RBI declares M/s Forex Achievements a fraud outfit

MUMBAI: The Reserve Bank of India on Thursday issued a clarification in which it stated that there was no company going by the name of M/s Forex Achievements registered under the Companies Act, 1956.  In a press release, the RBI clarified and cautioned the general public that M/s Forex Achievements and its website was fabricated entity, and not to deposit money with such unincorporated bodies. It said that anyone depositing money with such unincorporated bodies as M/s Forex Achievements, would be doing so at their own risk.

ET

Inclusion targets will delay breakeven for new banks

The draft guidelines issued by the Reserve Bank of India (RBI) clarify some issues such as eligible promoters, corporate structure, minimum capital requirement, corporate governance and business model. While the paper lays stress on promoter shareholding and milestones to achieve a diversified ownership in fixed timeframe, it is also very focused on the purpose of the new banks, which is financial inclusion (FI) and the related business model. The new banks will have to focus on the unbanked geographies. The regulator has been urging banks to open rural branches and has incentivised the existing banks to open 25% of branches in the rural areas. The regulator has also mentioned strict action against new banks not following the stated business model. The impact of financial inclusion on the business model is immense as the model needs to answer questions like market size, cost of funds, viability, use of technology and efficiency in operating structure for the new banks to succeed.  Banks have been working towards FI for the last five years or so. As on March 2011, a sample of 19 large and small sized domestic banks had an average of Rs600 crore credit outstanding for FI accounts. More importantly, of the total FI accounts opened, only 40% were found to be active for the last one year.  Also, given the challenge that domestic banks would have had a head-start on FI initiatives, reaching the next delta of FI customer would become that much more difficult for the new banks. Assuming that the margin for FI business is currently zero and equal split in FI and other business and a conservative 200 basis points margin for other business, the overall margin for a new bank will be approximately 100/120 basis points.  Including operating costs and technology investments will take the new banks longer to break even. Another aspect is the source and cost of funds, the new banks will face multiple challenges in sourcing low-cost deposits and will definitely have a higher cost of funds than the existing public sector and private banks. Could this lead to a situation where new banks have to issue securities to fund their business is question that every aspirant looks to need into.  A lean, low-cost and efficient operating structure is almost a prerequisite and technology will have to be optimised to achieve success. Reengineering the business model might even lead to something very innovative emerging. Non-banking finance companies (NBFCs) operating in Tier 3 to 6 centres will find it much easier to face these challenges than a completely newly set up bank.  However, they, too, would require RBI’s prior permission to convert branches to bank branches and comply with branch setup norms, as NBFC branches are very different from bank branches.  Banking is a critical and important economic sector and rightly so the regulator is taking utmost care to make sure that the new banks are used for no other purpose than banking with a FI focus.  Diversified ownership and exercise of regulatory control are essential conditions which will need to be fulfilled and seem to be the major concern of the regulator.  The safeguards in terms of promoter shareholding, divestment milestones and corporate structure and restriction on NOHC from setting up a financial services entity for at least three years from the date of licensing send out a very strong message that only very serious players with well-thought out strategy will be allowed. It seems the new bank licences will be a staggered process and it may be 2-3 years before we see a new bank becoming operational and perhaps rightly so considering that banking is a responsibility as well as an opportunity.

DNA

Govt in a bind on inflation

As India's food inflation rate breached double-digit levels again, touching 10.05% for the week-ended August 20, the government and the Reserve Bank of India (RBI) are facing a major challenge: policy options appear to be fast running out on a win-win solution in the trade-off between growth and prices. The central bank has maintained that sustainable solutions to lower inflation and higher trend growth warrant adequate supply-side response from the government.  The government can consider duty cuts in essential commodities to shore up supplies, but that will entail forgoing tax revenues, which in turn,will likely upset the fiscal deficit targets. Finance minister Pranab Mukherjee on Thursday termed the inflation rate as "disturbing," obliquely hinting that the government may not be averse to taking measures to boost supplies. The RBI, which will present its mid-quarter monetary policy review in September, has raised interest rates by 11 times in the past 16 months. "The latest GDP details are supportive of another rate hike by the RBI in September," said Rajeev Malik, senior economist at brokerage CLSA, Singapore.

HT

RBI may hike rates as food inflation surges to 10.05%

"With headline inflation remaining well above 9 per cent, we expect RBI to raise key policy rates by 25 basis points at its next mid-quarterly review," Crisil chief economist D K Joshi said.

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PSU NBFCs’ banking plans may hit RBI wall

The Reserve Bank of India is unlikely to issue banking licences to public sector non-banking finance companies (NBFCs). This could put brakes on the banking ambitions of NBFCs such as Power Finance Corporation and Rural Electrification Corporation, which have shown interest in acquisitions in the banking space or securing a new licence..........

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Gold loan NBFCs cheer panel report

At a time when most non-banking finance companies (NBFCs) are complaining about higher tier-I capital reserve requirement as recommended by the RBI-appointed working group, one section of NBFCs is pleased about it. Gold loan NBFCs, one of the fastest growing financial services businesses in the country, are pleased about the recommendations, whi-ch put gold loan NBFCs on par with banks. The top three gold loans companies, Muthoot Finance, Manappuram Finance and Muthoot Fincorp, together have an outstanding gold loan portfolio of over Rs 30,000 crore. Though the RBI working group recommends a higher tier-I capital of 12 per cent for NBFCs, industry experts pointed out that in Section 6.1.11 of the report, the panel states that in view of the growing importance of NBFCs in financing-sensitive sectors, “whenever RBI raises/lowers risk weights and provisioning norms for banks to address systemic risk, such measures should also be applicable to similar assets of NBFCs.” “Our risk weightage would become lower if the recommendations are implemented and we are treated on par with banks having a gold loan portfolio,” I Unnikrishnan, managing director of Manappuram Finance, said. For gold loans with a ticket size of less than Rs 1,00,000, banks generally have to apply a risk weight of 50 per cent of the loan size, while NBFCs have to apply a uniform risk weight of 100 per cent for the entire portfolio, he said. For gold loan NBFCs, at least 60 per cent of loans are of the ticket size of less than Rs 1,00,000. So, on an Rs 10,000 crore loan book, about Rs 6,000 crore loans would be of ticket size less than Rs 1,00,000. If NBFCs get to apply 50 per cent risk weightage, like in case of banks, then on the Rs 6,000 crore loans, only Rs 3,000 crore would be considered for risk weightage. That combined with the Rs 4,000 crore loans with a ticket size of over Rs 1,00,000 would make only Rs 7,000 crore worth loans being considered for risk weightage, against the entire Rs 10,000 crore earlier. “So, even if the tier-I capital is increased to 12 per cent, we only have to maintain Rs 840 crore reserves against Rs 1,000 crore earlier, assuming the loan book size is Rs 10,000 crore,” Unnikrishnan reasoned. The move to put capital adequacy ratio (CAR) requirements for NBFCs at par with banks will reduce pressure on bringing more capital, said Thomas Muthoot, executive director of Muthoot Fincorp. “This reduced pressure to enhance capital will ensure a level playing ground for NBFCs, which were so far at a disadvantageous position compared with banks,” Muthoot says

Financial Chronicle

President to give awards to banks, MSMEs for excellence

New Delhi : The country''s largest lender SBI and few other banks will be given awards by President Pratibha Devisingh Patil for their performance in extending loans to micro and small enterprises (MSEs). As per the Reserve Bank of India guidelines, banks have to achieve 20 per cent year-on-year growth in providing credit to MSEs. Under the annual National Awards Scheme, the government recognises the efforts and contributions of the micro, small and medium enterprises (MSMEs) to the economy as well as of the banks who lend to the sector. "The SBI''s total advances increased by 82.7 per cent to Rs 77,061 crore, which is the highest among major public sector banks, in 2010-11 from Rs 42,714 crore in 2009-10," the MSME ministry said in a statement.  Others awardees include Indian Overseas Bank and State Bank of Mysore. Corporation Bank lending to micro enterprises increased by 315.2 per cent to Rs 5,011.58 crore in 2010-11, from Rs 1,207.01 crore in the previous fiscal. The banks have been asked to enhance their credit flow to the sector, which contributes about 8 per cent to the country''s GDP. Besides banks, awards would be given to various (MSMEs) for their performance in categories like R&D, entrepreneurship and quality of products.

MSN News

Tighter regulation of NBFCs was long overdue

The Reserve Bank of India's (RBI) working group on non-banking finance companies (NBFCs) has done well to suggest tighter regulation of the sector. The underlying rationale is sound. Banks and NBFCs are engaged in essentially the same business - lending and investing. They should be brought under similar regulations, like similar prudential norms for asset classification, income recognition, provisioning, capital adequacy and so on. Now, the regulatory regime for NBFCs is far more lax than for banks. This has resulted in regulatory arbitrage, with NBFCs - often bank-promoted, like Citi Financial - indulging in activities that are out of bounds to banks. The new recommendations are intended to plug this gap by bridging the regulatory divide between banks and NBFCs. The idea that the RBI should have the power to lay down 'fit-and-proper' criteria and have the power to remove NBFC directors in the event of their not meeting the criteria and even appoint directors where it is necessary to do so in public interest or for financial stability is in tune with this. Rules saying that the RBI should have the power to supersede NBFC boards in the interest of financial stability and constitute a fresh board, if necessary and any significant acquisition of ownership and control in NBFCs should have the prior approval of the RBI are to ensure safety. The financial crisis in the West was as much a crisis of banks as of shadow banks. So, the working group wants to dispense with the somewhat artificial distinction between banks and NBFCs. The latter will, no doubt, have to work under a tighter leash. But there will be some positives too. Today most NBFCs are unable to recover bad debts using the enabling framework of the Sarfaesi Act even though their borrowers may be exactly the same as those of banks. The working group, rightly, recommends that the Act be extended to NBFCs as well.  Also, the tax treatment for provisions, it suggests, should be the same for banks and NBFCs. The aim, quite clearly, is to ensure a level playing field as far as possible; without jeopardising the safety of the system.

ET

RBI must frame pricing norms for factoring services, says House panel

New Delhi : A Parliamentary Panel wants Reserve Bank of India (RBI) to frame guidelines on pricing of factoring services so as to protect the interests of micro, small and medium enterprises (MSMEs). Also, the rates charged by factors should not be higher than those charged by banks for similar services. These suggestions form part of the Standing Committee on Finance’s report on the Factoring Regulation Bill 2011. This report was tabled in Lok Sabha on Tuesday. The House Panel headed by Mr Yashwant Sinha is of the view that pricing of factoring services cannot go unregulated as it would only lead to "exploitative practices". The Standing Committee’s suggestion is in sharp contrast to the Finance Ministry’s stance that the RBI cannot be asked to administratively determine the rates of commission or discount charged by the factor to the assignor (MSME). The Finance Ministry had in its submissions told the Standing Committee that the RBI had moved away from administered rate of interest regime for financial products and any suggestion to administratively determine the rates would not be in line with the existing policy.  Factoring is a financial transaction where a business sells its accounts receivable to a third party called ‘factor’, which undertakes the activity of financing the receivables, administration of debt and collection of debt. Meanwhile, the Government is likely to exempt factoring transactions from stamp duty by moving an amendment to the Indian Stamp Act, 1899 through a schedule to the present Factoring Regulation Bill. An indication to this effect was given to the House Panel by the Finance Ministry through their written submissions.

HBL

Beware! There’s another scam mail in circulation that uses the name of the RBI to get your bank details

Scamsters are once again using the RBI’s name in a fake e-mail, asking people for numerous personal details to register for a one-time password

Don't hesitate to delete an e-mail that ostensibly asks for your bank details to register your account with a one-time password (OTP). That's because it's very likely that it is a spam message from scamsters who are using the name of the Reserve Bank of India (RBI) to appear legitimate. In reality, the apex bank never asks for these details for the purpose of verification, by e-mail. Many Internet users have mentioned they are receiving this e-mail message with the subject line, "Reserve Bank of India: OTP Registration For All Indian Bank Users", asking people to give their bank details for verification.  The message explains that this is part of a regular process  to screen the activities of various accounts. It also states that certain restrictions have been put on your account after it was found to have issues for safe use. The messages states that in order to lift these restrictions, "we will require some further information from you to enable us register your account for OTP (one-time password)."  Receivers of the message are asked to furnish information such as credit/debit card number, transaction password, ATM PIN number, expiry date and other personal details like e-mail address and mobile phone number. Experts point out that the neither the RBI nor any individual bank asks for the PIN number for account verification. It is only when the accountholder voluntarily opts for mobile or internet banking that one requires to enter a password or PIN number for the purpose of transaction. According to the OTP activation procedure described in the message, once the necessary details are confirmed and verification is successful, a manual containing a PIN (number) and the process to activate it is sent by e-mail in a couple of weeks.  This is again strange, as all banks send the PIN number and necessary account details either by post or they ask the customer to collect it from the bank's branch personally. Moneylife has reported earlier about a fake e-mail circulated, similarly using the RBI's name to offer unclaimed lottery funds. Clearly, this time too this is another fraud in progress again. So, if you receive such a message, delete it immediately. To read some key points that will help you identify fake/fraud messages log on to websites like www.truthorfiction.com, www.fraudwatchers.org or www.scambaits.com that give special attention to this matter, to help potential victims and catch the scamsters.

Moneylife

Biometric-based smart card for pensioners

CHENNAI: To prevent a repeat of the great pension robbery, the government will launch biometric-based smart cards to help old-age pensioners encash their monthly allowance. Chief minister J Jayalalithaa is likely to inaugurate the pilot project on Friday in three taluks in the southern districts through video conferencing from Chennai. So now, a bank-appointed staffer will deliver the cash at the pensioners' doorstep - hitherto done by postmen. All that the pensioner has to do is let the biometric machine with the staffer read his/her smart card that has a chip with the thumb impression. The machine will spit out a slip, like an ATM, and the staffer will hand out the cash. The transaction will be registered in the bank's central server. The revenue department has captured the fingerprints and images of the beneficiaries. The nationalised banks have designated bank staffers in each of the villages as per the guidelines of the Reserve Bank of India., aiming at extending the micro-financial services to the rural pockets. The flexible smart card allows the pensioners to maintain zero-balance account or approach the same staffer any time later to withdraw money. The major advantage is that the pensioners will get a print-out, like ATM transaction. A TOI expose on the great pension robbery led to the arrests of 11 postmen by the Central Bureau of Investigation in September last year. Poor monitoring of pension disbursement had emboldened several postmen to make a killing. The postmen demanded bribe from poor and illiterate pensioners for letting them have their money. Later, when the revenue department verified the authenticity of beneficiaries, it found that money was paid in the name of ghost pensioners for months. In the proposed system, officials said, biometric reader would authenticate the identity of the pensioners before allowing any transaction. The state disburses Rs 1,000 per month to old aged/destitute persons under various social security schemes, including Indira Gandhi national old-age pension scheme. "At least 25,000 pensioners in three taluks, Kattumannarkoil in Cuddalore, Thoralai taluk in Kanyakumari and Manaparai in Trichy district will benefit under the pilot project. The smart cards will be introduced in the rest of the state if the project is a success," said a senior government official. A collector of a southern district said, "This way, we can ascertain the real beneficiaries. None can claim pension for deceased kin". The revenue department will hand over the cheque to the nationalised banks every month and the account holders' database. There are 23.94 lakh pensioners across the state and Rs 239.44 crore are paid in pension every month.

TOI

Raising the bar

The Reserve Bank of India took a measured step towards licensing new private sector banks by releasing a set of draft guidelines on Monday. The central bank's concerns on licensing-related issues have been evident right from the time the Finance Minister mooted the idea in his February 2010 budget speech; unsurprisingly, these find expression in the guidelines. Allowing private players to start banks has always been a sensitive issue in India's recent history. More so when it is seen to benefit large industrial houses and business groups, whose questionable practices in banks they owned were one of the justifications for bank nationalisation that began in 1969. RBI Governor D. Subbarao was airing a widely held apprehension when he said recently that the “gaps” in the existing regulations could lead to corporations “self-dealing” in banks they promote or using them “as a private pool of readily available funds.” The limited attempts at licensing new private banks through guidelines issued in 1993 and 2001 do not offer any valuable lesson for current policymaking beyond the quite obvious fact that only banks with sound promoters do succeed. The RBI has therefore done well to insist on “sound credentials”, “integrity”, “diversified ownership” and a 10-year track record. Prospective promoters should not have even a 10 per cent exposure to real estate and broking businesses. That is ostensibly meant to keep out those from “speculative” sectors. The stipulation that a new bank can be set up only through a wholly owned non-operative holding company is an important safeguard designed to ring fence the bank and its depositors from problems in related entities. Necessary amendments to the Banking Regulation Act 1949 will be carried out to remove the restriction on voting rights while concurrently empowering the RBI to approve acquisition of shares/voting rights of 5 per cent or more by persons who are “fit and proper.” The RBI will get sweeping powers, for instance, to supersede the bank's board in certain cases. The minimum capital requirement is fixed at Rs.500 crore and the capital adequacy ratio at 12 per cent. New banks will have an up-to-date technology platform from day one and ensure that every fourth branch is located in rural areas. Furthering financial inclusion is one of the main reasons for licensing new banks. It is likely that only a small number of applicants will qualify and fewer still will be able to get the licence from an RBI-appointed expert committee. The central bank has said that licences will not be issued to all those who qualify. It is clearly not about to open the floodgates.

HBL

Too much to handle?

This refers to the edit “Banking on licences” (August 31). At present, we have a number of public and private sector banks, a huge list of co-operative banks (scheduled and non-scheduled) and several foreign banks with business and branches in India. The question is if it would be better to add more banks to this list. The Reserve Bank of India’s (RBI’s) intentions may be good – financial inclusion, competition and so on – but does the central bank have the machinery and the manpower to monitor the performance of various types of banks in the country. Definitely not. This is clear from the considerable number of scams, frauds and failures that were exposed in the banking sector in the last decade alone. Another major concern will be monitoring the possible diversion of funds from the banking ventures of industrial houses to their other group businesses. No doubt, with the economic growth projected to remain strong – particularly in the services sector – the demand for banking services, especially retail banking, mortgages and investment services is expected to be high. But the current list of banks is certainly enough to take care of this demand. A better alternative is consolidation, mergers and acquisitions, takeovers and asset sales to have a strong and reliable banking system on which the common man can depend.

J S Broca, New Delhi (BS)

RBI lens on off-balance sheet exposures of foreign banks

The Reserve Bank of India (RBI) has stepped up its oversight on the off-balance sheet (OBS) exposures of foreign banks, which have risen exponentially. Off-balance sheet deals, which include currency and interest rate derivatives, securitised loans and guarantees, are more lucrative for banks than their other portfolios............

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Reviving growth - Reduce interest rates and undertake specific reforms to revive growth - Shyam Ponappa

From this perspective, raising interest rates to combat inflation appears decidedly ill-advised. As expected, interest rate increases have not reduced inflation. The reduction can happen only when economic activity slows so much that demand for essentials falls, a horrific prospect. As for attracting foreign investment, rate hikes do little to induce confidence in foreign investors in skittish times, because they look to India and emerging markets for growth, not for stability. To be a safe haven, India has to be perceived not as a developing economy, but as an equivalent of the Organisation for Economic Co-operation and Development — a long way and many years ahead. The economy, therefore, needs shoring up. Can RBI and the government take steps to reverse the decline?

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Inflation can’t be tackled by rate hikes alone

Naina Lal Kidwai, country head, India, and director of HSBC Asia Pacific, said an increase in interest rates alone cannot tackle high inflation and that India needs to address supply-side issues. She also said the banking sector is not growing fast enough to accommodate the growth of corporations.......

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Religare moves in for bank entry

MUMBAI: Religare Enterprises, the financial services group which is promoted by the Singh family that had promoted pharma major Ranbaxy, has set up a panel of three senior business leaders to advise the group on its banking foray. Noted professional manager Kiran Karnik and economist Sumar Bery are already on the panel, while a former managing director of a large PSU bank is expected to join hands with Religare, sources said. The move comes within a day of the Reserve Bank of India making public the draft guidelines for entry of new entities into the country's banking space. Religare, in a statement on Monday, said it was moving ahead to win a banking license since it qualified under most of the parameters set by the regulator, including a business track record of more than 10 years, no real estate exposure and broking being less than 10% of promoter group revenue. "The panel consists of luminaries in diverse fields of policy formulation, economics, banking, development finance & technology - elements critical to developing a new paradigm in banking," the company said in a release. "The panel will support management's efforts in charting out the group's banking strategy and its application for a new banking license under the guidelines to be issued by the RBI," it said. Bery, a former director general of National Council of Applied Economic Research (NCAER) in New Delhi, has also worked with the World Bank and RBI. Karnik is a former president of Nasscom, the software industry trade body, and was appointed the chairman of Satyam Computer by the government to help stabilize the company post its crisis.

TOI

Corporates take expert help to clear bank licence test

Corporates are rushing to rope in experts to ensure that the business model for their proposed foray into banking meets all regulatory guidelines, just days after the Reserve Bank of India announced draft guidelines for new licences. Under the draft norms, finance companies can be converted into banks, and promoter groups with "sound credentials and integrity" and with a 10-year track record of successfully running their businesses can set up banks.

ET

Banking admission only for steadfast

From a macro perspective, RBI has directionally signalled two things. One is to permit Indian business groups to enter banking, but only those very suitable and who are prepared to meaningfully contribute to financial inclusion. Two, allowing NBFCs to convert into or set up banks, sans any potential regulatory arbitrage between the proposed banking and their existing ‘banking-type’ businesses.

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Bank credit to NBFCs zooms by 55.6%

Despite the central bank’s concerns, bank credit to non-banking financial companies (NBFCs) continues to grow at a robust pace......

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