FM to have last word in FSDC

First meeting scheduled around month-end. The Finance Mnistry is going ahead with its plan to be the final authority in the proposed Financial Stability Development Council (FSDC) structure despite Reserve Bank of India’s (RBI’s) objections.  Though the final guidelines for the proposed council are yet to be formulated, it has been decided that issues which elude consensus within the FSDC sub-committee – headed by the RBI governor – will be automatically referred to the finance minister, who will chair FSDC.  Industry sources say this translates into the finance minister’s intervention on most issues as there is hardly any consensus at such meetings. Even the High Level Co-ordination Committee (HLCC) was unable to agree on most issues, they said. The first meeting of FSDC has been scheduled around the end of this month and will be attended by the heads of the four regulators, the finance secretary, the banking secretary, the director general (department of currencies) and the finance minister. Interestingly, RBI deputy governors are not included in the sub-committee, though they are invitees to the present HLCC. With FSDC in place, HLCC will die a natural death. In response to the draft guidelines, RBI had suggested that the governor-chaired sub-committee be given the authority to sort out regulatory disputes and the matter be referred to a higher authority only if the chairman was unable to resolve any issue. In the initial proposal for FSDC, two sub-committees were envisaged. The one on regulatory coordination was proposed to be chaired by the RBI governor, with the finance secretary heading the sub-committee on financial stability. RBI objected on the grounds that the functioning of FSDC was likely to impinge on regulatory autonomy and flexibility. “This may affect the ability of the sectoral regulators to act in a timely manner, taking into consideration the specific compulsions and circumstances of the sector concerned,” the central bank had said. Following RBI’s observations, the government and the regulator reached a compromise formula, under which it was agreed that while the finance minister would head the proposed body, the governor would head the only sub-committee of FSDC. The terms of reference of FSDC include inter-regulatory co-ordination, financial stability, financial literacy and inclusion, and sector development. Interestingly, they also mention that “any other issue” deemed fit by the chairman or the council could be taken up. The government also differs with RBI on financial stability being the exclusive mandate of the latter. Sources said the government was of the view that RBI would not be able to ensure fiscal or social stability as well as the government. The finance ministry also cited the recent global financial crisis where governments played a more critical role to restore normalcy.

Finance ministry doubts EPFO’s 9.5 per cent math

The finance ministry has raised doubts over how the Employees’ Provident Fund Organisation (EPFO) managed to extract an extra Rs 1,731 crore from its accounts to reward subscribers with an additional 1 per cent interest rate this year. The Central Board of Trustees had in September declared a 9.5 per cent rate for 2010-11 after discovering a surplus in its interest suspense account. In 2009-10, it had paid 8.5 per cent to its subscribers. Although the interest rate is declared by the labour ministry, it is the finance ministry that notifies it. Without an official notification, subscribers who withdraw money from the PF would not be able to earn the 9.5 per cent rate applicable for this year. The finance ministry fears that once a high rate for EPFO is set, it might be politically difficult to lower it in the coming years. It had recently appointed a panel chaired by the Reserve Bank of India deputy governor Usha Thorat (who has retired since) to review the current system of fixed returns on all small savings schemes. While the panel will most likely suggest a shift to market aligned rates, the sources said it would be a tricky affair given the EPF’s new 9.5 per cent return benchmark.

Prepaid payment instruments come in various options; choose the one that suits your needs

Think of prepaid and the first thing that will come to your mind is the scratch card you would have bought to recharge your cellphone. But prepaid has since acquired a whole new meaning with prepaid payment instruments coming into existence. These include not just the traditional scratch cards, but also smart cards, virtual cards, Internet wallets, mobile wallets and mobile and your Internet account. You can use these to pay bills while on the move, your driver could use it to remit money back home and your child won’t have to rely on your credit card to make purchases online.

What are prepaid payment instruments

The Reserve Bank of India (RBI) guidelines define them as payment instruments that allow you to purchase goods and services against the value stored in them. A customer can purchase the value and store it on the instrument. The transaction can be done through cash, debit or credit card. Such payment instruments include paper vouchers, magnetic cards and smart cards, Internet and mobile accounts and wallets. There are three types of payment instruments—closed, semi-closed and open instruments. The last two enable mobile transactions.  These instruments work best for those who may not have a credit or debit card, but would want ease in bill and ticketing payments. Moreover, they can be a huge advantage and can provide much ease to the section that does not have access to formal channels. Says Vivek Saxena, co-founder and CEO, ZipCash, “Apart from teenagers who shop online but may not have a credit card, this is also meant for working people who are looking for a safe and easy way to make their payments. You could also use this if you don’t want to use your credit card for small transactions.” These are safer bets compared with a credit or debit card since your liability is limited to the value you store in cases of fraud.

RBI holds meeting with Bankers on resuming credit to Microfinance Institutions

The Reserve Bank of India yesterday met select banks and SIDBI to get an assessment regarding the ground level situation in the microfinance sector in Andhra Pradesh and other states and the need for any interim measures. The RBI sensitized the banks to the need to maintain funding lines to MFIs on merits to prevent contagion. The Indian Banks Association will shortly come up with concrete proposals for the measures to be taken in the interim, for consideration of Reserve Bank of India.

Who will float new banks?

The Reserve Bank of India (RBI) on Thursday put up on its website comments of industrial houses, banks, non-banking financial companies (NBFCs), microfinance institutions (MFIs), industry associations and public on its discussion paper on the entry of new banks, released in August. The range of comments varies and there is no consensus on the profile of new entrants.

Second password to be must for mobile banking

If you use a credit or a debit card for any transaction by phone, then you need a second password starting from 1 January, 2011. The Reserve Bank of India has made second password mandatory for all transactions based on interactive voice response (IVR). The cardholder has to send an SMS to a particular number . The bank will SMS back a password to the cardholder. This password will be the second authentication, which would be required to complete the transaction.

RBI may allow recast of loans to MFIs

Microfinance institutions (MFIs) may finally have something to cheer about. The Reserve Bank of India (RBI) on Wednesday said it is considering a proposal from banks to allow them to restructure loans to the sector, without classifying the assets as non-performing. According to RBI norms, banks can restructure standard assets, but they have to be treated as sub-standard and require provisioning.

A decision will be taken as soon as the Indian Banks’ Association comes up with a detailed proposal. Restructuring the loans is expected to help avert defaults, which could turn loans into non-performing assets. At a meeting here on Wednesday with top banks, RBI also advised them not to choke funds to MFIs.

RBI disallows foreign investment in IndusInd Bank

The Reserve Bank of India today said it will no more allow foreign investors to purchase shares of IndusInd Bank as their investment in the private lender has reached the trigger limit. "The RBI has today notified that the aggregate net purchases of equity shares in Indusind Bank by FIIs/NRIs/PIOs under Portfolio Investment Scheme (PIS) in the primary/secondary markets have reached the trigger limit. "Hence, the company has been included in the ban list of RBI (for purchase of equity shares by FIIs/NRIs/PIOs)," the central bank said in statement.

Banks want RBI to watch MFIs

Fearing a default from Andhra Pradesh-based microfinance institutions (MFIs), whose cash flows have been disrupted by new laws, lenders have asked RBI to ensure stability by bringing the sector under its purview. In a meeting called by the Reserve Bank to discuss funding of MFIs, it asked banks whether the institutions were repaying loans on time and if the end-borrower was suffering because of the credit crunch faced by them. RBI had recently collected data from banks on their exposure to the MFI industry.  Bankers told RBI that although there has not been any major default, lenders are worried about the impact of the new law introduced by Andhra Pradesh that bars them from weekly debt recovery. The state has introduced its own laws even as the central government dithers over a new legislation. The finance ministry has now said it will introduce the bill after taking into account recommendations of an RBI committee headed by Y.H.Malegam, a director on the its board. Bankers fear that in the absence of any regulation, each state government may decide to take matters in its own hands through legislation.

Stubborn prices strengthen case for a rate hike in Jan

The pace of fall in food prices is not exactly in line with the expectations of the Reserve Bank of India (RBI). This signals that there is an increased likelihood of a rate hike in the next monetary policy in January 2011.  “Food inflation is not easing as we would like it to be. Upside risks to inflation are still high,” said RBI Deputy Governor Subir Gokarn, speaking on the sidelines of a seminar on debt market organised by credit rating agency CARE. He added that global commodity prices are on the upside, which is a concern.  The central bank had taken a pause on rate hike in its mid-policy review on December 16 and left the policy rates unchanged. About the rising onion prices, Mr Gokarn termed it as a temporary spike, which would normalise as “the government is doing everything it can to manage supply-side pressures”.

Sebi, govt may trash Jalan report

Govt Fears That Panel’s Suggestions May Hit Competition, Fund Raising - The Securities and Exchange Board of India and the government are expected to reject some of the contentious recommendations of the Bimal Jalan committee on the grounds that they could restrict competition and also affect companies that depend on the securities market for fund-raising.  Amid hectic lobbying by various stakeholders –– including exchanges depositories and clearing houses ––sources involved with regulatory decision-making said that several players have voiced their concerns over the inability to list exchanges, something that the committee, which also had representatives from the finance ministry and Sebi, has recommended.

MFIN CEO to meet RBI to discuss lending issues today

Microfinance Institutions Network (MFIN) CEO Alok Prasad will meet the Reserve Bank of India officials and the Malegam Committee today to discuss the bank lending issues. MFIN wants resumption of bank lending to MFIs, which were badly hit due to the freeze on lending. Banks have stopped lending to all MFIs across India.

Anand Sinha as Deputy Governor - Final decision soon

With a bit delay the proposal to elevate RBI’s executive director Anand Sinha as one of the Deputy Governors of the central bank has started moving ahead for the final decision. Finance ministry sources said Sinha’s name after being accorded vigilance clearance had now been sent to appointment committee on Cabinet (ACC) for its approval. “After ACC’s approval, it will go to Prime minister office PMO for the final nod,’’ said a senior official. Though Sinha was selected to succeed Usha Thorat who retired as a Deputy Governor, RBI almost one and half month back, the concerned file hadn’t moved fast because of some technical reasons giving rise to speculation whether Sinha still remained in the race. However, the finance ministry while clarifying that Sinha’s appointment letter will soon be issued, said the ministry is yet to initiate step to find a successor to another Deputy Governor Shyamala Gopinath, who will be retiring in June 2011.

Banks plan consortium loans to MFIs

Worried over microfinance institutions’ future profitability, banks want to diversify their risks by lending to the sector in a consortium.  Leading bankers are meeting Reserve Bank of India Deputy Governor Shyamala Gopinath on Wednesday to make a case for consortium lending.  Banks have discussed the proposal informally with the finance ministry. “Several issues, including debt restructuring of microfinance institutions, are to be discussed,” said a senior finance ministry official involved in the discussions. “RBI has so far supported the stance on consortium lending.”

No threat to asset quality of banks: Rangarajan

There is no threat to the asset quality of Indian banks in the immediate future due to huge exposure to crisis-hit sectors such as microfinance, aviation, real estate and telecom, Chairman of Economic Advisory Council to the Prime Minister, C Rangarajan said on Tuesday.  He said presently the asset quality is well within limits and under norms set by the RBI.

Jalan panel report sparks off hectic lobbying

Stakeholders’ meeting sees sharp exchanges over proposal to disallow the public listing of exchanges. Vicious lobbying, including open letters, advertisements and personal attacks, is underway among different stakeholders in the capital market over the recommendations of the Bimal Jalan committee on ownership and governance of market institutions such as stock exchanges. The Confederation of Indian Industry (CII), an industry lobby, on Tuesday organized a meeting between former Reserve Bank of India (RBI) governor Jalan, two of his committee members, and stakeholders in the capital market to exchange views. The only stakeholder not represented was the retail investor. The meeting was marked by some sharp exchanges between stakeholders and committee members over a recommendation to disallow the public listing of exchanges, a personal attack by one of the stakeholders on Jalan, which resulted in an intervention from the moderator with a request to restrict conversation to issues and not personalities and veiled suggestions that the report did not reflect the majority view of the 29 stakeholders who deposed before it. The committee was constituted by the Securities and Exchange Board of India (Sebi) to review the ownership structure and governance of market infrastructure institutions (MIIs) such as stock exchanges.

Unique ID will be enough to open account

RBI talking to states on financial literacy – V.S.Das, Executive Director

After Karnataka, the Reserve Bank of India (RBI) is in talks with other state governments to include financial literacy in school curriculum. While Karnataka launched chapters on financial literacy in school syllabus in March 2010, Punjab and Haryana have also agreed to do the same. RBI Executive Director V.S.Das today said the central bank was in talks with Uttar Pradesh, Madhya Pradesh and few other states as well to take financial literacy to school children.

Beware of cyber jobs offering easy money

Beware of people offering commissions for monetary transactions from your bank account. They could be acting on behalf of a terrorist organization and using you as a 'money mule'. The Reserve Bank of India (RBI) has alerted banks and customers about transactions through dormant accounts since this could be a case of the account holder being used as a "money mule" for laundering. "Of late, it has been brought to our notice that money mules can be used to launder the proceeds of fraud by criminals who gain illegal access to deposit accounts by recruiting third parties," said an RBI official. "The third parties may be innocent or they could be complicit in the crimes."

‘BANK ACCESS TO ALL VILLAGES IN 5 YRS’

RBIs outreach programme under financial inclusion would be implemented in villages across India and all people would be covered in the next five years, the apex banks Deputy Governor K C Chakraborty said on Monday. "All the banks have been asked to bring the technology to link up the Unique Identification Number (UIDs)”, he said.