BSE launches Shariah 50 index

The Bombay Stock Exchange today launched India's first Shariah-compliant index, to promote financial inclusion among Muslims. The `BSE Tasis  "The introduction of the BSE Tasis Shariah Index will give Islamic and other socially responsible investors another means to access the Indian market and will help attract pools of capital to India from the Gulf, Europe, and Southeast Asia," said Madhu Kannan, managing director and CEO of BSE. "This index will create increased awareness on financial investments amongst the masses and help enhance financial inclusion. It will also build a base for licensing for the construction of Shariah-compliant financial products, including mutual funds, ETFs, and structured products," Kannan added. Prime Minister Manmohan Singh, during his visit to Kuala Lumpur in October, had said he would ask the Reserve Bank of India to learn more about Islamic financial products from Malaysia.

RBI set to moot apex holding co for bank groups - Deputy Governor Shyamala Gopinath

An internal working group of the Reserve Bank of India (RBI) is likely to propose the model of an apex holding company (AHC) for banking conglomerates. It is veering to the view that this structure, as opposed to that of intermediate holding company, would ensure that nonbanking entities within a banking group are directly owned by the AHC. This would reduce contagion risk and protect the relevant bank's reputation. The group headed by Deputy Governor Shyamala Gopinath is working on a draft paper which examines several global models of structuring of banking groups and lists the pros and cons.The group reckons that in the Indian context the model of apex holding company might be preferable, said a source in the know of the development. Listing out the advantages of the AHC model, the source said, “This company will be an investment company which will have control over group companies.According to this model, the bank and the non-bank subsidiaries in a banking group would be owned by the holding firm. The proposed apex holding company model is different from the intermediate holding company that banks like ICICI Bank and SBI planned to set up in 2007. "The proposed apex banking model would require amendments to existing laws and the committee is examining this aspect also," said another source. Additionally, considering that the RBI is in the process of examining granting banking license to new entrants including industrial houses the committee is examining if this structure should be made mandatory for the new entrants.

Pawar bats for urban co-op banks, seeks RBI support

Union Agriculture Minister Sharad Pawar on Saturday asked the Reserve Bank of India (RBI) to adopt a more supportive attitude toward urban cooperative banks (UCBs) while admitting that the wrongdoers did not deserve any sympathy. He said UCBs needed financial support in adopting core banking solutions (CBS) to achieve better efficiency of operations and transparency of transactions. Speaking at the national launch of CBS in UCBs here, the minister said though the cooperative sector’s share in the banking industry was just four per cent, it catered to the poor and the middle class for whom private banks were still out of reach. Pawar said it was possible that the money needed for CBS implementation could come from NABARD. “We will discuss this with NABARD and ensure that small banks do not lack support... small banks should consolidate themselves by forming strategic groups,” he said, adding change was needed in UCBs through integration of technology.

REGULATORY FAILURES

Governments in India have for long regulated many economic and other activities within the framework of the Constitution and the laws passed by the Central or state legislatures. Since no law can be so detailed that it covers all the complexities of implementation, rules and regulations are framed to enable governments to give flesh to the skeletons of overall policies. During the four decades or so when India was committed to a “socialistic pattern” of society, ministers and their bureaucrats developed regulations that controlled almost every aspect of economic activity. There was much abuse of these powers; favours were given to some, bribes smoothed the way for many, nepotism was common, financial and other support to political mentors was the price for some. This continues despite liberalization and the withdrawal of government from many areas of control. This is because decisions that could enable large profits were taken in an opaque manner. There was considerable discretion given to ministers and bureaucrats, easily subject to misuse.  Independent regulators were created to get over this difficulty. The first regulator who took over many of the government’s powers was the Reserve Bank of India, though it remained ultimately subservient to the finance minister and his office. The RBI determined monetary policy. Though there is no legislation that gives it the mandate, it uses monetary policy (money supply, interest rates) to keep inflation within limits. It also manages the external value of the rupee by buying and selling foreign currencies and increasing and decreasing the flow of rupees. It also regulates the different financial institutions.

Make phonebanking more secure: RBI

Banks will ask for an additional password from their credit card customers from the new year for any transactions conducted over phone, subsequent to a Reserve Bank of India (RBI) direction for making phone banking more secure. According to the RBI guideline, all banks will mandatorily decline any telephonic banking transactions, including the automated IVR (interactive voice response) services where customers do not have a onetime password (OTP) for such services with effect from 1 January. However, the OTP will be valid for a single use and would remain in effect for a period of two hours. Customers would need to generate a separate OTP for each IVR transaction.

RBI joins bribes-for-loans scam probe

The Reserve Bank of India has joined the Central Bureau of Investigation in probing the ‘bribes-for-loans’ scandal involving at least 15 companies, in an attempt to prevent loans given to them from burning a hole in lenders’ books.  The central bank has written to all banks seeking details of their lending to firms named by the CBI in an investigation into violations in sanctioning of loans by executives in return for bribes.
“The RBI is trying to assess the extent of exposure, the quality of these assets, and whether banks followed norms while lending to these firms.” Officials at the RBI could not be reached for comment during the weekend.

Festival of coins

A lesson in Indian history, a tour around the world, tips on how to spot fake currency — all this and more are on offer at Mudra Utsav being held at Haldiram Banquet Hall in Ballygunge Park. The event is on till December 26. The Numismatic Society of Calcutta is holding the exhibition as part of its silver jubilee celebrations.  “Individual dealers usually interact directly with collectors and charge them whatever they fancy. Here there are many dealers under one roof, so one has the option of comparing prices,” says Sandip Jain, the president of the society.  Individual collections are also on display. Basant Kumar Rathi’s British India coins date from 1835 when uniform coinage was introduced. “The double mohur was equivalent to 30 pieces of silver rupee. Few people know that till 1969 our mint used to strike these William IV mohurs as personal souvenirs,” he said.  Also on display were Saibal Basu’s collection on Mughal India, especially the Nisar coins, which were issued since Jehangir’s rule for the express purpose of showering them on subjects on occasions like the emperor’s birthday.  Kunal Chatterjee’s collection of Republic of India coins shows how the mint, from where a coin is issued, leaves its mark. “If you find a dot under the year of issue, it is from Noida, a diamond indicates Bombay, a star Hyderabad. If there is no mark, it is from Calcutta,” says Ravi Shankar Sharma, the society’s secretary.  The Reserve Bank of India (RBI) has set up a stall, from where leaflets are being distributed on how to detect fake notes.  Many had lined up before a grading agency where international coins and bank notes were being graded for a charge.

Disclose meetings agenda, RBI told

An order passed by Chief Information Commissioner Satyananda Mishra makes it mandatory for the Reserve Bank of India (RBI) to disclose pre-board meeting agenda notes and minutes. RBI has been told to draft a “disclosure policy” by February 2011 to bring about greater transparency in the bank’s functioning. The Commission said such a move “will also set the trend for other banks to follow”. The decision came on an application filed by one Kishan Lal Mittal, a resident of Mumbai, who had asked from RBI the copies of the minutes of the meetings of governing board, board of directors, committee of directors of the central bank from April 2007 and information regarding the complaint handling procedures followed by it against banking/non-banking companies.  RBI’s Public Information Officer said the information was “voluminous” and would take a long time to furnish, which would result in wasting public money. What is more, RBI argued that providing the information “would amount to disclosure of information that could prejudicially affect the economic interests of India since RBI and its committees often deliberated on economically and financially strategic matters”. “We direct the CPIO to bring it to the notice of the competent authority in RBI to prepare its disclosure policy in respect of not only the minutes of the board and other meetings, but also in respect of all other information held by it in tune with the provisions of the Right to Information (RTI) Act and post this policy on its website,” Mishra said, while asking RBI to comply with the order by February 2011. “Once RBI makes it clear which information it would not disclose under the exemption provisions of the RTI Act, it would be clear to everyone what all information can be expected to be disclosed,” he said. “Such clear enunciation of the negative list of items/classes of information in conformity with the exemption provisions of the RTI Act would remove all doubts in the minds of the officers of the bank about what they must disclose and which they must not. This would minimise the use of the appellate mechanism and bring in much greater transparency in the functioning of the apex bank. It will also set a trend for other banks to follow,” Mishra added. RBI had argued initially that it be placed on the list of authorities exempt from the RTI Act. The government turned down the request.

Banking Laws – Need to change

There are several legislations that cover India’s financial sector. The Banking Regulation Act 1949, The Bank Nationalisation Act, 1970, The State Bank of India Act, 1955, The Reserve Bank of India Act, 1934, all regulate different segments of the sector, making regulation unwieldy. A comprehensive overhaul is long overdue. Nine months ago, the government announced its intent to form a Financial Sector Legislative Reforms Commission but nothing concrete has happened yet. The urgency to overhaul these laws cannot be overstated as India integrates with the global economy and complex products are introduced.

More than onion hike, pricey protein items are the problem – Dr.Gokarn

The Reserve Bank of In dia is seriously worried about the enduring nature of high prices of protein items, which it fears, carries a risk of spilling over to more generalised inflation. This, together with a rise in the prices of commodities globally, may force its hands to hike key policy rates in its quarterly review in January 2011. "Prices of protein items, specially milk, fish, eggs and meat that are not sensitive to monsoon, have been rising steadily. When this happens, and there is a trend, it carries a risk of spilling over to generalised inflation,"  said Subir Gokarn, Deputy Governor, Reserve Bank of India.

Third Quarter Review of Monetary Policy 2010-11 on January 25, 2011

Dr. D. Subbarao, Governor, Reserve Bank of India will announce the Third Quarter Review of Monetary Policy 2010-11 on Tuesday, January 25, 2011.  This will be done in a meeting with the chief executives of major scheduled commercial banks at 11.00 a.m. on January 25, 2011 at the Central Office, Reserve Bank of India, Mumbai.

RBI fines Rupee Co-op Bank

RBI has imposed a monetary penalty of Rs 5 lakh on Rupee Cooperative Bank, Pune, Maharashtra for violation of RBI guidelines. The bank had violated RBI directives by purchasing cheques beyond the ceiling of Rs 0.25 lakh in current accounts.

Bank staff oppose HR policies' recast

All India Bank Employees Association has termed the recommendations of Khandelwal Committee on recast of HR policies for PSBs detrimental to the interest of bank employees. The association will protest march to Parliament on February 23.

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.