Friday, November 4, 2011

RBI's most interesting move – S.S.Tarapore


The deregulation of savings bank deposit rates overshadowed the announcement on rate hike. There are enough checks and balances to ensure that banks will not go berserk

The saga of regulation of interest rates in India and its subsequent deregulation is a fascinating story spread over nearly 50 years. In the 1960s, there was a major deposit rate war among commercial banks and, during the internecine battle, banks pleaded with the Reserve Bank of India (RBI) to regulate deposit rates. The RBI was first inveigled into regulating select deposit maturities and, subsequently, the banks wanted all term deposit rates to be regulated by the RBI. Simultaneously, lending rates were progressively regulated. In the 1980s, a tentative attempt was made to deregulate short-term deposit rates subject to a ceiling. This experiment failed as banks were so used to regulation that they all jumped off the cliff and the experiment had to be abandoned. During the general deregulation of interest rates in the 1990s, the savings bank rate remained the last bastion of interest rate regulation. For the past 30 years, every Governor contemplated deregulating the savings bank rate, but backed off from taking the plunge. The RBI Governor, Dr D. Subbarao will go down in history for being the one to ultimately deregulate the savings bank rate. Kudos to the RBI for leading from the front. One fervently hopes that the RBI will do a bit of hand-holding to ensure that banks do not go berserk. If the deregulation succeeds, Dr Subbarao will receive the blessings of millions of savings bank depositors.

Equitable returns

While deregulating the savings bank deposit rate, the RBI has added a somewhat intriguing proviso. For deposits up to Rs 1 lakh, a bank would have to provide a uniform rate, irrespective of the amount, while for larger deposits banks have been allowed to fix different rates for different amounts. Such a prescription does not appear desirable. Some banks already have sweeping accounts, multiple option accounts and, in some banks, term deposits of any maturity can be withdrawn without any penalty. In this context, it would have been preferable if each bank was permitted to offer a single savings bank rate, irrespective of the amount. The basic objective of this reform is to ensure that small depositors earn an equitable rate of return. The bulk of savings bank accounts are by small holders and their balances are invariably stable. Furthermore, in the context of financial inclusion, small depositors need to be encouraged. There is an erroneous view that the deregulation will raise the cost of funds to banks and, thereby, impinge on their net interest margin (NIM). This conclusion is faulty as it is based on comparative statics. In a dynamic context, banks may, in fact, see an improvement in their NIM. If a bank has an unusually low proportion of savings bank deposits and a very high proportion of high-cost term deposit maturities, it can benefit by offering higher rates on savings bank deposits. It should be incumbent on banks to so fix their rates that they attain reasonable NIM.

‘Yes' strategy

One of the banks with a very low proportion of savings bank deposits — YES Bank — has fired the first salvo by raising the savings bank rate from 4 per cent to 6 per cent for all savings bank depositors. This is a right strategy for YES Bank. Anticipating the deregulation, the State Bank of India, well before October 25, sharply raised the shorter-end of term deposits up to 90 days to 7.5 per cent. What the SBI does on the savings bank deposit rate in the next few days will be a pace-setter for other banks  The RBI should, as part of its moral suasion, caution banks not to jeopardise the NIM in the process of determining their own savings bank deposit rates. As part of transparency, the RBI should insist on a uniform quarterly rest by all banks so that depositors can easily assess the rates offered by different banks. The savings bank depositors are the most loyal in the firmament and there is no danger of any major exodus out of individual banks because of small variations among banks.

Migration of deposits

Of course, if a number of banks offer high savings bank deposit rates and several offer very low rates, there is the possibility of migration of deposits. But, equally, banks which offer unusually high savings bank deposit rates will be inflicted with significant erosion of their NIM. Thus, there are enough checks and balances in the system and the deregulation of the savings bank deposit rate is most likely to be a great success.The deregulation of the savings bank deposit rates was long overdue and it is to the credit of Governor Subbarao that he has taken this bold measure.
Tail-piece: The savings bank deposit deregulation has overshadowed all other measures, including the repo rate increase by 0.25 per cent. One fervently hopes that the RBI does not have to rue its explicit guidance that future increases in policy rates in the ensuing period are unlikely.
HBL

EU crisis because of fiscal mismanagement, says Y.V. Reddy

Hyderabad : The European Union crisis is wrongly being called a sovereign debt crisis as the current situation in the EU is a result of fiscal mismanagement, said Dr Y.V. Reddy, former Governor of the Reserve Bank of India, at the inaugural of the 4th International Conference on India: Emerging Economic Power – Quest for EU and World Economic Order at the University of Hyderabad on Wednesday. The Indian economy is vulnerable to shocks like oil price rise, food security and fiscal imbalances, he said. With all these issues, India does not contribute to the global imbalance. Asian countries like China and those in the Far East are not vulnerable to fiscal shocks but are highly dependent on exports, he said. The country's economic growth will depend on investments, and investments in turn will depend on our savings, he said in his keynote address on ‘Indian Economy and World Economy at turn of 21st century'. India is likely to be a big entity in the world economy, he said. He cautioned that the road ahead for the global economy is bumpy. Technology is moving towards globalisation but people are not moving as fast as technology. The three-day conference is being organised by the Centre for Contemporary India Research and Studies and the Institute of International Relations, University of Warsaw, Poland, in collaboration with University of Hyderabad. More than 15 foreign delegates from European countries are participating in this conference which will see discussion on topics like ‘India Domestic Economic Reform: Dynamics and Challenges', ‘India and Asia Economy', ‘India and EU Economic Cooperation', ‘India and New Economic Challenges', etc.
HBL

Bancon 2011 to frame strategies to meet growing challenges

Chennai: Bancon 2011 will serve as a platform for the Indian banking sector to frame strategies to face the challenge of competition and exploit the opportunities for growth over the next decade, according to Mr M. Narendra, Chairman and Managing Director, Indian Overseas Bank. Addressing a curtain raiser press conference on the eve of the inauguration of the annual event of the Indian Banks' Association, he said opportunities are opening up in the domestic and foreign markets for the Indian banks. This presents an opportunity to build on the progress that the sector has seen over the last decade. The sector will also be ‘truly opened to competition' as traditional players expand and non- traditional players enter the banking sector. The three-day event is framed on the theme ‘Competing in the defining decade for Indian banking'. IOB is hosting Bancon this year as it coincides with its own Platinum Jubilee celebrations.
The conference is to be inaugurated on Friday by Mr Namo Narain Meena, Minister of State for Finance. Dr K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, will deliver a special address on ‘Gearing up for competitive impulse in Indian banking'. Nearly 70 leading personalities from banking, financial services and corporate sector will address the participants, Mr Narendra said. The events on the second day are to begin with an address by Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, on ‘Competing in the defining decade for Indian banking — Outlook and imperatives for banking 2020'. IOB will make significant announcements including strengthening its banking network. This will relate to opening of 75 ATMs and 50 new branches mostly in rural and semi-urban areas. This will add to its more than 2,250-strong branch network, Mr Narendra said.  Another special address by H. R. Khan, Deputy Governor, RBI, will be held at Hotel Le Royal Meridien on the same day.
HBL

Banks told to employ fit guards

Pune: The Deccan Gymkhana police have directed all banks to install CCTV cameras on their premises and outside all ATM centres. Besides, bank security officers were asked to employ physically fit security guards and to ensure that they have received adequate training in handling firearms.  The police also have asked the banks to install security alerts and to keep a record of ATM users by maintaining a register at every centre. The Reserve Bank of India recently issued directives instructing banks and police to coordinate and ensure safety of bank customers besides tackling banking-related frauds. The Deccan Gymkhana police convened a meeting of managers of banks that fall in its jurisdiction. Total, 36 bank managers attended the meeting.
TOI

Short-term fixed deposits see a change in fortunes

Higher returns, more liquidity draw individual investors to savings accounts. Less than a week after the Reserve Bank of India announced the deregulation of the savings rate, the banking industry is seeing rapid changes in strategy..............

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Setting an example

After the announcement of liberalised interest regime for savings by the RBI, the general public is curious regarding SBI's move. It has around Rs 361,000 crore as savings deposit, which has always given it a base for low-cost funds. In case this bank increases the saving interest rate across the board by 0.75 per cent, it may reduce its profits by around Rs 2,700 crore. When its profits are projected to be in the vicinity of Rs 10,000 crore during the current financial year, will it not be a risk worth taking? Will it not be in the logic of things to play in the market with resultant profits of Rs 7,300 crore (assuming correct projections) and set an example? The time has now come for the banks to sacrifice some profits and do out-of-the-box thinking.
-  Anand (HBL)

Shortage of change after hike in toll rates led to massive jams on DND flyway yesterday; things aren't likely to change today

It won't be smooth-going on the eight-lane Delhi Noida Direct (DND) flyway in the days to come. This was evident on Wednesday morning. It took many around 45 minutes to cross a kilometre-long queue of cars during office hours. The reason is hike in toll prices - increased from Rs 10 to Rs 11 for two-wheelers and Rs 20 to Rs 22 for cars. NTBCL has already written to Reserve Bank of India (RBI) and the State Bank of India (SBI) asking for a large consignment of coins to match its new requirements. It has made arrangements with "private agents" for the initial weeks.
Mid Day

Ignore loss of faith in co-op banks: CIC

...the decision of the full bench cited by the RBI does not become a "binding precedent" because it has not recorded any comment which shows that it consciously agreed that Section 8 of the RTI Act was applicable in such matters....

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Commercial realty to come under new RBI disclosure norms

Mumbai: The Reserve Bank Thursday asked banks to bring in a disclosure clause under which commercial real estate players will also have to mention in their advertisements the name of the bank to which a property has been mortgaged. "On a review, it has been decided that the provisions contained therein (relating to disclosures) will be applicable to commercial real estate also," the central bank said today. Earlier, the central bank has made it mandatory for banks to inculcate the provisions relating to disclosure of a mortgage property in advertisements for 'private builders' at the time of inviting public to buy flats or a property. Currently, a builder or a developer or a company has to disclose in their advertisements like pamphlets or brochures the name of the bank to which the property is mortgaged. With this notification, commercial realty will also come under the ambit of such disclosures.
Zee News

RBI wants IIFCL to focus on direct lending

RBI conveyed its view to the government while approving the registration of IIFCL as a non-banking financial company, effectively bringing the lender under its regulation....

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A place under the sun for microfinance

Former Reserve Bank of India (RBI) Governor Y.V. Reddy recently wrote a tough piece on microfinance in the Economic and Political Weekly (EPW). Given his stature, these views will be read carefully in policy circles, especially given the proposed Microfinance Institutions (Development and Regulation) Bill. His essay, therefore, deserves a detailed analysis......

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Govt likely to introduce Micro-Finance Bill in Winter Session

NEW DELHI: The government is likely to introduce a Bill that seeks to make it mandatory for all micro-finance institutions to be registered with the Reserve Bank of India and entrusts the task of regulating the sector to the central bank in the Winter Session of Parliament.  The Finance Ministry is in discussion with all concerned stakeholders for fine-tuning the draft Micro Financial Sector (Development and Regulation) Bill, 2011, official sources said.  The ministry hopes to table the Bill in the upcoming Winter Session of Parliament, sources said.  The draft Micro Financial Sector (Development and Regulation) Bill, 2011, was circulated for public comments in July this year.  In an earlier Bill, it was proposed that the National Bank for Agriculture and Rural Development (NABARD) would be the regulator of the sector.  The government had introduced the Micro Financial Sector Bill in the Lok Sabha in March, 2007. However, the Bill lapsed when the term of the 14th Lok Sabha expired in 2009. The latest draft Bill proposes to make it mandatory for micro-finance institutions to be registered with the Reserve Bank and have minimum net-owned funds of Rs 5 lakh.  In addition, a Micro Finance Development Council will be set up to advise the government on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the sector and micro-finance institutions with a view to promote financial inclusion. The council will comprise members not below the rank of Executive Director from NABARD, National Housing Bank, RBI and SIDBI. In addition, joint secretaries from the Ministry of Finance and the Ministry of Rural Development will also be its members. The draft Bill also proposes that any micro-finance institution which is not a company registered under the Companies Act, 1956, and which becomes a systemically important micro-finance institution shall convert its institution into a company registered under the Companies Act, 1956, with or without a licence, under Section 25 of the Act. This should happen within six months from the date of the balance sheet that shows the MFI has become a systematically important micro-finance institution in terms of the rules prescribed by the central government, the draft Bill said.  The RBI may pass an order directing a micro-finance institution to cease and desist from carrying out micro-finance activities if it is found acting in manner prejudicial to the interest of its clients or depositors.  The Reserve Bank will cancel the certificate of registration granted to a micro-finance institution if it fails to comply with the directives or condition, the draft Bill states.
ET

'The post of chief statistician could become bureaucratised'

........I am afraid RBI has overreacted. I hate to say this but it sounds as though RBI has lost its institutional memory. It has been the experience not just in India but in other countries also that when you do a base change in any index, there is lot of volatility in the first couple of years because new firms are submitting data. They are not used to it. Often, they are not used to the definitions and data, therefore, doesn’t really conform to what you...........

Read......

Thursday, November 3, 2011

Financial Outreach Programme organized by RBI

Gangtok : The Reserve Bank of India (RBI) organized a day long Financial Outreach Programme at Darap, West Sikkim on 31st October, which was graced by Executive Director RBI G. Gopalkrishna as the chief guest and Area MLA P.L.Subba as the guest of honor. Under RBI Financial Inclusion Plan, SBI distributed biometric cards to 260 account holders. SISCO, Gyalshing, Branch also distributed Kisan Credit Cards to 26 progressive farmers of the area. Addressing the gathering, the chief guest said that the banks are supportive agencies to keep the people economically safe. Therefore, he urged the people to develop banking habits so that they could establish themselves. Further, he also assured to reach bank facilities to all the villages of Sikkim by 2013. MLA, Yangthang P.L.Subba in his speech, expressed his gratitude and appreciation towards RBI for the support. He urged the public to make best use of the facilities provided at the doorstep by the banks. He also informed that the government is making all the payments through bank account payee cheque. Therefore; he urged the gathering to open an account individually. DC West Santa Pradhan citing examples of various fraud agencies which had come up in Sikkim and misused the money of the public reminded not to get carried away by the false promises made by such agencies. Further, he reminded that Byazee-Maasikatta, Dadani Bandaki, Thaili practices in the villages are banned by the state government and warned that such practices are offence. General Manager RBI E.E. Karthak, General Manager M.S.Soy, G.M NABARD, PC Choudhary, AGM SISCO Pema Chenzum also spoke on the occasion. The day also witnessed quiz competition among the local schools.
isikkim.com

Currency notes from 19th century to be displayed




One of the rare currency notes on display
 
Pune: Currency notes from the early 19th century from around 15 countries will be displayed at an exhibition organised by The Numismatic Society of Maharashtra, Pune, from November 5 to 7. The three-day exhibition will be held at the cultural hall in the Chatuhshrungi temple premises on Senapati Bapat Road, between 10 and 6 pm. In focus will be currency notes from countries such as India, Greece, Zimbabwe, Germany, Iran, Iraq and Indonesia, among others. The exhibition, for the first time in its 14th edition, will feature currency notes. It will be attended by 35 numismatists, seasoned and new, from across the country.  “The exhibition aims to provide information on the currency notes of countries that have suffered inflation, the process of printing such notes, the development of currency notes, and comparison of different currency notes, safety measures to avoid counterfeiting,” said Devdutta Angal, secretary of The Numismatic Society of Maharashtra, Pune, at a press conference on Wednesday.  A 100 trillion dollar note from Zimbabwe, a very rare Rs 100 note from 1868 and a Rs 10 note dating back to 1916 India, Russian notes from the Czarist era and a 50 million mark note from Germany, are some of the several exotic specials to look out for at the exhibition.  “Special emphasis will be on the currency notes printed in Germany during the two World Wars. It’s interesting to notice the characteristic features of these notes during periods when the country suffered very high inflation,” said Society member, Narendra Angal.
TOI 

CAB - Pensioners' Paradise - PPR's eyeview

Pensioners' Meet at CAB

I arrived in Pune on October 27th to spend fabulous time with my 25 months old granddaughter Veda and it was indeed pure joy and fun.Then I felt that I should meet some good RBI friends settled in Pune. So I rang up Shri.Prithiani and expressed a desire to meet him and Shri.R.S.Patil. "Can you arrange this?", I asked him. "Yes", chirped Prithiani and added, "Come on November 1 at 11 a.m to CAB Auditorium. You will meet many of your friends".

So I bent my steps, from Aundh to the College and Lo  and Behold ! There were over 200 retirees present in the capacious auditorium. I met friends I had not seen for decades. "Eminence Grises" included Sarvashri P.B.Kulkarni, A.V.Sardesai, B.A.Patil, Newlay, P.Aravind and so many. Pune is the Home and Heaven of over 250 retirees from RBI and I have a booklet that gives all particulars about all the retirees -- including blood group. The CAB had made excellent arrangements for a get-together. In fact they have done themselves proud. November, as all of you know is the month when retirees have to submit their Life Certificate. CAB made it very easy to submit these certificates by making their staff available for this. No Hassles for this Certificate.

What is more laudable is that they had arranged a Camp for Diabetology and Retinopathy. A panel of doctors from the Chellaram Hospital checked those wanted to get checked and offered guidance. This was followed by a Lec-Dem by a doctor. There was an interactive session between the doctor and retirees.

The Principal. Ms. Kamala Rajan welcomed the doctors and asked a number of questions on eye problems. The Vice Principal Shri R.L.Sharma proposed a vote of thanks. The doctors and the technicians were given appropriate gifts. The College had arranged for Tea in the beginning and Lunch at the end of the session.

I do wish other Centres emulate CAB and arrange for similar get-together of retirees and renewing of broken friendship and exchanging of notes.

P.P.Ramachandran (via e-mail)

CIC summons RBI information officer

Panipat: Following denial of information sought by a local RTI activist regarding top 100 bank loan defaulters from the Reserve Bank of India, the Central Information Commission has summoned the public information officer of the apex bank. Activist P P Kapoor had demanded information from RBI about top 100 persons and industrialists of the country who had not repaid huge loans taken from nationalised banks, in August last year. In their reply, RBI stated that though the information was available, it could not be divulged as RBI was holding it in judicial capacity''. Following this, Kapoor filed an appeal with the first appellate authority which was rejected. Kapoor then approached the Central Information Commission which has asked the public information officer of RBI to appear before it on November 8 with all relevant documents.
HT

VITALINFO – No praise is too high for individual efforts....

 

RBI asks banks to secure approval from cos issuing derivatives

Mumbai: The Reserve Bank Wednesday asked banks to seek approval from company boards before selling derivative products to them. "Before offering any derivative product to clients, banks should obtain board resolution from the corporate which explicitly mentions the limit assigned by the corporate to the bank," the Reserve Bank said in a notification modifying the 'Comprehensive Guidelines of Derivatives'. The direction assumes significance in the light of allegations from certain quarters of mis-selling of derivative products by banks resulting losses to investors during the 2008-09 global economic crisis. The board resolution has to mention the names and designation of officials of the company authorised to undertake particular derivative transactions on behalf of the company and specify the names of the people to whom transactions should be reported by the bank. Banks sell derivatives to help companies to hedge risks against fluctuations in foreign exchange value and interest rates, and earn a fee. Banks have also been directed to ensure that there is mention of the names and designation of persons authorised to sign the International Swaps and Derivatives Association (ISDA) and similar agreements and also of specific products that can be transacted by the designated officials. "It should be ensured that the Board resolution submitted by the company is signed by a person other than the persons authorised to undertake the transactions," the notification said. RBI had in April this year imposed a fine of Rs 1.95 crore on 19 banks, including leading lenders like SBI, HDFC Bank, ICICI Bank and Citibank, for violating regulations concerning derivatives. The lenders had been charged with failure to carry out due diligence with regard to suitability of products and sold derivative products to companies not having risk management policies. They also failed to verify the adequacy of eligible limits before selling derivatives.
Zee News

Reveal bank inspection reports: CIC to RBI

In what could open banks for public scrutiny, the Central Information Commission has asked the country’s banking regulator Reserve Bank of India (RBI) to disclose information regarding inspections of banks under the transparency law --- Right To Information. Information Commissioner Shailesh Gandhi rejected the RBI’s claim that if the information regarding banks was disclosed it could lead to reduction of faith in banks and it could affect economic interest of the states. “The idea that citizens are not mature enough to understand and will panic is repugnant to democracy,” Gandhi said, in his order and added that in over 60 years the citizens have handled their democratic rights in a mature fashion and have punished leaders who have shown tendencies of trampling their rights. Gandhi also took his own commission to task, which had earlier given a blanket exemption to RBI to decide the information it could disclose on the ground that it was an expert body to understand implications of the information for the banking sector. “If the position of the full bench (of the CIC) is to be accepted…then all public authorities could be best judge of what information could be disclosed. In such an event the information commission would have no role to play,” Gandhi said, while hearing an appeal of Jayantilal N Mistry of Gujarat against RBI. The commission cannot abdicate its responsibilities under the RTI Act to RBI on the ground that latter was an expert body, Gandhi said. He also ruled that CIC’s full bench had no powers to review the decision of former information commissioner M M Ansari, who had asked RBI to provide complete information relating to performance of banking sector. Holding RBI guilty of not reading the full bench decision completely, Gandhi said it had clearly stated that a larger public interest was likely to be served by disclosure of such information and RBI should be proactive in this. “It is unfortunate that the RBI has not taken any steps to proactively disclosure this information in the last five year,” he said, while asking RBI to disclose information to the applicant by end of November. Gandhi was also amused at the RBI’s contention that disclosing information regarding inspection report of a particular bank could jeopardize economic interests of India. “Declaring the audit, inspection and investigation reports of all cooperative banks which have gone into liquidation cannot do any further harm to such banks,” he said.
HT