SLR by Subbarao

Dr Subbarao has now made it a habit to say openly what he feels strongly about, which is good. Sometime ago, he spoke of the independence of RBI, which was well taken. Now, he has touched on the issue of SLR, which should make us think hard. Today, at 24%, SLR may be interpreted as being a drag on the banks, which are per force compelled to hold government securities instead of using them for lending. Is this really bad for them? One is not sure of the answer, considering that today, for the system as a whole, the investments’ deposits ratio is 30.7%. There are really two things here. The first is that, ideologically speaking, banks should have greater flexibility with their funds and hence should have the option of using the investment or credit windows. Fixing a high number puts pressure on the use of funds by banks. Considering that they have the CRR requirement (6%) as well as priority sector lending compulsion of 40%, it makes sense to have a lower SLR number. They can still invest more in government paper in case they find them attractive from the point of view of the capital gains to be made or for satisfying the prudential regulatory norms. The RBI Governor’s thoughts, if implemented, will actually help banks a lot. The second is how low should SLR drop? One way to tackle this issue is to gauge the level and extent of repo borrowings, which is, in a way, indicative of surplus SLR securities, which are being given to RBI for cash and is thus a measure of the liquidity deficit. Hence, a sustained borrowing of, say, R50,000 crore from the repo window means that SLR can be reduced by this proportion. Is there a downside to this reduction? The party that benefits a lot from this high stipulation is the government that gets the banks to park their funds in its debt. A lower level will theoretically impact its ability to get subscribers for its debt. But then, given that banks are one component of this basket that holds around 40% of all government paper (insurance companies, PDs and provident funds are other important holders), this should not be an issue. Also the fact that banks are holding excess SLR means that, overall, the impact will be muted, as those with surplus SLR securities will continue to subscribe to them. But the positive thing is that all banks which are today facing a shortfall can have access to greater use of their own funds rather than look for borrowings in the call market. One can sense that RBI is becoming more progressive in its monetary view as well as in its policy formulation. While the approach has been so far bordering on being cautious, it has taken a pragmatic view on the operational issues for banks such as the base rate concept, opening up of savings rate (in progress), introducing the marginal standing facility and now lowering of SLR, and probably also CRR, when the time is right. This is really good news.

FE 

Banks in Karnataka disburse 28% of annual target in Q1

Banks in Karnataka have to quicken the pace of their financial inclusion (FIs) efforts in order to meet the target of covering the remaining 1,682 unbanked villages in the State, said the Chairman of State-level Bankers' Committee (SLBC) – Karnataka, Mr Basant Seth, also the CMD of Syndicate Bank, on Wednesday. Addressing the SLBC – Karnataka meeting, he said an additional 6,029 unbanked villages have been identified with of population of 1,000-2,000 and allocated to the banks through lead district managers (LDMs) for providing banking services. Mr Seth also said banks in the State have disbursed 28 per cent (at Rs 11,543 crore) of the annual target for the current fiscal (2011-12) under priority sector credit during the first quarter (Q1) ending June 2011. Under secondary and tertiary sectors, disbursement stood at Rs 2,003 crore and Rs 1,896 crore respectively. The target under agriculture credit is revised upward to Rs 31,380 crore in tune with national priority. The aggregate deposits stood at Rs 3.5 lakh crore while aggregate advances was Rs 2.6 lakh crore with a credit deposit ratio of 72.71 per cent. The advances to priority sector stood at Rs 1.1 lakh crore crore, constituting 42.44 per cent of credit, surpassing RBI stipulation of 40 per cent. Mr Seth urged the banks to accelerate credit flow to minority communities to improve the level to stipulated 15 per cent. Similarly, the advance to agriculture sector was Rs.47054 crore comprising 18.23 per cent of the total credit, which is above the stipulated level of 18 per cent. Advances to MSME sector stood at Rs 47343 crore.

Speaking on the occasion, Ms Uma Shankar, Regional Director RBI cautioned the banks for 7.3 per cent drop in CD ratio to 72.71 per cent in Q1 FY 2011-12, against 80.01 per cent same period last year. She also cautioned banks to adhered to strict deadline iron out differences with service providers and achieve the set financial inclusion goals by March 2012. “Banking correspondents (BC) model in the state needs to be standardised and rolled out faster. Along with training in banking, banks should also think about providing soft-skill training for BCs,” said Ms Shankar.  Mr S.N.A. Jinnah, Chief General Manager NABARD, said self-help groups (SHGs) are well covered in the State. But few districts have low density of SHG coverage and we need to focus on those districts to push for priority lending. Mr S.V. Ranganath Karnataka Chief Secretary, said the Government is looking for active assistance of Nabard to take up study on national rural livelihood mission.  The State Government is actively studying the proposal of using SHGs to actively increase their involvement in rural development.

HBL

IRMA gets its first woman director

The Institute of Rural Management, Anand, (IRMA) has got a female director for the first time since its inception in 1979. Professor Jeemol Unni who since the last two years was serving as Reserve Bank of India (RBI) chair at IRMA has taken over as regular director of country's premier rural management institute. Unni has taken over as director from acting director professor Rakesh Saxena. Since May, the institute was being managed by an acting director after its former director professor Vivek Bhandari stepped down.

TOI

StanChart admits its IDRs had ‘impurities’

Speaking on the recent Reserve Bank of India (RBI) guidelines on offering banking licences to corporates, Bindra said, “As long as the RBI can ensure that there is an arms length that is well enforced and there is an inclusive growth, more are welcome.”..

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Pension ULIP: New Avatar

The Insurance Regulatory and Development Authority (IRDA) had earlier mandated all pension products to ensure a guaranteed rate of 4.5%pa which was also indexed to the reverse repo rate of the Reserve Bank of India (RBI)...........

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Use technology to scale up financial inclusion: Pranab

...Stressing the government's firm belief that financial inclusion is a necessary condition for inclusive growth, Mr. Mukherjee pointed to the important role that public sector banks (PSBs) have to play in this regard “given the distribution platform they enjoy and experience they have in serving the rural hinterland for the past five decades”.....

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RBI focuses on better customer service

Prevention is better than cure’ seems to be the focal point of the latest action points of the Reserve Bank of India (RBI) in the Annual Conference of Banking Ombudsman. So, the apex bank is looking at setting a template of good customer service that will prevent consumer grievance....

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Subir Gokarn rules out RBI intervention in currency market

Gokarn was speaking at the annual conference of Federation of Indian Chambers of Commerce and Industry (FICCI) in Mumbai. The Reserve Bank of India (RBI) will consider intervention in the foreign exchange market only if there is a danger of currency fluctuations adversely affecting the markets and the economy, Subir Gokarn, a Deputy Governor in the central bank said on Wednesday. Gokarn was speaking at the annual conference of Federation of Indian Chambers of Commerce and Industry  Gokarn was reacting to questions on Switzerland central bank’s move on Tuesday to cap the franc’s gains by setting a floor against the euro. The Swiss National Bank yesterday imposed a ceiling on the franc of 1.20 versus the euro, and pledged to defend the target with the utmost determination. "Switzerland has decided that the burden of inflows as a result of the turbulence around them is putting pressure on their currency in a way that is disrupting their real sector. So, they have decided to react," Gokarn said. He went on to add that the move by the Swiss National Bank is not in any way an abandonment of their fundamentally floating exchange-rate system. It is an attempt to deal with temporary factors, Gokarn said. "Our view on exchange rate management is essentially the same. We are looking to not target the exchange rate," he said. But, if there is pressure of any kind that disrupts the real sector the RBI would consider intervention. India has not faced that situation so far, Gokarn said.

IIFL

Refinancing best done by separate bodies: Gokarn

Deputy Governor Subir Gokarn said the Reserve Bank does not want to re-enter the refinancing space, saying this is best carried out by dedicated institutions. "If any refinance is needed then we need to create a separate institution with its own balance sheet and its own governance structure and not get embedded into the marco regulatory functions of the central bank," Gokarn told a summit on capital markets organised by FICCI here. He was answering a query from the audience whether the regulator has any plan to refinance the troubled microfinance sector. Pointing out that over the years RBI had moved away from refinancing, he said, "I don't know why the central bank becomes the obvious choice for everyone for this kind (refinancing) of an activity?  "If you look at refinancing as a national policy driven activity though, it had started off as a part of the central bank's mandate with the hiving of IDBI in 1971 and Nabard in 1982 with an idea to incubate them and allow them to operate on the strength of their own balance sheets," he said. This hive off was also aimed at ensuring that RBI's macro regulatory functions do not get compromised because of such specific micro functions," he said. "We have moved away from this over the years and I think that is the way it should be. IDBI and Nabard were separated to do these jobs and these are best left to separate institutions and not the RBI," he concluded.

Moneycontrol

RBI justifies ban on pre-payment charges

The Reserve Bank today justified its move to ban pre-payments charges on floating rate loans, saying there is no legitimacy for banks to levy any penalty in such loan contract. "In a floating rate contract, the borrower bears the complete interest risks and cannot be asked for compensation if he decides to pre-pay. On the other hand, in a fixed rate contract, the lender is committing resources, and then there is some legitimacy in asking for compensation," Deputy Governor Subir Gokarn told reporters on the sidelines of a FICCI event here. Yesterday, the Banking Ombudsmen had suggested that banks need not impose any charges for pre-paying loans taken under floating rates by customers. Many banks charge a pre-payment penalty ranging from 2-3% if a borrower chooses to pre-pay personal or home loan, irrespective of the nature of the loan contract-floating or fixed rate loans, citing as part of their cost of servicing their own loans. "Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it, to borrowers and, thus, banks only substitute interest rate risk with potential credit risk," the Ombudsmen noted. The banks will, however, be free to recover or charge appropriate pre-payment penalties in the case of fixed rate loans, the 10 action points to improve customer service said. The Banking Ombudsmen met at the RBI yesterday along with IBA representatives. Though the suggestion of the Banking Ombudsmen are morally suggestive in nature, it is generally accepted by the banks. Technically speaking, their suggestions have to be followed up by a circular from the RBI. In his inaugural remarks Governor D Subbarao had said "often, prevention was better than cure. In customer service area too, rendering good customer service was like 'prevention' and was better than the 'cure' which was the various grievances redressal mechanisms." Minister of State for Finance Namo Narain Meena in a written response in the Rajya Sabha too had said yesterday that the government in May 2010, had advised PSBs, IBA and National Housing Bank that no pre-payment charges may be levied by the lending institutions when the loan amount is paid by borrowers out of their own funds. State run banks like SBI claim that they do not levy any pre-payment charges if the pre-payment is paid by the borrowers from own sources, and not re-financed by another lender.

Moneycontrol

RBI seeks one-time tax relief to arm MNC banks

The Reserve Bank of India has sought a one-off tax exemption from the government for foreign banks that convert into local subsidiaries as it intensifies efforts to ring-fence the domestic financial system from global shocks. The permission, if granted by the government that's already facing widening fiscal gap, may lead to thousands of crores of notional revenue loss. "It is likely that the foreign banks which have attained a particular asset size may be asked to convert into wholly-owned subsidiaries. RBI is also expected to extend the branch licensing policy applicable for domestic banks to foreign banks. Like domestic banks, they would have to ensure that at least 25% of their branches are in unbanked rural centres," said a banker, familiar with the proposal.  Currently, it's not very easy for foreign banks to acquire branch licences from the regulator. On an average, the central bank issues about 14 branches to all foreign banks every year. Along with the national treatment, sources indicate that foreign banks would have to meet the 40% priority sector target. At present, the priority sector limit for foreign banks is pegged at 32% against the 40% target set for domestic banks. Foreign bankers had asked RBI to consider relaxation in mandated farm lending targets, considering their limited reach. "The central bank, along with the Indian Banks' Association, is relooking at the definition of priority sector, which should address foreign banks' problems. Hence, this should not be a show stopper any more," said a person familiar with the proposal.  "RBI has suggested that the government evaluate extending one-time tax relief to foreign banks that migrate to the wholly-owned subsidiary model," he said. Under tax rules, a branch of a foreign bank in India is treated as a foreign firm.

ET

India may soon join sovereign fund club; fund to fuel natural resources acquisitions overseas

MUMBAI: India's policy makers will discuss next week a proposal mooted by corporate chiefs to float a sovereign wealth fund (SWF), which would potentially invest in overseas projects and companies to secure access to natural resources for one of the fastest-growing economies in the world. A committee headed by Reserve Bank of India Governor D Subbarao will discuss the merits of the proposal on September 15, according to senior officials. The committee operates under the umbrella of the Financial Stability and Development Council, or FSDC, a forum of regulators monitoring financial stability and inter-regulatory co-ordination.

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RBI permits modification in ECB procedures

Mumbai: The Reserve Bank Wednesday allowed authorised dealer category banks to approve proposals of ECB borrower to change their lenders. ".... it has been decided to delegate powers to the designated AD Category-I banks to approve the request from the ECB borrowers with respect to change in the recognised lender when the original lender is an international bank or a multilateral financial institution...," RBI said in a notification. According to existing procedures for external commercial borrowings, any request for change of lender for an existing ECB is required to be referred by the Authorised Dealer Bank to the Reserve Bank for necessary approval. The new rules will also apply in case the lending party is a regional financial institution, government-owned development financial institution, export credit agency or supplier of equipment. However, the new lender has to a recognised one as per existing norms for raising External Commercial Borrowing (ECB). "However, changes in the recognised lender in case of foreign equity holder and foreign collaborator will continue to be examined by the RBI," the notification said. The modifications to the ECB guidelines will come in to force with immediate effect. "All other aspects of the ECB policy, such as USD 500 million limit per company per financial year under the automatic route, eligible borrower, end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged," RBI said. ECBs are used as an additional source of funding by Indian corporates to augment available domestic resources. Corporates registered under the Companies Act, 1956, can access ECBs up to USD 500 million in a financial year under the automatic route. The ECB, which is not covered by the automatic route, is considered under the approval route on a case-by-case basis by the RBI.

Zee News

Wait gets longer for Banking Regulation Amendment Bill

The Standing Committee on Finance will not submit its report on the Banking Regulation Amendment Bill 2011 during the current session of Parliament ending on Thursday. This may delay granting of new banking licences. Sources in the standing committee told Business Line, “Annual reconstitution of the committee is due, so any report will be finalised only after that. The report can be expected only during the winter session.” This committee was supposed to give its report on pension and banking Bill during the current session but has given just on pension only”. However, the main reason for delay, according to a member of the committee, is that more deliberations are required. The banking industry as well as the corporates planning to apply for new licence are eagerly waiting for the passage of the Bill. For the existing players, the Bill, once enacted, will help in attracting more investment. This Bill proposes to raise voting rights of the shareholders of nationalised banks from one per cent to 10 per cent. On the other hand, the Bill proposes to remove the existing restriction on voting rights limited to 10 per cent in the case of the private banks. The Reserve Bank of India has already clarified that it would wait for the amendment of the Bill before granting new banking licences. The Bill proposes to confer power upon the Reserve Bank to call for information and returns from the associate enterprises of banking companies to inspect the same, if necessary. The Bill also proposes to confer power upon the RBI to supersede the board of directors of a banking company for a total period not exceeding 12 months and appoint an administrator to manage the banking company during the said period. The RBI feels that such a power will help it in regulating the new as well as existing entities in much better manner. Once the standing committee gives its report on the Bill, the Government might make some changes in it. This will require approval from the Cabinet, then the revised Bill can be brought for consideration and passage. Sources said the agenda for winter session seemed very heavy. The Government has to get the Constitutional Amendment Bill for the goods and services tax (GST) and Direct Taxes Code passed on priority. So, putting banking Bill on priority will not be easy, they added.

HBL

As western banks weaken, desi ones see opportunity

Despite deteriorating global economic conditions, public sector banks (PSBs) are increasing their overseas presence.  The main driver is the business opportunities that India's increasingly global business houses are throwing up........

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Tease me good

In quick succession, ICICI Bank and HDFC Bank have come out with a new version of combined fixed and floating home loan products, rekindling the issue of teaser home loans yet again. The second coming of these loans shows that the home loan market has expanded enough for competition to peak. Other banks that have also announced their intention to tap the retail sector aggressively will soon offer their version of the scheme. These could include State Bank of India, the pioneer in 2009. RBI deputy governor KC Chakrabarty has also said that the regulator is not inclined to put a halt to the schemes as long as banks make the extra provisioning of 2% instead of 0.4%. The higher provisioning will dent the profit margins but the revival of the teaser loan shows that the banks still see money in it. Teaser loans undoubtedly pushed up the credit offtake for housing loans last year and gave the middle class much-needed relief from the increasing interest rates. The size of the home loan market at the end of July this year—at R3.61 lakh crore—makes it difficult for RBI to push banks beyond a point. For banks, the strategy of teaser loans works profitably when the income stream of the borrowers is carefully assessed. At a moment when the interest rate is peaking, the timing of the teaser loans can be questioned as they block new customers at higher rates. But, given that credit growth is sluggish at 2.5% in the current financial year till August as compared with 3.8% in the same period last year, banks need the home loan sector to move.

FE

RBI has no intension to stop teaser loans: Gokarn

MUMBAI: Reserve Bank Deputy Governor Subir Gokarn on Wednesday said the central bank has no plan to ban teaser loans but warned that any such product will attract 2 per cent additional provisioning. "There is no attempt or intent on the part of the RBI to stop these products or prevent them any way. We are only saying that there are some additional risks involved in such products and hence more provisioning has to be made for any such products," Gokarn said on the sidelines of a Ficci seminar here. "Whether they fall into such (teaser) category is something my colleagues in the regulatory department to decide, but the policy response to any such structure is that once it is deemed to satisfy any of those criteria of (teaser loans), it would attract higher provisioning requirement of 2 percent which we imposed recently. "So if you have a product that falls into such a structure, then you will have to make the additional provisioning. It is very clear," he said when asked whether the regulator is planning to bracket the recently launched home loan schemes by ICICI Bank and HDFC as teaser loans. Recently ICICI Bank and mortgage lender HDFC had offered a fixed rate home loan products to attract more borrowers, as credit growth slowed in the face of rising interest rates.

TOI

Reserve ratios need to come down gradually, says RBI Governor Duvvuri Subbarao

MUMBAI: RBI Governor Duvvuri Subbarao said on Tuesday that the proportion of deposits banks need to set aside with themselves as well as the Reserve Bank of India need to come down, but gradually.  "Combined CRR (cash reserve ratio), SLR (statutory liquidity ratio) at 30 percent is still quite high and needs to come down, but that has to happen gradually," Reserve Bank of India (RBI) Governor Duvvuri Subbarao said speaking at the National Finance Symposium organised by the Indian Institute of Foreign Trade.

ET

'Funding for MFIs continues to be subdued' - Udaia Kumar, MD, SHARE Microfin

The draft Bill is a positive development, as it recognises microfinance institutions as extended arms of banks and brings them under RBI's direct supervision. But nothing has changed in field operations. The repayment rate in Andhra Pradesh continues to remain low, at about 10 per cent. There is also very limited opportunity to give fresh loans and expand the balance sheet....

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No target for R, to step in if economy affected: Gokarn

“Our view on exchange rate management has been the same. We do not target the exchange rate unless there is great pressure of any kind,”...

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