Digital Payment Industry Needs Multiple Models To Push Financial Inclusion

Economist S.S.Tarapore added that the absence of banking technology, reach and coverage, absence of a satisfactory delivery model and absence of a business model were the reasons behind India not achieving financial inclusion…..

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Wanted: ‘Out of the box thinking’ from RBI

New Delhi: The Reserve Bank of India, which reviews monetary policy on Friday, should “think outside the box”, the chief economic advisor to the finance ministry told CNBC TV18 on Tuesday. “We live in a very unusual world where some countries have very, very low interest rates whereas other countries have high interest rates so we must think outside the box in terms of monetary policy and that is what I would stress to the Reserve Bank of India,” Kaushik Basu said. Despite industrial output growth slumping to a near 2-year low in July, inflation data for August to be released on Wednesday is expected to sway the RBI to raise rates this week for a 12th time since March 2010. The wholesale price index in August probably was rose 9.6 percent, a Reuters poll showed, well above the central bank’s comfort zone of 4 to 4.5 percent.

Firstpost

Paying the price

This is with reference to the editorial “Unfair penalty” (Business Line, September 13).  Certainly, floating rates are impacting home-loan borrowers due to frequent changes in interest rates, and have hit their shoestring budgets. Bankers, in order to protect their margins, have almost completely done away with charging of fixed rates and invoking reset clauses, which is difficult to digest. We are aware that banks are enjoying more income by levying high commission on all instruments they deal with, and for issuing statements from time to time. This is nothing but daylight robbery. On top of this, imposing penalties for pre-payment of loans is adding to the customers' misery.  Banks should find out innovative ways to avoid this unpleasant situation. I daresay account-holders are entitled to this privilege?

K. N. V. S. Subrahmanyam (BS)

Analysts divided over RBI move on Friday

Conflicting macroeconomic data on inflation and factory output have made the analysts and economists a divided house on the direction that the Reserve Bank will take on Friday at its mid-quarter policy review........

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RBI justified

“Why we still need a rate hike” (Business Line, September 13) raises some valid points. The RBI's efforts in controlling inflation are commendable. It has been merciless in hiking interest rates and the impact of industrial growth is now becoming evident.  The Government, which has more tools to combat inflation has been in slumber mode. Unless concerted action is taken by the Government on various fronts — preventing logistics delays due to bad roads, rationalising State levies, better supply chain management, and helping farmers improve yields — the RBI has no choice but to raise rates again.

Vivek (BS)

IIP blues

The Reserve Bank of India is in an unenviable position ahead of its monetary policy review meeting scheduled on Friday. It has to take a call on interest rates — whether to raise them further in the face of continuing inflationary pressures or pause temporarily based on the latest disappointing factory output data. To its credit, the central bank has been much more realistic in turning the spotlight on the Indian economy's blind-spots than North Block. In its successive policy reviews, the RBI has not simply focused on inflation's stubborn persistence, but even warned of business mood dips impacting investment and consumption growth declining as interest rate-sensitive sectors face increasingly reluctant buyers. In fact, while New Delhi has tended to exhibit a misplaced optimism about growth prospects with its eyes shut, the RBI was ahead in scaling down its GDP growth forecast for 2011-12 by a full percentage point to below eight per cent.  The latest industrial growth figures for July suggest that the slowdown that many experts and most policymakers thought would be temporary and narrow is, indeed, broad-based. The overall index of industrial production (IIP) registered a year-on-year expansion of only 3.3 per cent, the lowest in 21 months. Manufacturing and mining grew by 2.3 per cent and 2.8 per cent respectively, while the 13.1 per cent increase in electricity was mainly a result of the good monsoon, which has helped boost generation from hydel stations. More disturbing has been the 15.2 per cent dip in production of capital goods, a proxy for investment activity. Even if one discounts for the unreliability of data for this sector — leading to extreme growth volatility — the fact that investment sentiment has been vitiated by recent political developments and concerns over ambiguous laws and tangled procedures among foreign investors cannot be missed. If industrial growth is slowing, there is the possibility of weakening demand on account of high interest rates further dampening it. Persistent increases in its key policy rates over the past 20 months may have somewhat dented non-food ‘core' inflation resulting from excessive demand. But the problem is that while demand in the manufacturing segment may have dipped, general inflation has not. For once the Finance Ministry may be right when its Chief Economic Adviser, Prof Kaushik Basu, says inflation will stay high till December. So the RBI, in a way a victim of its own success, will now have to battle high inflation and the prospect of falling output driven by weakening demand.  For policymakers it would be tempting to pass off the slowdown as partly the outcome of global woes just as earlier they claimed that inflation was also stoked by global commodity prices. But unlike the US and the European Union, India did recover from 2008 with a smart pick-up in 2009. The current slide actually began in the past six months or so. And that has been the result of very successful monetary and very slothful public policies. 

HBL

Unfair penalty

Doing away with the pre-payment penalty may help reduce the distortions arising from new loans being cross-subsidised by existing ones...........

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Customer is king !

The Reserve Bank of India has initiated a series of measures to make banking a customer-friendly experience. While, earlier, it was the M Damodaran Committee that had come out with a report on customer services in banks, now, the Banking Ombudsman Conference has made a host of recommendations to protect the interests of small investors and bank customers........

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Two problems, one strategy for both RBI and the Fed

The Reserve Bank of India and the U.S. Federal Reserve were confronted with two different problems but used the same monetary strategy for solution. Neither succeeded…..

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Basu: RBI has to balance high inflation, slowing growth

The Reserve Bank of India (RBI) will have to balance high inflation and slowing growth, the chief economic adviser to the finance ministry, Kaushik Basu, said on Monday after a sharp drop in industrial output growth. Growth in industrial output in July slumped to its lowest in nearly two years as high interest rates cooled Asia's third largest economy and put pressure on the central bank to pause its monetary tightening despite stubbornly high inflation. Industrial output rose just 3.3 percent in July, dragged down by a huge fall in capital goods production.

Reuters

RBI hawks may prevail ahead of policy review: Economists

The Reserve Bank of India (RBI) is widely seen delivering the last rate increase in its 18-month-long tightening cycle on Friday as inflation pressures continue to remain strong, a Reuters poll of 18 economists showed. Of those polled, 15 expect a 25-basis point increase in the repo rate, one expects a 50 basis point hike, and two expect no change. An increase would be the 12th in the current cycle and would take the repo rate, the central bank’s key lending rate, to 8.25 percent, where most economists see it staying until at least the end of the fiscal year in March. The median expectation for the rate at the end of March has been lowered by 25 basis points from the previous poll conducted in July, largely due to deteriorating global economic conditions. “We are expecting a 25-basis point hike. The RBI has been pretty clear about the fact that given the extent of the inflation pressures, more needs to be done,” said Abheek Barua, chief economist with HDFC Bank. “In this policy review, if they talk about the changing international situation, then they might as well build a case for halting with this rate hike,” he added. The European Central Bank, Bank of England, and Swedish Central Bank among others continued to hold rates steady at reviews last week amid easing inflationary pressures in the euro zone and concerns over weakening growth prospects. The RBI has been one of the most hawkish central banks globally. However, economists said the July industrial output data released on Monday and August inflation data due on Wednesday would be key determinants for the RBI’s actions on Friday. “If the core inflation number is still in the range of 7-7.5 percent, my sense is that the RBI will persist with a interest hike,” said Madan Sabnavis, chief economist at CARE Ratings. “So it’s only in case it comes substantially down, if it comes around 6 percent, will it take a pause. That number will be very critical.” Of the polled economists, 11 said the RBI’s tightening was appropriate, while 5 said less aggressive tightening was needed.  

Firstpost

Unconventional mechanism needed to reduce debt: YV Reddy

Former Reserve Bank of India Governor YV Reddy said the government should adopt unconventional mechanism in both real and financial sectors to reduce debt. “Quality fiscal policy and primary distribution of income are the two major factors the government should focus on,” Reddy said at a seminar here on Friday. He said globally it had been a major concern for the government to maintain the equal distribution level. Over the last two decades, the gap between rich and poor was getting immensely wider and that was creating economic uncertainty. The middle class segment is not much impacted, whereas the upper class is getting richer and the lower strata of society is getting poorer. “To solve this problem, the government should improve the quality of fiscal adjustment,” he added. Household savings have come down in India, whereas corporate savings have gone up. When the micro economic weakens, it makes the structural problem even worse. So, quality fiscal policy is an answer to that, Reddy said. Former United Nations Development Programme (UNDP) director Kemal Dervis said this was a major global problem. Citing the US, he said, “During 1970s-1980s, the top 1 per cent of the upper top US population received 8 per cent of the countries GDP, whereas now it has increased three-fold to 24 per cent.”

BS

Depositor of failed bank questions premium charged by DICGC

Nagpur : A petitioner here has alleged through a public interest litigation that the Reserve Bank of India (RBI) and Deposit Insurance & Credit Guarantee Corporation Ltd. (DICGC) have "extorted" crores of rupees from about 200 "failed" banks including the Nagpur Mahila Nagari Sahakari Bank Ltd. Justice Sharad Bobde and Justice MN Gilani have granted further time of four weeks to the respondents to make their submissions through affidavits in reply to the allegations and prayers made in the PIL. One Sunil Prabhat Khare had filed the PIL and earlier on June 22 last, Justice Bhushan Dharmadhikari and Justice PD Kode had issued notice to the respondents. Khare alleged that DICGC has recovered premium up to the year 2009 from the Mahila Bank, though its license was suspended and the Mahila Bank was placed under restrictions issued by RBI from 2004.  The petitioner has also alleged that both the respondents have violated the provisions of sections 15(1) and 13C of the DICGC Act, 1961 and forced the Mahila Bank to part with about Rs 50 lakhs during the years 2004 to 2009 from the funds/ assets belonging to the petitioner-depositors in the name of "insurance premium". Khare also claimed that DICGC has retained such amounts though it is not entitled to do so.  The petitioner appeared in person. Advocates SN Kumar and Swapnil Lautewar represented the RBI. Advocate Sumant Deopujari also appeared in the matter. 

http://www.lawetalnews.com/NewsDetail.asp?newsid=4701

Finance ministry rejects bank ESOPs, okay with rural stint for newcomers

"At a time when attrition is high and is expected to grow further as private banks expand, letting remuneration be decided by trade unions is not a positive approach," said the chairman of a state-run bank. RBI governor D Subbarao, too, had said the compensation structure of public sector banks has to change if they have to compete with private banks..........

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Expand rural ATM network to enable subsidy, entitlement transfers: Govt tells public sector banks

With financial inclusion being one of the top social agendas of the UPA Government, the ATM procurement process by public sector banks is likely to undergo a sea change. The Finance Ministry has asked public sector banks to work out the modalities of joint sourcing of ATMs, State/district wise.......

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Pak-India quest for Asian supremacy

In conclusion it can be said that while both the countries continue to face similar problems India has collectively turned their weaknesses into their strengths……….

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Another rate hike cannot be ruled out

It will be a close call for RBI on 16 September. I would like to believe it’s slightly tilted in favour of a rate hike, possibly the last before it presses the pause button as inflation continues to be a bigger problem in the Indian context than an economic slowdown. But one won’t be surprised if the Indian central bank takes a breather and allows the impact of four rate hikes in the past five months to be felt before going for another hike. A pause doesn’t mean the end of the tightening cycle, but RBI will have to communicate that message well to the market, if indeed it decides to do so.....

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Final norms on new bank licences after Banking Bill amendment

The Reserve Bank is likely to issue the final guidelines for granting bank licences to corporates only after Parliament approves the Banking Laws (Amendment) Bill, 2011. The final guidelines on new banking licences would be released only after the necessary amendments to the Banking Laws (Amendment) Bill, which seeks to give more power to the regulatory powers of the RBI, sources said. The central bank had last month issued the draft guidelines which pegged the minimum capital needed to set up a commercial bank by a corporate house having successful track record of 10 years at Rs 500 crore. It is to be noted that the Banking Laws (Amendment) Bill was introduced in Parliament in March this year. Sources added that empowering the RBI is essential for obtaining information about the other businesses of the corporate houses seeking banking licences in order to protect depositors' interests. Banking companies are engaged in multifarious activities through the medium of associate enterprises. It has, therefore, become necessary for the Reserve Bank, as the regulator of the banking companies, to be aware of the financial impact of the business of such enterprises on the financial position of the banking companies, sources said. It is, therefore, proposed to confer power upon the RBI to call for information and returns from the associate enterprises of banking companies also and to inspect the same, sources added. The amendment seeks to allow the RBI to supersede the board of a banking company for a total period not exceeding 12 months. The proposed amendment moved by the government also exempts mergers and acquisitions in the banking sector from the scrutiny of the Competition Commission of India. According to the draft guidelines, companies which are primarily engaged in the real estate or stock broking will not be eligible for promoting bank. "Entities or groups having significant [10 per cent or more] income or assets or both from real estate, construction and broking activities individually or taken together in the last three years will not be eligible to set up new banks," the draft said. On foreign holding, it said the aggregate non-resident shareholding in the new bank should not exceed 49% for the first five years. At present, the foreign shareholding in private sector banks is allowed up to 74% of the paid-up capital.

BS

NBFC policy: Devil in the detail? - Somasekhar Sundaresan

A working group set up by the Reserve Bank of India (RBI) on non-banking financial companies has recommended a very progressive framework to regulate non-banking financial companies (NBFCs) but the path ahead can be treacherous and needs to be treaded upon carefully. The working group on issues and concerns of the NBFC sector has recommended a strong focus on the big picture and refraining from regulating for the sake of it. The group has recommended that the RBI should exempt every NBFC with an asset size of below Rs 50 crores from registration with the RBI. Such an exemption would mean that such tiny NBFCs need not be bothered with having to comply with various statutory and regulatory requirements imposed by the RBI on NBFCs. The working group has also recommended that NBFCs with an asset size of below Rs 1,000 crores that do not access “public funds” (a term different and much wider than public deposits, and essentially meaning exposure to debt) also need not be registered with the RBI. The central theme of the recommendations of the report is to focus on the big picture in regulating the NBFC sector, which is a segment in the financial system, which can do quite much of what banks can do. The approach also seems to be take away as many NBFC licences as possible, since once a licence is issued, an entity would pretty much be able to do everything that the licence entitles it to do. Towards this end, the working group says that NBFCs that do not accept public deposits and have an asset size of below Rs 50 crores should be “encouraged to de-register” with the RBI. If such an NBFC were to not de-register, the NBFC would have to apply afresh for a registration as and when its asset size exceeds Rs 50 crores. Having narrowed down the scope of who would be regulated, the working group has also tightened the screws on change of control of NBFCs. Any change of ownership in excess of 25 per cent in an NBFC would now need RBI approval. So would any change of control and any restructuring such as a merger or a de-merger of an NBFC. Current requirements of the RBI bring an extremely wide range of companies within the scope of the definition of the term “NBFC”. So long as more than 50 per cent of the assets of a company were financial assets, and more than 50 per cent of the income of any company were income from financial assets, such a company would be regarded as an NBFC. The working group has now proposed to enhance this threshold to 75 per cent - again a move that would ensure that only entities that really have the profile of a financial sector player would need to be within the remit of the RBI’s jurisdiction over NBFCs. The active disinclination to have many NBFCs in the system is also writ large in a recommendation to give existing NBFCs three years to meet these requirements of a minimum 75 per cent of financial assets and minimum 75 per cent of income from financial assets. If a company registered as an NBFC that does not accept public deposits, fails to meet these criteria in three years, it would be de-registered as an NBFC. The report also says deposit-taking NBFCs that do not reach the standard of having more than 75 per cent in financial assets and income from financial assets should stop taking further deposits and should prepay existing deposits. However, the zeal to throw companies out of the NBFC space should be tempered with caution. Not having to register with the RBI is great. However, a company that is not required to register could legitimately require that it should be permitted to continue its existing operations, which avowedly fall outside the scope of regulation. In other words, if the operations are such that income is materially not financial income, and assets are not materially financial assets, they should be capable of being continued without registering with the RBI. Of course, such an approach may pose systemic risks and the RBI should be tempted to intervene. Therefore, a reporting requirement without any compliance obligation should be conceived. The devil will indeed be in the detail. In implementing the transition to the proposed policy, the RBI should work in close co-ordination with market players to understand the implications of each move. It need not accept all it gets to hear, but it will profit from openly listening to everything that has to be said. 

(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own. – BS)

Running out of steam

The advisories indicate that caution will spread and if banks get wary about lending, the economy could wind down even faster...........

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