CHANDIGARH: The Fire and Emergency Department of the Municipal Corporation conducted a fire evacuation drill at the Reserve Bank of India (RBI), Sector 17. The joint exercise was conducted on the request of internal security officer of RBI S Balamurugan. This evacuation drill was conducted to check the response time of various emergency departments. The condition of the fire fighting system installed in the RBI building was also tested.
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Friday, June 10, 2011
ACU discusses fin sector regulations, capital flows management
Issues relating to regulation of financial sector, protectionism and management of capital flows, among others were discussed during the 40th meeting of the Board of Directors of the Asian Clearing Union (ACU) held at Kumarakom, Kerala, today. The multilateral institution -- comprising central banks of Bangladesh, Bhutan, Iran, India, Myanmar, Maldives, Nepal, Pakistan and Sri Lanka -- also discussed matters related to reforms in the financial sector regulations, the Reserve Bank said in a statement today. The meeting was chaired by the RBI Governor D Subbarao and attended by senior officials of all member nations. "Subbarao drew attention to the major global issues which have implications for ACU member countries. In particular, he flagged the issues relating to the international monetary system and global reserve currency, protectionism which could affect trade and other linkages of the countries, management of capital flows and reforms in the financial sector regulations," the statement said. The participants presented reports on macro-economic developments of their respective countries and discussed the recommendations made by the Technical Committee of the ACU for improving the settlement systems under the ACU. "Among the other issues on which the members exchanged views were regulation of the financial sector, fiscal-monetary coordination, buildup and possible use of foreign exchange reserves, management of capital flows and the implication of BASEL III on their respective banking systems," it said. This was the 40th meeting of the ACU whose main objective is to provide an efficient mechanism for payment and settlement for intra-regional transactions on a multilateral basis.
MSN News
Indian banks - The pendulum swings again
China’s banking system is not a good model for India
During India’s long experiment with socialist economics after gaining independence in 1947, many big industrial houses managed to survive as recognisably private firms. Banking, though, got it in the neck. “Major banks should be not only socially controlled, but publicly owned,” Indira Gandhi, the then prime minister, announced on All India Radio in 1969. Nationalisation followed. Today, after 20 years of liberalisation, state-run banks can sometimes look like they are in terminal decline. Some branches are literally rotten, their concrete walls covered in slime and window bars rusted. Yet the reality is quite different. The state sector still controls three-quarters of deposits, and since the financial crisis its share has crept up. In 2008 and 2009 foreign banks, burned by bad consumer loans and shaken by events elsewhere, withdrew credit. Some private Indian banks slammed the brakes on, too, including the largest, ICICI, which faced rumours of insolvency—scurrilous, as it turned out, but gleefully repeated by at least one state-bank boss at the time. The public banks, meanwhile, and in particular State Bank of India (SBI), which has a fifth of the market, had an influx of deposits and undertook a lending splurge. SBI’s balance-sheet doubled between March 2007 and March 2011. SBI insists that its expansion did not reflect a Chinese-style, government-directed effort to offset the global slump. Yet although they remain tiny compared with Chinese giants like ICBC and China Construction Bank, there is often more than a whiff of Beijing about the Indian state lenders. Their loan books are skewed towards more socially worthy projects; their bosses’ pay is modest; and they have a hybrid status as firms that are listed but have the state as a majority shareholder. The crisis led to a reddening of attitudes across the industry. The requirement that banks must hold up to about a quarter of their deposits in government bonds was no longer denounced as a racket to help fund the budget deficit but instead hailed as an enlightened form of liquidity management. The Reserve Bank of India (RBI), the central bank which regulates banking as well as setting interest rates, made clear its view that India’s approach was superior to the discredited Western models that it had long been told to adopt. It seemed as if India’s state-dominated system might not be a staging-post towards full liberalisation but instead the end destination. Yet recently things have shifted again. In May SBI’s new chairman announced dire results, with lower lending margins, provisions for pensions and extra charges taken against its loans. The hit, including forfeited profits, was some $2.5 billion, equivalent to over a tenth of the bank’s equity. Since its capital ratios are too low to support fast growth, SBI needs to raise more equity. That means persuading the government, which does not want its 59% stake diluted, to stump up: not an easy task. With rates rising and the economy slowing, some fear more bad debts could emerge at the state banks that lent freely during the downturn. Meanwhile the private banks seem perkier, with their share of loans beginning to rise. ICICI’s chief executive, Chanda Kochhar, says that after two years of building more branches to suck in sticky deposits, the bank is “in a happy situation” and ready to start increasing credit again. Aditya Puri, the boss of HDFC Bank, which remains the darling of investors thanks to its metronomic performance, plans to keep expanding quickly, too. Other financial firms with banking licences, such as Kotak Mahindra, have been shifting towards the lending business and away from capital markets where profitability has fallen, partly thanks to a rush of foreign investment banks into India. Two reforms being flirted with by the RBI could make things more competitive. The first would offer foreign banks a deal by which they create proper subsidiaries in India (which should be easier to regulate) and direct more lending to priority areas such as agriculture. In return they will be allowed more branches. One foreign-bank boss reckons that India, much like China, will never allow foreign firms more than a 10% market share, but that would still be almost double current levels. Another is more optimistic, saying that the RBI’s stance is a “huge step”. The RBI is also considering granting new banking licences to Indian-owned firms. There is some scepticism about the process. One Mumbai financial bigwig jokes that two licences will be granted—one, by the RBI, on the basis of competence, and the other by politicians in Delhi on the basis of bribe size. Still, the result should be an increase in the number of banks. India could end up allowing industrial conglomerates to own banks. That would put it at odds with most countries, where mixing business and banking is considered toxic, but would mean new entrants with financial muscle (although the butchest conglomerate of them all, Reliance Industries, said on June 3rd that it would not seek a licence). Over the next year private banks will almost certainly win back market share. Farther out, the Beijing model of banking is in any case probably beyond the capacity of the cash-strapped Indian state. Loans are only about a third of India’s GDP compared with over 100% in China. The private sector will be needed to provide the capital to support more credit. Nor can India seal off its financial system to the same extent as China. Its businesses are internationalising faster, and its persistent current-account deficit and bad infrastructure mean it badly needs foreign investment. As a matter of both preference and necessity, then, Indian’s banking system will become more linked with the world. Its resilience during the crisis partly reflected its competence, but also its insularity and underdevelopment. But if India’s economy is to rival China’s by size, its financial sector needs to become less, not more, like the Middle Kingdom’s.
The Economist
MFI woes persist despite debt recast, Malegam proposals
Most microfinance companies in India continue their struggle for survival. This is despite banks agreeing to recast the existing debts of micro-lenders and the Reserve Bank of India (RBI) adopting the broad recommendations of the Malegam committee on regulating the sector. The situation at the ground level remains grim. The legislation imposed on the microfinance sector by the Andhra Pradesh government continues to affect loan recoveries and erode the profits of microfinance institutions (MFIs) in the state. Banks have dismissed micro-lenders' pleas for additional loans, which, the MFIs claimed, was critical to sustaining their business. Even private equity investors, who own sizeable stakes in many microfinance companies, have refused to increase their investment in the sector until the regulations are clear. “It is important to understand that the reason for this crisis, and the related debt restructuring, is the Andhra Pradesh Microfinance Act, and not the MFIs, their promoters or the banks who have lent money to MFIs,” said Mark Stoleson, chief executive officer, Legatum, a multi-billion dollar global fund that manages proprietary capital. The fund is also a majority shareholder in Share Microfin, a Hyderabad-based microfinance company. “Legatum believes in order for debt and equity capital to once again flow into the microfinance sector, any ambiguity in the regulatory framework must first be addressed. The Andhra Pradesh Microfinance Act should be urgently repealed and RBI must re-establish its authority as the regulator of non-banking financial companies,” Stoleson said. While RBI had adopted the broad recommendations of the Malegam committee on regulating the microfinance sector with effect from April 1, investors remain worried. This is because the Andhra Pradesh government has persisted with its law that affected the microfinance companies in the state. “At the ground level, the situation has not improved. Recoveries are still not happening. As a result, investors and lenders are scared to provide additional funds to us,” said a senior official of Trident Microfin, a Hyderabad-based microfinance company that opted for debt recast. “Banks are not lending to MFIs. In our discussion with banks, they had promised us once the guidelines (on regulating the MFI) sector are finalised, they would give loans. But banks' promises, you know...,” RBI Deputy Governor K C Chakrabarty had said in a conference last week. Barring a few large ones like SKS Microfinance and Bhartiya Samruddhi Finance, most microfinance companies in Andhra Pradesh are currently facing a liquidity squeeze. According to officials of microfinance companies, banks have promised to offer fresh loans if the situation improves in six months. “It is difficult to continue our business in an environment like this. If we don't get additional funds soon, we may have to shut shop,” said a senior official of a microfinance institution in Andhra Pradesh. The official requested anonymity, since he was currently negotiating with banks for additional funds.
BS
Who needs small savings?
The committee appointed to devise a more viable and meaningful future for the fund in its report makes many recommendations but does not directly question the fund’s raison d'être. You don’t need a small savings scheme to find resources for states. What you do need is to promote financial inclusion and use for nation building the small savings of millions of people. For that, it is necessary.....
RBI allows foreigners to re-designate accounts as non-resident
With a view to facilitating easy repatriation of money by foreign workers, up to USD 1 million annually, the Reserve Bank today allowed foreign nationals who have left India to re-designate their bank accounts as ''Non-Resident'' for receiving their dues. "The extant instructions have been reviewed so as to facilitate the foreign nationals to collect their pending dues in India," RBI said in a circular. "... banks may, therefore, permit such foreign nationals to re-designate their resident account maintained in India as Non-Resident Ordinary (NRO) account on leaving the country after their employment to enable them to receive their pending bona fide dues," it added. As per the old rules, foreign nationals employed in India were eligible to maintain resident accounts with an Indian bank. However, the banks were required to close the resident accounts of such foreign nationals once they left, and transfer their assets to overseas accounts. RBI said, however, that banks should obtain full details from the account-holders about their dues before facilitating any re-designation. Besides, funds credited to the NRO account should be repatriated abroad immediately after scrutiny regarding payment of taxes in India. "The amount repatriated abroad should not exceed USD one million per financial year... The debit to the account should be only for the purpose of repatriation to the account holder''s account maintained abroad," the circular said. It also directed banks to put in place proper internal control mechanism to monitor the credits and debits to this account and to close such accounts immediately after all the dues have been received and repatriated.
MSN News
MFI woes persist despite debt recast, Malegam proposals
Most microfinance companies in India continue their struggle for survival. This is despite banks agreeing to recast the existing debts of micro-lenders and the Reserve Bank of India (RBI) adopting the broad recommendations of the Malegam...........
PSBs seek to scale up presence in Africa
INDIAN BANKS’ AFRICAN SAFARI |
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FIIs to petition Sebi on new IDR norm
The institutional investors are also miffed due to the fact that a Reserve Bank of India (RBI) clarification (in response to a query by some investors) in December 2010 had said that no prior approval would be required to convert IDRs into underlying shares after one year of listing. RBI had not said there would be a “liquidity criterion” applied..........
Trust deficit
"Now with the RBI policy in place and with MFIs clear on rectifying some of their practices and policies, we hope that the banks will regain their confidence in the sector in the next two to three years.".......
Click to read...........
Click to read...........
What are the common credit card grievances?
The RBI has issued strict guidelines against banks activating credit cards without the consent of the recipient and billing him/her for the same. The issuing bank is not only liable to reverse the charges, it must also pay the customer..............
SEBI’s Hands-Off appraoch
The question is will the SEBI board, the finance ministry and the standing committee of Parliament on finance listen? It is interesting to contrast this with how the Reserve Bank of India (RBI) had drastically cut investor complaints during Dr YV Reddy’s tenure. He increased the number of banking ombudsmen; expanded the scope of issues they would handle; told banks that repeated complaints on the same issue would be treated as a class-action. His masterstroke was that he appointed serving RBI general managers to be ombudsmen. This ensures that a big swathe of RBI’s senior officials is personally sensitised to customer issues as well as banks’ perspective and that RBI has a better record of handling customer complaints than other financial regulators.
SEBI begins search to hire four executive directors
The erstwhile SEBI chairman Mr C.B. Bhave had brought in people from the private sector as EDs as against the usual practice of appointing bureaucrats and senior officials from RBI, banks or financial institutions for this position.......
Continue reading.................
Continue reading.................
RBI to levy 25-50 paise processing fee from July
MUMBAI: The Reserve Bank of India will now levy a processing fee of 25-50 paise for inter-bank retail electronic payments. Twenty five paise will be levied on the originating bank for outward and return transactions. The originating bank will also pay 25 paise for every credit transaction and 50 paise for every debit transaction. The central bank restricts banks from passing on the charges to customers. The charges will be levied from July 1. The Reserve Bank of India had waived off the processing charges since 2006. But since the usage of retail electronic payment has increased substantially now, the banking regulator is in a position to levy the processing charges, a circular released by the Reserve bank of India said.
ET
Tax defaulters
It is good to learn that CBDT is contemplating publishing a list of regular tax defaulters especially those above Rs 1 crore. One hopes such a list actually materialises. Not so long ago, the RBI had compiled list of corporate defaulters which the trade unions and Left parties wanted published. It never was, which only goes to show the so-called ‘transparency' or ‘governance values' of the companies concerned. Let us hope the tax defaulters list does not become another document consigned to the deep freeze of bureaucracy.
Ramanathan, Chennai (Business Line)
In Microfinance, small is beautiful
The original version of microfinance, as pioneered by Nobel Peace Prize winner Mohammad Yunus and his Grameen Bank, operated along a non-profit model. A recent reincarnation, however, still seeks to expand the access of the poor to credit.........
Continue reading.........
Continue reading.........
Thursday, June 9, 2011
RBI prescribes leaves to curb bank fraud
MUMBAI: Thanks to high-value frauds in banks, Reserve Bank of India has asked lenders to implement a mandatory leave requirement, which will compel a large number of bankers to spend quality time with their families. Mandatory leave requirement is a policy which is in place in most multinational banks. This policy is also present in some private banks but is limited to staff handling sensitive positions. Mandatory leave is an integral part of risk management because it enables a peer review of the job done by an employee in his absence. In most cases, the mandatory annual leave is for a minimum period of 10 days. Citi already has a mandatory leave policy and so do other foreign banks like Standard Chartered and Deutsche Bank. In the private sector ICICI Bank has a mandatory leave requirement for those in sensitive positions such as treasury. However, this does not cover relationship managers. But with RBI describing the position of a relationship managers dealing with rich customers as sensitive, banks will have to add them to the list of employees required to go on mandatory leave. "We already have a mandatory leave policy for those in sensitive positions such as treasury and forex. But in the context of present developments there may be need for review" said MD Mallya, chairman, Indian Banks Association and chairman of public sector Bank of Baroda. He added that every bank would frame its own policy and there was unlikely to be an industry level approach to the issue. An Axis Bank source said that the bank did not have any mandatory leave policy but was in the process of implementing a scheme across the board. Old private banks, too, do not have such a policy. Public sector banks which account for majority of banking in the country do not have a mandatory leave policy but all banks do have a staff rotation policy. In a circular to all banks, RBI has said that it has recently conducted forensic scrutiny in banks with large-value frauds. The largest banking fraud in recent months was the one at Citibank's Gurgaon branch where Shivraj Puri, a relationship manager, defrauded high networth customers of crores by promising high returns in a non-existent scheme provided by the bank.RBI has said that based on the findings, it has done a further scrutiny of the policies and operating framework. "Banks should immediately put in place "staff rotation" policy and policy for "mandatory leave" for staff. The internal auditors as also the concurrent auditors must be specifically required to examine the implementation of these policies and point out instances of breaches irrespective of apparent justifications for non-compliance," RBI has said in its circular highlighting disincentives and controls to be introduced in a bank's human resources policy. The mandatory leave policy will also reduce the wage costs of banks. Many institutions allow employees to accumulate leave and encash them while in service or at the time of superannuation. The mandatory leave requirement will reduce the capacity for employees to accumulate leave and, therefore, require banks to make lesser provision for privilege leave.
TOI
New MFI bill to make RBI sole regulator, supersede old laws
The central government bill on microfinance companies is likely to make RBI the single regulator for the sector. The bill may also supersede all existing state legislations on MFIs, reports CNBC-TV18’s Gopika Gopakumar.This new bill, which is being drafted by the finance ministry, is quite a divergent from the old bill. In fact, the old bill that is a microfinance bill of 2010, which had proposed two sets of regulators for the industry. RBI will be responsible for the NBFC MFIs and (NABARD) National Bank for Agriculture and Rural Development, which should be responsible for the non-NBFC MFIs. However, the new bill, which was being drafted by the finance ministry has entrusted the RBI with the power to regulate all microfinance companies. Now this move will ensure a uniform regulatory framework for a sector and it will avoid any conflict of interest between regulators. Secondly, this bill will also supersede all state government legislations including the money lending act and also the ordinance enacted by the Andhra Pradesh government. So, the bill is likely to give the role of a protector to the state governments by ensuring that the interest of the borrowers is protected. The committee, however, is looking at the modalities on how to ensure that the government plays a role of a grievance redressal mechanism and how they should go about doing it. However, one question that arises at this point in time is whether RBI has the bandwidth and the machinery to supervise the entire microfinance sector.
Moneycontrol
NBFC shares tank on expected RBI provision norms
Shares of non-banking finance companies (NBFCs) fell 1-4% on Wednesday on concern that the Reserve Bank of India (RBI) may hike risk weights and provisioning if loans to the sector don't fall. It would increase the cost of borrowings of those companies which may then face margin contraction. "If it happens, this will make liquidity tight," the managing director of a south-based large NBFC told Moneycontrol.com requesting anonymity. "RBI is concerned by the end-use of funds lent by NBFCs. Their net interest margin will also come down. The provision may be applicable for NBFCs, engaged in lending to real estate companies, and promoter fundings." "We are in favour of regulatory tightening of assets," Ramesh Iyer, MD of Mahindra Finance recently told Moneycontrol.com in an interview. "Any balance sheet, which is competent and capable of regulatory changes, is a strong balance sheet. We only hope that NBFCs (with strong ballance sheets) should also be looked at differently," he added. Currently, NBFC loans carry 100% weightage. It means that banks have to set aside Rs 9 for every Rs 100 lent. RBI has mandated 9% minimum capital adequacy ratio for banks. However, for gold loan of upto Rs 2 lakh, the risk weightage is 50%. V Lakshmi Narasimhan, CFO of Basel II-rated NBFC-Magma Fincorp, says "With this status, we enjoy 20% risk weightage. If this status is not withdrawn, we would not be impacted by any rise in provisioning." Manappuram General Finance MD I Unnikrishnan declined to comment without RBI's official announcement."If the risk weightage for NBFC lending is raised, we will have to study the impact. We will see whether we can absorb it or pass it on to customers depending upon the intensity of rise," Jagdish Pai, executive director, Canara Bank told Moneycontrol.com.
Moneycontrol
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