer of funds electronically, banks will henceforth only take into account customers' account numbers for such transactions, ignoring other details like names. The new mechanism is intended to reduce the possibility of any errors and comes into effect from today (January 1, 2011). This is in line with a Reserve Bank directive under which customers would need to mention their account numbers twice for every electronic fund transfer request made through the Internet, as well as at bank branches. The central bank had directed the banks to put in place the appropriate systems and procedures to comply with the directive from the New Year. As per the RBI guidelines, the banks would need to process all inward electronic transactions solely on the basis of the account number of the customer. The new system would be applicable for all electronic payment gateways, such as RTGS, NEFT, NECS and ECS, besides fund transfers initiated by customers at bank branches or over the Internet. Although electronic payment methods are aimed at achieving expeditious fund transfers through a computerised system, the earlier practice involved manual intervention too, on account of the tedious process of matching various details such as customers' names and branch details.

Postal dept to join hands with banks for pre-paid cash cards

The Department of Post will collaborate with leading banks -- IDBI, HSBC and ICICI Bank--to provide cards (on the line of credit cards) to rural people in order to facilitate non-cash transactions for purchase of products and services. The card will come with pre-determined amount in rupees and could be operated at merchant locations, ATMs and designated post offices subject to approval by the Reserve Bank of India.  Disclosing his Department's 100-day agenda, Telecom and IT Minister Kapil Sibal on Saturday said his ministry will offer 'White label Pre-paid Cards' to the rural people. The objective of launching this card is to leverage cash handling expertise and the network of India Post in order to facilitate non-cash based transactions for purchase of products and services at retail outlets across the country and to earn revenue through value added service.

Need to stop all premature PF withdrawals: Finance to EPFO

The Finance Ministry has asked the Employees’ Provident Fund Organisation (EPFO) to stop all premature withdrawals and adhere to the “one instrument-one policy objective” principle. Though the EPF is meant for oldage income security, subscribers are currently allowed liberal advances and withdrawals for a variety of needs such as illness, education, house-building, marriage and education. “The distortion created by not adhering to the stated principle is that most of the employees, say 75 per cent, of the EPF retire with as little as less than Rs 35,000 in their accounts,” wrote R Gopalan, Secretary, Department of Financial Services, Ministry of Finance, to his Labour Ministry counterpart, Prabhat Chaturvedi on December 10. In fact, Gopalan has suggested that subscribers must take medical insurance to take care of their medical needs, home loans for house-building and educational loans for meeting educational expenses.

Wishing you a very happy new year....

RBI to stop NBFCs from raising surrogate deposits

The Reserve Bank of India is in the process of formulating guidelines in conjunction with the ministry of corporate affairs, to plug a regulatory gap that permits surrogate raising of deposits by NBFCs (Non Banking Financial Companies).  RBI said in its second Financial Stability Report, released on Thursday. NBFCs are exempt from the provisions of Section 67 of the Companies Act, 1956, in terms of which the issuance of shares or debentures to more than 49 investors needs to be through public issuance. This means that NBFCs, particularly those not regulated by the Reserve Bank, could issue debt or quasi-debt instruments to a large number of retail or institutional investors on a private placement basis. This would be tantamount to raising public deposits outside the extant regulatory framework. Specific concerns in this regard have arisen in the past in the context of private placement of Convertible Preference Shares.

PNB to develop Chandigarh village as model village

Punjab National Bank (PNB) has adopted one village in Chandigarh, which will be developed as a model village in terms of banking infrastructure and baking services.  PNB, which is a leading bank here, would provide banking services through ICT-enabled Business Correspondent model in its adopted village Kishangarh. A survey of village has been completed jointly by the Reserve Bank of India and PNB to ensure 100 per cent financial inclusion in the village. All those households that are disconnected from banking services would be issued biometric cards, said an official of RBI here. Speaking on this occasion, RBI Executive Director, G Gopalakrishna said that RBI had asked banks to cover unbanked villages by year 2012 as part of financial inclusion programme. "RBI has asked banks to cover villages that have not been covered yet and they have to complete this task by 2012," he said. He stressed the need to use technology like mobile technology, ICT model besides banking correspondents and brick and mortar model in reaching out to ruralites. “Still 50 per cent of the total population is not covered by banks. There are 32,000 bank branches across the country, while there are about 600,000 villages in the country, there is still a long way to go. Only by leveraging technology can we bridge this gap. We should ensure every person has a bank account, so that he can avail of various financial services offered by the government and other agencies,” he added.

The vice chair of India's fledgling Financial Stability & Development Council has helped to stabilise country's banking system

The new vice chair of India's fledgling Financial Stability & Development Council has helped to stabilise his country's banking system and comes 29th in the GFS Power 50. Despite being two thirds owned by the public sector and generally regarded as well capitalised, Indian banks did not escape the financial storm of 2007-2008, much to the alarm of the country's public and state officials. Dr Duvvuri Subbarao took over as governor of the Reserve Bank of India at the heart of the crisis in September 2008 and, following stints as a leading World Bank economist and secretary to the Prime Minister's Economic Advisory Council, was well equipped to minimise the fallout. Subbarao's influence in government in 2010 was underlined when he was offered the vice chairmanship of the Financial Stability & Development Council, a new body set up by finance minister Pranab Mukherjee, which will oversee the Insurance Regulatory and Development Authority (Irda), Securities and Exchange Board of India (Sebi) and Pension Fund Regulatory and Development Authority. The governor had previously expressed concerns that the autonomy of regulators would be undermined by the Council and, after effective lobbying, was offered the role chairing its only sub-committee. The governor has argued in favour of a review of the country's disparate and at times inconsistent banking laws to open up competition between financial institutions. Subbarao has also worked to restrain bank executive pay, with the Reserve Bank issuing draft compensation guidelines in July. Indian banks must now submit an annual declaration confirming that compensation structures are in line with Financial Stability Board standards. Subbarao set up a Financial Stability Unit within the central bank to make regular and systematic assessments of the stability of the Indian financial system and has worked with the Institute of Chartered Accountants of India to ensure that its banks comply with international accounting standards. Respected on the world stage and a regular speaker at the Bank of International Settlements, the 61-year-old has heavily criticised the "euphoria of financial alchemy" that preceded that crisis, insisting that the "real sector" should drive the financial sector and not the other way around. But he has also claimed that making banking boring - as advocated by the likes of economist Paul Krugman - is not necessarily a cure to the "ills" of the financial world. Banking, he believes, must still evolve, grow and innovate.

Reserve Bank of India releases Second Financial Stability Report

The Reserve Bank of India presented its assessment of the health of India’s financial sector in the second Financial Stability Report (FSR), released here today. The report reflects the Reserve Bank’s continuing endeavour to communicate its assessment of the incipient risks to financial sector stability. The first FSR was released in March 2010. The second FSR holistically assesses, from a systemic risk perspective, disparate elements of the financial sector eco-structure – the macroeconomic setting, policies, markets, institutions. The movements of various vulnerabilities between March and December 2010 and assessment of the resilience of the financial system have been presented in this Report. It also reflects the considerable efforts made within the Reserve Bank to upgrade the methods and techniques for assessing the health of the financial system in identifying and analysing potential risks to systemic stability.