Friday, December 12, 2008

RBI proposes to ease bad loan norms for small firms

Export demand dropped significantly as recession hit the US and Europe. The small and medium sector had to face crisis due to this but now they might be able to get some relief from the banking industry.

The Indian Banks' Association and the Reserve Bank of India together are planning to allow easier restructuring of their non-performing assets by giving them a longer timeframe for repayment of debt.

Besides, a high-level committee will be setup by the government to review the situation and come up with guidelines to improve the sector, which generates large-scale employment.

The committee will be looking into the problems responsible for the slowdown and liquidity crunch, which have led banks to tighten their lending activities. The committee is also likely to act as a link between various ministries including finance and commerce.

In a recent meeting with Prime Minister Manmohan Singh, small and medium enterprises representatives had informed that banks have shown unwillingness in lending to the SMEs, which typically have low credit ratings.

As per the official data available, during the first six months of the current fiscal most banks have shown a deceleration in SME advances. In the April to September, state-run banks like the Central Bank of India and the State Bank of Bikaner and Jaipur have actually faced a negative growth in SME advances.

Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (Fisme) informed that a large number of these small enterprises are facing closure due to the global and domestic situation.

Fisme, in a letter to the Prime Minister, has informed that slowdown has resulted in repayment defaults by these enterprises.

RBI to grant approval for Banks foreign branches for structured products

Now the foreign branches or subsidiaries of Indian banks that plan to deal in structured financial products will be required to get prior approval from the Reserve Bank of India (RBI). This measure has been taken with regard to regulate overseas operations of Indian banks.

RBI has also elucidated that banks that are dealing in simple financial products do not require taking prior approval. The central bank’s measure is proposed to regulate the activities of foreign branches or subsidiaries of Indian banks, which to date were mostly controlled by the host country’s regulations.

As per this move, known as cross-border supervision, will require foreign branches or subsidiaries to provide full particulars of these products, including their regulatory treatment involving capital adequacy, valuation, pricing, exposure norms and the like as prescribed by the host country’s regulator.

According to banking sources RBI has extended its control over products and activities of foreign branches and subsidiaries of Indian banks following the requirements made by the banks for their exposure to planned products in subprime-hit markets of the United States and the United Kingdom. Structured products are exotic derivatives products.

Following subprime crisis — which broke out due to high defaults on personal or home loans offered to less credit-worthy borrowers for higher returns — foreign branches of several public sector and private banks were forced to make provisions for their exposure to structured products, like credit-linked notes or credit derivatives.

Credit derivatives are means wherein the primary assets are loans or bonds. If the value of the underlying loan or bond decreases, it will affect the profitability of banks as banks need to make a provision for the loss in their books to the extent of the fall in the value of the underlying loan or bond.

However ICICI Bank has reported an exposure of $1.5 billion to credit derivatives, other banks with exposure to such products are State Bank of India ($1 billion), Bank of India ( $300 million) and Bank of Baroda ($150 million).

On the other hand Bank of Baroda has offered around Rs 242 crore for exposure to structured products overseas, Bank of India has set aside Rs 161 crore. Earlier during the quarter (July-September 2008), ICICI Bank had made a stipulation for around $78 million for the investment portfolio of its UK subsidiary, which resulted in the operations of the arm reporting a loss of $35 million.

In April this year RBI in its annual monetary policy had mentioned about the cross-border supervision to control operations of Indian bank’s foreign branches. At present, the Banking Regulation Act, 1949, is administering most of the banking activities in India, whereas the overseas operations are guided by the host country’s regulations. At the time of final audit of the banks RBI gets reports of overseas operations.

RBI relaxed lending norms for tier-II urban co-op banks

The Reserve Bank of India (RBI) announced relaxation in the lending norms for tier-II urban co-operative banks (UCBs), under which it will become easier for them to lend to commercial real estate and non-banking finance firms (NBFCs).

Under the relaxation the central bank has streamlined and reduced the standard asset provisioning requirements for tier-II UCBs from 1 to 2 per cent earlier to 0.40 per cent across sectors. It has also reduced risk weights on lending to various sectors.

But it has not touched the provisioning norm in case of direct advances to agriculture and SME sectors are at 0.25 per cent.

As per the circular issued by the central bank, loans and advances to commercial real estate will now attract a risk weight of 100 per cent which was at 150 per cent.

The banking sector regulator has allowed UCBs to fund only asset-financing NBFCs and the risk weight on exposure to such companies remains unchanged at 100 per cent.

The central bank has not touched even the tier-I UCBs, the general provision norms on all their standard assets which are at 0.25 per cent.

Earlier on November 15, RBI had slashed the standard asset provisioning requirements of banks lending to NBFCs to 0.40 per cent from 2 per cent, leaving the direct advances to agriculture and SME sectors, where the provisioning requirement remains at 0.25 per cent.

Likewise, the central bank has also reduced banks’ risk provisioning for commercial real estate loans to 100 per cent from 150 per cent.

Sunday, December 7, 2008

Debt to income ratio: Its Basic and Types

If you are planning to avail a new loan, it is important that you check your debt to income ratio. Lenders can also ask for debt to income ratio before offering funds, to ensure that the borrower will be able to repay the loan amount.

What is debt to income ratio?

Debt to income ratio is an estimate in which the percentage of a person’s monthly gross income is calculated that is used in paying debts, certain taxes, fees, premiums and more. This calculation not only helps the borrower to keep a track of his budget but also allows the lender to understand if the borrower will be able to pay back the loan money.

What are the types of debt to income ratio?

There are 2 types of debt to income ratio: front ratio and back ratio. Front ratio means calculating the percentage of an individual’s monthly income that is used in paying house rents, mortgage loans, insurance premiums, property taxes etc. On the other hand, back ratio means the percentage of monthly income that is used in paying debts, credit cards, child support payments, alimony and legal matters.

What is the need of DTI?

Debt to income ratio is equally important as the credit score. It helps consumers to maintain a monthly budget according to his income and expenditures. In this way, it becomes easier for the consumer to repay his debts systematically. If an individual’s DTI ratio is higher, it means he has more debt payments to make.

Calculating your debt to income ratio is easy. Follow the 3 steps given below to know your DTI ratio:

  • Add up your net monthly income
  • Add up the total amount you pay for debts every month
  • Divide the debt amount by the income amount and you get your DTI ratio

As you know your DRI ratio, implement a proper budget accordingly and lead a stress free life.

Tuesday, December 2, 2008

ATM network expansion plan well on track

The Reserve Bank of India’s (RBI) has decided to make ATM usage free from April 2009 and with this India’s largest ATM machine manufacturer is well on track.

A senior official of NCR Corporation told that there has not been any significant slowdown in the sales as compared with large banks recently. Fears of forthcoming slump and resistance from some banks to co-operate with RBI’s plan have led to market assumption that ATM infiltration would hit the table in the coming months.

While speaking on the sidelines of a press conference NCR Corporation India MD India area Pradeep Sen said, “We have not seen any significant drop in demand from banks for ATM machines”.


“Embracing technology is perhaps the best way to acquire new customers for banks, especially since there is still demand for cost-efficient solutions in the market,” he added. Nevertheless, he warned that in case the demand slipped down drastically from here, then things can worsen any moment.

Earlier in the last year, large number of banks had opposed RBI’s proposal to phase out all ATM fees by April 2009 and gave the reason that they have made huge investment to build the network, and the proposal will effectively hand over this platform for free to other banks. But banks slowly appeared to be falling in line with RBI instruction and sticking on to their aggressive ATM infiltration targets, at least, as of now.

HDFC Bank country head of retail liabilities Rahul N Bhagat informed that his bank has not made any changes in the target for either banks or ATMs in the coming months. In a recent press meet, a SBI official, too, had hinted that the bank will be sticking on to its target of increasing ATMs from the existing 7,200 to 25,000 within three years. Four banks — SBI, ICICI Bank, HDFC Bank and Axis Bank — together make up for more than 60% of the 35,000-ATMs in India.


According to Mr Sen the ATM sharing proposal should not stop banks from setting up their own ATMs. He pointed out that banks will have to pay fees for using somebody else’s services. As well the all important brand visibility is at risk when you allow a customer to visit a competitor’s ATM. “There’s a trade off between the costs of setting up an ATM and these two factors,” he said.

According to market experts ATM is one of the easiest ways by for the banks to contribute to financial inclusion (59% of rural India does not have financial assistance). According to them when the cost of setting up a branch is high and prospects of business are uncertain, banks should do best to make use of technology like ATMs.

Wednesday, November 26, 2008

Banks expect further cut in rates by RBI to boost confidence in customers

After long wait inflation has come down to single digit level of 8.98%, therefore the banker are of view that RBI should cut down on repo rates to boost the confidence of India Inc and encourage growth. On Sunday the CII chief and ICICI bank chairman K V Kamath said that key policy rates could be lowered to boost confidence of India Inc and spur growth.

In his speech given at the India Economic Summit organized by the World Economic Forum and CII said, "Interest rates are still high. Inflation has fallen to single digit, I think that would give confidence (to RBI) to roll back or signal drop in interest rate."

The country's largest lender SBI also inclined for further reduction of key policy rates by RBI to get going the economy. "Interest rates should be lowered further otherwise the kick-start in economy won't take place," SBI Chairman O P Bhatt pointed informed the reporters that the bank has already taken decision to cut the deposit rates by 50 basis points from December 1.

He said when asked whether it was time for the RBI to cut policy rates "Since the commodities prices and inflation are going down and the efforts made by the regulatory authorities all over the world to lower the benchmark and repo rate, I expect interest rates will come down. But it would be difficult to say when it will go down,"

Bhatt further added that as the liquidity condition has improved a lot compared to the first week of October therefore SBI is planning to hire 25,000 staff this fiscal.
Other bankers are also foreseeing that RBI might reduce the short-term lending (repo) rate and amount of deposits banks need to keep with RBI (CRR), which will enable banks to lower their lending rates further.

"If the low inflation sustains for a period of two to three weeks, the Reserve Bank might reduce CRR and repo rate further...this may give room to banks to cut their interest rates again," public sector lender Bank of India chairman and MD T S Narayanasami said.

In order to deal with difficult liquidity situation, the RBI has already cut CRR three times to 5.5% from 9% and short-term repo rate twice to 7.5% from 9%.

By adopting the mix of monetary and fiscal steps, the RBI and the government have been able to infuse over Rs 2.5 lakh crore into the banking system to ease the liquidity shortage and to improve credit availability particularly to the needy sectors.

UCO Bank CMD S K Goel said RBI might be cutting down the CRR and repo rate further by 100 basis points in the near future. "This may help banks to cut their BPLRs by 0.5% in the near term," Goel said. In the last two weeks majority of public sector banks, including SBI responding to the recent RBI policy measures, have affected a cut in their prime lending rates by 0.75 percentage points in the last two weeks.

Union Bank of India CMD M V Nair informed banks will probably review their rates if the cost of funds further move downward. "If RBI again takes further action that may have an impact on interest rates. If the cost of funds is coming down further, this may help banks to lower their rates again," Nair said.

Monday, November 10, 2008

Banks started cutting BPLR rates, retail borrowers to get benefit

Last Saturday the Reserve Bank of India (RBI) took measures to ease liquidity. RBI had reduced Cash Reserve Ratio (CRR) following this public sector banks (PSBs) have started cutting their benchmark prime lending rates (BPLR). The cut in BPLR is definitely going to benefit retail borrowers and India Inc. For instance Union Bank of India has announced a 50 basis points cut in its BPLR to 13.5 per cent.

“We have reduced our BPLR by 50 basis points on account of the 350 basis points reduction in the Cash Reserve Ratio (CRR) affected by RBI. The bank does not earn anything on the funds impounded under CRR. Thanks to the CRR cut, we can now deploy the funds released at an average yield of 10.50 per cent,” said Mr M.V. Nair, Chairman and Managing Director, Union Bank of India.

Previously, the bank had reduced interest rates on home loans by 50 basis points with effect from October 21. Mr Nair informed the bank is also deciding to withdraw its 900-days fixed deposit scheme, under which it is offering a high interest rate of 10.5 per cent.

As per press release issued by the United Bank of India, it has cut its prime-lending rate by 25 basis points (0.25 percentage points) which have come into effect from Monday.

The release stated that the rate cut will be applicable to educational loan, housing loan, SMEs and other loans. The reduced lending rate would also be applicable for existing loan accounts.

“Further cut in the rate of interest on advances will be considered by the bank, commensurate with the decrease in the rate of deposits in the next week,” the release added.

Earlier in the last week, Punjab National Bank had cut its prime lending rate by 50 basis points to 13.5 per cent. Likewise, IDBI Bank had also announced a 50 basis points reduction in the interest rates on home loans to 11 per cent although it has raised the margin on home loans from 15 per cent to 20 per cent for loans up to Rs 30 lakh and to 25 per cent for loans over Rs 30 lakh. The bank has also implemented a 50 basis points reduction in education loans.

Monday, November 3, 2008

RBI orders cancellation of license of Shri S K Patil Co-operative Bank

On Monday the Reserve Bank released orders of the canceling of the license of the Shri S K Patil Co-operative Bank, Kurundwad, Kolhapur district of Maharashtra. According to RBI press release the bank has got bankrupt and all efforts of its revival in close consultation with the Maharashtra Government have proved to be fatal moreover the depositors of the bank are also inconvenienced by continued uncertainty.

RBI has asked the registrar of Co-operative Societies, Maharashtra, to issue an order for winding up the bank and appoint a liquidator for the bank.

The press release also stated that as a resultant to the cancellation of its license, the bank is forbidden from carrying on with the `banking business' as defined in Section 5 (b) of the Banking Regulation Act, 1949 (AACS) including acceptance and repayment of deposits.

Release further stated in liquidation conditions every depositor is permitted for repayment of his/her deposits up to a monetary ceiling of Rs 1-lakh from the Deposit Insurance and Credit Guarantee Corporation, under usual terms and conditions.

Wednesday, October 22, 2008

RBI slashes repo by 1% pave way for cheaper loans

Recently the Reserve Bank of India (RBI) has supported the banking system with Rs 145,000 crore funds as the banks were facing liquidity crunch. In order to provide more help to the banks RBI has slashed its key short-term lending rate (repo) by 100 basis points, this has opened road for cheaper home, consumer, corporate and personal loan rates.

This reduction in repo is the first since 2004, which will allow banks to immediately borrow short-term funds from the apex bank at a cheaper eight per cent as against nine per cent till now.

Finance Minister P Chidambaram while addressing the reporters in New Delhi said that this move "will enthuse investors to continue to take forward their investment proposals."

HDFC Bank's Deputy Treasurer, Ashish Parthasarathy said "It is a welcome step and clearly shows that the interest rate regime is now on a descent curve".

RBI keeps close watch on banks’ overseas transactions

The Reserve Bank of India (RBI) is keeping a close watch on all payments by Indian banks. According to sources which are closely related to the development say the central bank is doing close screening of the data of foreign and some of the private banks which acts as custodians for foreign institutional investors (FIIs). Indian banks, both public and private sector banks send funds to their foreign branches for everyday requirements in the inter-bank market and for client commitments.

According to RBI sources although banks report transactions fortnightly and monthly but it is keeping a close watch on a daily bases on the transactions. The objective behind the close screening is to check the flight of capital under the guise of repatriation of portfolio investments.

Most of the foreign investors whether banks, parents of foreign banks, private equity players or foreign funds all of them have done considerable investments in Indian entities through both foreign direct investment (FDI) and FII routes.

As per close sources last week RBI has showed concern about the flight of capital therefore came up with capital combination for both public and private banks.

Hence, RBI wants to keep a check on flight of capital which has come as direct investment, and some of have a lock-in period facility attached to it. Regarding the portfolio investment the main aim is to see if all remittances have an underlying or physical settlement. A source said, “One needs to check if such remittances comply with the Foreign Exchange Management Act”.

However till no untoward has come into notice, then also RBI is trying to ensure that the transactions are done in an orderly manner and all the norms are followed. This move of RBI has come at the time when the growing global dollar crisis has forced the financial institutions to depend on regulatory support.

Since January 2008, in Indian equity markets FIIs have been net sellers to the tune of $10.83 billion.

Such conditions of the market has increased in withdrawal of funds which has put pressure on the rupee and in turn has led to a substantial reduction in foreign exchange reserves, which is partly credited to the RBI’s intervention in the forex markets to ensure that the rupee does not depreciate too much. Since January, there has been drop in the rupee of nearly 23 per cent as against the US dollar. It closed at 48.47 against the dollar on Friday.

As per the latest RBI data India’s foreign exchange reserves have fell almost $10 billion during the week ended October 10 to $274 billion. Whereas the reserves have lowered by $35 billion at the end of March 2008, though there is still an increase of around $23 billion on a year-on-year basis.

Monday, October 13, 2008

RBI reports: Tamil Nadu credit-deposit ratio highest amongst other banks

As per RBI’s data available Tamil Nadu is leading in the credit-deposit (C-D) ratio at 111.8 per cent in the first quarter of the current fiscal followed by Maharashtra with 99.5 per cent.

C-D ratio means the proportion of loans generated by banks from the deposits received. As per the quarterly figures on deposit and credit released by the central bank, the national average of all scheduled commercial banks accounted at 74.5 per cent.

Whereas the ratio of State Bank of India (SBI) and its associates stands at 76.1 per cent, higher than the other scheduled commercial banks (73.9 per cent).

The C-D ratio of nationalized banks and regional rural banks accounts at 72.9 per cent and 59.5 per cent respectively. The ratio in case of foreign banks stood at 91.9 per cent.

As a group, nationalized banks C-D accounts for 48.6 per cent of the aggregate deposits, while SBI and its associate’s accounts to 22.6 per cent.

The share of other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits stood at 20.1 per cent, 5.8 per cent and 3 per cent respectively.

Whereas in the gross bank credit, nationalized banks hold the maximum share of 47.6 in the total bank credit, followed by SBI and its associates at 23.1 per cent and other scheduled commercial banks have 19.9 per cent.

Monday, September 22, 2008

RBI released final operative guidelines for mobile banking

The Reserve Bank of India has finally released its final operative guidelines for mobile banking. Soon the small-ticket payments and remittances by using mobile phones will become a reality.

In its guidelines the central bank has taken a decision to keep the limit on the ticket-size for mobile banking at Rs 2,500 per transaction, and Rs 5,000 per day. The apex bank has allowed the banks to put in place a monthly transaction limit, depending on the bank’s risk perception of the customer

As per guidelines the lenders such as State Bank of India and Axis Bank will be able to launch mobile banking services but the central bank has decided the services will be restricted only to holders of debit and credit cards. In India the card user base is around 80 million, with 55 million debit card users and 25 million credit card users.

But this decision of RBI has come as a blow to players who had planned to use mobile banking to reach out to the under banked in rural India. A number of microfinance institutions and mobile payment operators such as mChek, PayMate and Obopay have tied up with banks to offer mobile-based financial inclusion products in the surroundings. The banks have been allowed to use the services of banking correspondents for extending this facility to consumers.

Through mobile-payment platform only Indian rupee-based domestic services can be carried out and the use of mobile-banking for cross-border transactions has been strictly forbidden. Only the Banks which have opened branches, have license and supervised in India have been allowed to offer such services. Further, only banks which have implemented the core banking platform will be allowed to offer mobile banking.

Simultaneously, the RBI has recommended that all mobile banking transactions will be validated through a two-factor authentication system, thereby conforming to the latest security and encryption standards. The RBI has also added that the long-term goal of the mobile-payment framework in India will help in the transfer of funds from and account in one bank to any other account in any bank on a real-time basis, irrespective of the mobile network the customer has subscribed to.

The guidelines also propose that banks should not compromise on their know-your-customer and anti-money laundering guidelines. It will be essential for the banks to file suspicious transaction reports (STRs) to the Financial Intelligence Unit for all mobile banking transactions, as in the case of regular banking transactions.

It has also been proposed that banks should clearly mention the risks to the customer and also get them to sign a contract before the service is adopted. Banks have also been suggested to make their mobile-banking services available across all phone networks.

As per the records of telecom regulator Trai the number of mobile phone connections in the country was at about 296 million at the end of July this year and it is growing at about 8-9 million per month. Banks are looking at more possibilities of using mobile phones as an alternative channel of delivery of banking services. Some banks have even started offering information-based services like balance enquiry, stop payment instruction of cheques, transaction enquiry, location of the nearest ATM or branch, etc. RBI told that in few banks services like acceptance of transfer of funds, instruction for credit to beneficiaries of same or another bank in favor of pre-registered beneficiaries have started.

Monday, September 15, 2008

RBI extended deadline by 3 months for banks to meet norms

The Reserve Bank of India for the second time has extended the deadline for banks to include loans to mutual funds and the Irrevocable Payment Commitments (IPCs) to stock exchanges (BSE & NSE) on behalf of MFs or FIIs under the capital market exposure. The RBI has given three months time to the banks — from September 13 to December 13 to meet the norms.

Earlier RBI had extended the deadline in June by three months to September 13.

Banks give large loan to mutual funds and also issue IPCs to the stock exchanges on behalf of MFs or FIIs, but they have not included these under their capital market exposure for calculation. In a notice issued by RBI it was stated that as a result, RBI, upon review, has decided to extend the deadline for banks to meet the terms of the guideline.

According to RBI norms, banks can extend loans and advances to MFs only for fulfilling their temporary liquidity needs for the purpose of repurchase or redemption of units within the ceiling of 20 per cent of the net asset of the scheme and for a period not exceeding six months. And such finance, in case granted to equity-oriented mutual funds, it will form part of banks’ capital market exposure.

Thursday, September 11, 2008

Loan agents harass single women , disregard RBI guidelines

In a recent case Priya Kulkarni, who is a teacher at a school for mentally challenged children in the island city of Mumbai has been harassed by the recovery agents of the bank. Few years ago she had taken a personal loan of Rs1 lakh from a leading foreign bank to pay for the treatment of her ailing mother. But due to various reasons, she had been unable to keep up with the repayments. In turn the bank sent recovery agents to lose on her.

Priya is the only bread earner for the family but has to stop teaching as the agents were creating nuisance at the school as well. She told the recovery agents said, “Agar paisa nahin hai to dhanda karke do (if you do not have money, then resort to prostitution to pay us),’in front of my principal and other colleagues.

She said, “I am not in a mindset to take care of my students because of this harassment”. The agents keep calling up even at home.

While the Reserve Bank of India’s guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks, issued in November 2006, say: “The bank and their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors’ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.”

Even the Banking Codes and Standards Board of India’s ‘Code of Bank’s Commitment to Customers’ (CBCC) also clearly states, “During visits to your place for dues collection, decency and decorum would be maintained.”

But then also the recovery agents are not following this. Despite of the stringent RBI guidelines, the recovery agent nuisance is far from controlled.

Kulkarni had already paid the bank Rs1.94 lakh on a loan of Rs 1 lakh. As the interest rate being charged is so high that her repayment is still not over. She had approached the bank for rescheduling the loan but bank rejected her request.

“One day, the agents came in the evening and stayed put for 2.5 hours and said, ‘We will stay here. You can cook and make arrangements for us.’ When I told them that I have spoken to the nodal officer of the RBI, they retorted, ‘Did RBI give you the money?” Kulkarni told DNA.

There is one more case of harassment by the recovery agents. Dombivli resident Surekha Sathe lost her husband last Diwali. Since his death recovery agents have been troubling even late in the night. Sathe told, “They come and sit in my house for more than two hours after 8pm. I live alone after my husband’s death”.
It is clearly mentioned in the CBCC that the bank’s representatives will contact the customer between 7 am and 7 pm “unless special circumstances of your business require otherwise”.

The recovery agents are of a leading new generation private sector bank and they want her to repay outstanding debt on her husband’s credit card. The bank cannot recover the amount from Sathe, who has submitted her husband’s death certificate to the bank. “I have even written to the banking ombudsman stating that it is not my liability,” she adds.

But then also the recovery agents still keep troubling Sathe and threaten to even disturb her neighbors. “After my husband passed away, I have taken up teaching pre-school students and the agents keep calling during the school hours. It is quite disturbing,” she says. After this she registered a complaint with the police and since then the phone calls have stopped.

It shows that new generation private sector banks and foreign banks have a clear disregard for RBI guidelines. Parag Shah, chief executive officer of recovery agent firm Adikrut Japti Avam Vasuli, says, “As a matter of policy we work for public sector banks only and we have no pressures. We do not work for private sector banks as our mindset does not go in tandem with theirs,” he says.

However bankers told that they comply by the guidelines of the CBCC. “We already have a code of conduct. Like public sector banks, we also have to follow it strictly. If we come across any instance of harassment by recovery agents, we talk to them and, if needed, terminate their services,” says AP Bundellu, deputy managing director, retail, at IDBI bank.

Wednesday, September 10, 2008

RBI gives nod to ING Vysya Bank for branch, ATM expansion

The Reserve Bank of India (RBI) has granted the permission to private sector bank ING Vysya bank for opening 56 new branches and 100 ATMs across the country during the current fiscal.

ING Vysya Bank MD and CEO Vaughn Rictor informed that the bank will be expanding its network by opening more branches. Currently bank is having a network of 457 branches and 224 ATMs.

He said that the bank’s main focus will remain on the SME and retail segments.

In the last financial year, the bank had attained a growth of 24 per cent in deposits and 22 per cent in advances.

Sunday, September 7, 2008

RBI issued notice banks can’t deny over-the-counter cash deposits

There have been reports that banks are denying over-the-counter cash deposit. The issue has been brought into notice of the Reserve Bank of India (RBI). Looking into the matter the RBI has issued a notice to all the scheduled commercial banks can’t restrict deposit of cash over the counters.

In a note the RBI said that it has been brought into its notice that some banks have introduced certain products, therefore the customers are not being allowed to deposit cash over the counters. “Further, it is also understood that these banks have also incorporated a clause in the terms and conditions that cash deposits, if any, are required to be done through ATMs,” it said.

Since banking is defined as acceptance of deposits of money from the public for the purpose of lending and investment, thus banks cannot introduce any product which is not in tune with the basic doctrine of banking, the RBI said. Adding to this RBI said that including such clauses in terms and conditions which restricts deposit of cash over the counters also amounts to an unfair practice.

The RBI has suggested the banks to make sure that their branches perpetually accept cash over the counters from all their customers who want to deposit cash at the counters. It further added, “they are also advised to refrain from incorporating clauses in the terms and conditions which restricts deposit of cash over the counters.”

Thursday, August 28, 2008

RBI renewed loan restructuring norms

The Reserve Bank of India (RBI) renewed the restructuring advances norms including non-industrial credit.

According to this the non-industrial companies will also be able to use the corporate debt restructuring mechanism (CDR).

With the renewal of the restructuring advances norms, the prudential norms will get coordinated with all debt restructuring mechanisms.

“Since the principles underlying the restructuring of all advances are identical, the prudential regulations too need to be aligned in all cases,” RBI said in a communication to banks.

Accounts streamlined due to natural calamities will be covered by the guidelines issued by the central bank’s rural planning and credit department.

Monday, August 25, 2008

RBI advises banks to display information of interest rates on notice board

The Reserve Bank of India in a press release reported that banks should display interest rates on notice board. RBI in a move to improve the banking services and financial literacy in the country has advised the banks a comprehensive notice board format for bank branches to inform the customers about the interest rates, services charges and grievances redressal mechanism.

In a communication to the commercial banks, RBI said the display of information should be clear enough to "enable customers to make informed decision regarding products and services of the bank and be aware of the rights as also the obligations of the banks to provide essential services." It said besides displaying the key interest rates, the comprehensive notice board should also include information outlining the facilities for exchange of soiled and mutilated notes, opening of no-frills accounts etc.

The banks have also been asked to display information such as "we offer immediate credit of outstation cheque up to Rs ----(amount)" for satisfactory accounts.

Banks have also been told to clearly display the details on the notice board about the minimum balance requirement for savings bank and no-frills accounts and the charges that would be levied in case of default.

Banks will also be required to put on the notice board the other information concerning opening of Public Provident Fund accounts, Senior Citizens Savings Scheme, issuance of Kisan Credit Cards etc.

RBI said bank branches, should also make available booklets and brochures at 'May I Help' counters to educate the customers about safety features of currency notes.

It said the information regarding working days, working hours and weekly off-days, should be put on notice board outside the branch premises.

Wednesday, August 20, 2008

RBI: first phase of liberalization to end in next year

The Reserve Bank of India Deputy Governor V Leeladhar told the RBI will be starting "wholesome review regarding the road map" of foreign banks in the country.

While answering the questions on the sidelines of a function Leeladhar told reporters the first phase of the roadmap of foreign banks will be ending in March next year. He said, "There is a review to be made; wholesome review to be made".

RBI has allowed liberalization in the banking sector in 2005 with an aim to give chance to the domestic banks to reinforce their presence and financial positions through coalition and reform process.

In the first phase of liberalization foreign banks will be allowed to make their presence by setting up a wholly-owned subsidiary (WOS) or conversion of existing branches into a WOS.

Replying to a question, Leeladhar said the growth in loans by Indian banks was 26 per cent year-on-year in the July 2007-June 2008 period. He added credit growth of banks so far (in the current financial year) has been healthy.

Official website: www.rbi.org.in/home.aspx

Tuesday, August 19, 2008

Kerala HC came down on the 'strong arm' tactics of banks

On Thursday Kerala High Court in a hearing came down on the 'strong arm' tactics being adopted by some new generation banks, for the recovery of loan amounts from customers and stated that they should respect the law of the land.

A division bench headed by Justice K Balakrishnan Nair said police should take effective measures to 'nip in the bud' attempted by such banks to recover loan amounts. He said while giving a judgment in favor of a petition filed by one Sabu of Thiruvananthapuram complaining harassment by goondas allegedly engaged by the private HDFC bank.

The petitioner in his complaint stated that he had purchased a car by taking loan from the bank and due to default in payment; the bank authorities threatened the petitioner and his wife by sending 'goondas'. In spite of complaints to the police, no action was taken, he said.

The bench said that the bank has no right to employ strong arm methods to recover the vehicle. The bank has to respect the law of the land and should take alternative steps in accordance to law.

Wednesday, August 6, 2008

RBI to do surprise checks in banks to check fake currency

The Reserve Bank officials found fake currency from State Bank of India’s branch in Sidharthnagar in Uttar Pradesh with a face value of Rs 20 lakh.

RBI officials said the team has been formed to carry out surprise checks and also increase frequent monitoring of banks.

The Reserve Bank has said it will step up monitoring of banks after a large amount of fake currency was found in a public sector bank on Monday.

The apex bank has already formed a team to carry out such surprise checks, RBI said.

Reserve Bank officials on Saturday found fake currency with a face value of Rs 20 lakh from State bank of India's branch in Sidharthnagar in Uttar Pradesh.

RBI Regional Director for UP and Uttarakhand J B Bhoria while expressing his views said, "A Finding fake note in large quantity in PSU banks is disturbing. The banks found with fake notes will be responsible for it".

Bhoria told to press that it is the responsibility of the bank to look into the matter as to how such huge amount of fake currency reached the strong room of the bank, and should keep a check on the employees who all are involved in the act.

"The RBI has already issued instructions that the associated bank would be responsible in case fake notes are found in the bank or its ATM. We have formed a team for surprise checks in the banks with regard to the fake notes racket", he said.

He further added that team set up by RBI will be carrying out surprise visits to the currency chest of the banks to check if it has any fake currency.

Tuesday, August 5, 2008

By year-end cheques movement to get faster if RBI clear truncation system

At present physical movement of cheques from one bank to another takes a lot of time. In today’s time when everything is moving with fast pace it became necessary to find out way so that outstation cheque clearance is done faster.

It is expected by next year this problem will be solved as Reserve Bank of India (RBI) is set to clear an electronic process called cheque truncation system by the year-end. Under this new system scanned images of cheques will be sent through secure e-mail networks to the destination branch for verification. Once RBI gives approval for this new system banks will be able to set up these systems.

In a speech at a conclave on Indian Banking Vision 2010, V Leeladhar, Deputy Governor, RBI, said, “Over 50 banks are participating in the pilot project being implemented in the NCR (National Capital Region of Delhi). The systems may be cleared by the year-end.” This project was started by the RBI, a couple of years back.

Leeladhar also informed that the guidelines under the Payment and Settlement Systems Act (PSSA) will be released in a week’s time.

Answering to the query related to regulation of money transfer companies, RBI deputy governor Leeladhar said, “There is no oversight on money transfer companies like Visa, Mastercard and Western Union as of now. Once the PSS Act guidelines come into force they will come under the RBI purview.”

Parliament in October 2007 had passed the Act, which brought funds transfer companies — domestic as well as international — operating in India under RBI’s regulation.

At present the payment and settlement services provided by the RBI, is being offered free-of-cost, but now it will be available at a price after March 2009. “However, four banks have decided to offer these services free-of-cost even after the deadline of March 31, 2009,” Leeladhar said. Currently the services are being made available to banks for five years.

In India RBI is operating several nation-wide payment and settlement systems — Real Time Gross Settlement (RTGS), Electronic Clearance System (ECS), National Electronic Fund Transfer (NEFT) and SEFT etc. A new non-profit entity National Payments Corporation of India (NPCI) being set up, except RTGS, all these retail clearance services will be transferred to this entity.

Monday, August 4, 2008

RBI show signs of worry over rising credit card defaults

Banks are raising interest rates and customer’s financial position is getting weak. This has resulted in defaults in the credit card segment. RBI deputy governor V Leeladhar said on the sidelines of a banking conference the rising credit card defaults in the country is a matter of concern.

When deputy governor was asked about the practice of some banks who issue cards without checking the credit worthiness of their customers said, “Defaults are going up. It’s a matter of concern”.

According to RBI reports credit cards out standings have gone up by a enormous 87 per cent, or Rs 12,375 crore, to Rs 26,596 crore during the year ended May 23, 2008. The report said the downfall in credit card out standings is happening at the time when growth rate in all other segments of personal loans, including housing, consumer durables and advances against fixed deposits, moderated during the period. On Tuesday RBI in its quarterly policy review, stressed on the need to improve the credit quality of banks via stricter credit appraisals.

Recently RBI issued a circular in which banks have been asked not to charge excessive interest rates on personal loans and small advances, including credit cards, and prescribe a ceiling rate on such loans with an aim to control the unchecked practice among banks to hike the rates frequently without valid reasons. Currently banks are charging 40-49 per cent per annum interest rate and in case the card holders fail to make full payment on the due date or pay the minimum amount due, which is almost four times that of housing loan rates – currently at 10.45-11 per cent.

Crisil pointed out in its report that unsecured loans, which consist of personal loans and credit card receivables figure out approximately one-fifth of the total out standing retail loans as on March 31, 2008, up from 6 per cent on March 31, 2004. Therefore the ultimate losses on these receivables are mostly higher than those in the secured asset classes.

With the rising interest rates in the unsecured loans segment (mainly credit cards), the exposure to low-income customers is steadily increasing. Currently loss levels in the low-income customer segment are estimated in the 7 to 9 per cent range. According to Crisil reports a further decline in asset quality can be seen in the segment, due to seasoning in portfolio, over-leverage by customers, and the entry of players into under-banked geographies. The loss levels can be in the 12 to 15 per cent range over the medium term.

Thursday, July 31, 2008

RBI: waiver amount to be treated as “performing assets”

The Reserve Bank of India (RBI) today issued norms for loan waiver announced by the government. RBI said the amount eligible for waiver under the government package announced for small and marginal farmers will be treated as “performing assets” by banks.

It will also be considered as claim on the government with zero risk weight for meeting capital adequacy norms.

The waiver amount must be transferred to a separate account, and can be considered as performing asset only if adequate condition is made for the loss in Present Value (PV) terms.

It is expected that around September government will be releasing the first tranche of the total repayment, estimated at Rs 60,000 crore.

In its late night communication to banks the central bank said the discount rate for arriving at the loss in PV terms should be taken as 9.56 per cent, which is the profit to maturity on 364-day Treasury Bills today.

RBI said those farmers who will be covered under the relief scheme will have to pay 75 per cent of the eligible amount as their share, while the government will be contributing the remaining amount. Such accounts will be treated as a performing account.

Axis bank hikes PLR by 50bps

A day after the announcement of monetary-tightening measures by the Reserve Bank of India’s (RBI), banks have started taking decision on raising interest rates, affecting the hike for the second time in a month.

Axis Bank, the third-largest private sector lender have decided to be moderate in increasing PLR, it has raised PLR by 50 bps. In a statement, release by the bank said its PLR will increase from 15.25 per cent to 15.75 per cent with effect from today, July 30. Whereas, PNB rate hike will come into effect from August 1.

Tuesday, July 29, 2008

RBI to face tough time in credit policy meeting

The Reserve Bank of India (RBI) will be holding a credit policy meeting. This meeting will be toughest for the governor Dr Yaga Venugopal Reddy, who have been on the post for a 4-year term and, for the RBI as the policy meet is being held at the time when economic worries continue to be a fever pitch. Inflation at a 13-year high with double digits with Industrial production have started looking shaky raising fears about growth.

Bankers now already have the idea of RBI’s inflation fighting measures expect the RBI to continue its focus on inflation, which can interpret into another rate hike.

Chanda Kochar Joint MD, ICICI Bank expressing his views on this said, "I think rates will continue to remain high given the current scenario."

In this credit policy meet bankers are predicting a 25 bps hike in repo rate while the key monetary indicators including money supply, credit and deposit growth will be not be in RBI’s target zone.

It is being predicted that hike in CRR will not be less than a 25 bps hike. Regarding liquidity it is expected to get better in mid-August with government spending and bond redemptions expected to pick up.

In banking industry there are still some who have hopes that RBI will not be hiking rates yet and will wait to see the effect of measures already taken before handing over another dose of rate therapy.

Commenting on this Sharad Shukla, CIO, Axis Bank said, "We are slowing down and we should probably take a stance of keeping interest rates stable and not compromise on growth. We are in a long term inflationary trend and if you want a positive real rate of interest, then some hike can be expected".

Scarce monsoon is also being looked up on to add to the RBI’s worries which can mean food price inflation can start pick up and add to inflation.

Even if the RBI decides for the time being to standby the economy another rate hike in this time's policy, then also the central bank's stand will remain a tough one and inflation will be in priority.

Monday, July 28, 2008

RBI asked banks to stop levying excessive charges on credit cards

Credit card is convenient to use but interest on credit card dues, misuse of lost or stolen cards, wrong bills these all give headache. There is a good news for the credit cardholders the Reserve Bank of India (RBI) has issued a circular to the credit card issuers not to levy excessive charges and to prescribe ceiling rates, including processing charges. The regulator bank has asked banks to clearly inform customers the reason for variable charges.

Taking action on the complaints about the high interest charged on credit card dues, the apex bank has asked banks to make clear their ceiling rate, including allied charges like processing. Therefore from now the customers do not have to worry about the ‘hidden’ charges anymore. The regulator has told the banks to bear any losses of the cards they issue without getting the acceptance from the customer. In case the bank levie the charges on an unsolicited card, the bank have to reverse the charges and also have to pay a penalty that can be up to twice the value of the charges that are reversed.

Besides, the apex bank has also suggested that banks should introduce insurance cover to deal with lost card liabilities. The circular stated that insurance cover should be provided to the card holders who are ready to bear the cost of the premium.

The major relief for card-holders has come in the form of interest rate on credit card outstandings varying between 1.5 per cent and 3.5 per cent a month and translates into an annual rate of up to 42 per cent.

Making it clear that higher rates cannot be justified on the basis of a card-holder's record, the regulator has asked banks to clearly inform customers the reasons for variable charges. The regulator has also decided to extend last year's instructions on interest rates governing loans to credit cards.

Earlier in May 2007, the regulator had asked banks to ensure that under no circumstances the interest applied on loans exceed the principal amounts. Similar to personal loans, RBI wants banks to fix a ceiling on the rates for credit cards, besides justifying the charges.

Banks have often justified their decision of hiking interest rate on credit card dues on the reason that they are unsecured loans that are prone to default. Banker said defaulters rate in India is 6-8 per cent.

It has been made mandatory for the banks to clearly specify all the charges that can be levied whenever they dole out the cards "free of charge".

In a circular out of the 22 points mentioned, at least nine of them are a replication of the RBI's earlier instructions.

Thursday, July 24, 2008

RBI sets up working group to revive cooperative bank sector

The Reserve Bank has set up a working group to advocate ways for strengthening the financially weak and unviable urban cooperative banks (UCBs).

The Working Group is headed by RBI's Executive Director V S Das with 10 other members. The committee will do research and study the structure of existing umbrella organizations of financial co-operative institutions in other parts of the world and scrutinize the need and scope for a united structure for UCBs at the state level.

The Standing Advisory Committee for UCBs suggested that will also look for the possibilities for the revival of the funds for the sector.

In a notification issued by the apex bank it stated as large number of financially weak UCBs are posing a systemic risk to the cooperative banking sector hence there is “a need was felt for an umbrella organization for UCBs that will be in a position to channelise their (both weak and strong UCBs) resources, aggregate their needs and also lend credibility through mutual support in the financial market".

The banking regulator added however, there are a number of financially strong and viable UCBs. Hence some sort of cooperative bonding and mutual support system can make the sector strong and vibrant.

The working group expects by the umbrella organization public confidence will also get strengthened in UCBs. RBI informed the group will be taking into consideration international best practices and experiences while recommending supervisory and regulatory framework.

The group will be submitting its report within three months of the first meeting. The group will be provided necessary secretarial assistance by the Urban banks department along with central office of RBI.

Wednesday, July 23, 2008

RBI issued notification to banks to hold payment through mobile till final norms

The Reserve Bank of India on Tuesday issued a notice to all commercial banks that they should hold back their mobile payment services until the final guidelines are not issued by the apex bank.

In a notification the apex bank stated, "Banks are advised to keep on hold their mobile payment services till issuance of the final guidelines.”

Apex bank has already drafted guidelines for payment and other services through mobiles and has placed for comments.

The regulator while issuing notification said though many banks have already started providing mobile payment services to their customers should dissociate themselves from any such mobile-based money transfer service till the final guidelines are issued in this regard.

The apex bank clarified that it has no objection on the use of mobile channel for providing basic services such as alerts for credit or debit entry, balance enquiry, which are in the nature of providing information but the regulator pointed out that all banks should not use the channel for customers to initiate payment instructions.

It further added there are a number of issues pending regarding employees in view of these banks will have to stop their payment services through mobile till the guidelines are finalized.

Friday, July 18, 2008

RBI launches banking at rural doorsteps scheme in five districts

The Reserve Bank of India (RBI) launched a scheme of banking from doorsteps, under this scheme a detailed survey was carried of rural households, semi-urban and urban households. The main aim of this scheme is that every household surveyed will get a bank account and if they want it, more than one member can open an account. RBI launched this scheme in order to provide banking assistance no matter how small the need so that rural people can be helped in getting rid of middlemen, who lend at very high rate of interest to innocent villages and duped them.

RBI launched this scheme as pilot project through Punjab National Bank in Tamar and Union Bank in Hazaribagh and processing is carried on to provide 100 per cent financial aid even in remote corners of the state.

RBI aims to ensure that the scheme should be launched in reality in five districts of Jharkhand within three months.

Under this scheme if members of a household for some reason are unable to make immediate deposits, they will be given a zero-deposit account.

In the initial stage banks operating in five districts - Ranchi, Hazaribagh, Dumka, Jamtara and Pakur will be marked for opening accounts. Then banks will be appointing business providers, it is a free of cost link between the bank and the household. These providers will not only provide money to the householder through ATMs but also take deposits from people.

The business providers will have electronically operated gadgets or cellphones. He will take the deposit and immediately credit it to the bank. He will also help people by providing money to them if they want to withdraw even small amounts. The handheld gadgets with business providers will be operative wherever and whenever there is connectivity and the bank ledgers could also be updated instantly. Currently a detailed survey for selection of business provider is being carried on.

The business smart card will also be issued which would carry the photograph of the person concerned as well as a left thumb impression. After appropriate checking, withdrawal of money can be done.

In case of large amount the account holder will need to visit the banks, or else, the business provider would help them operate their accounts from their homes.

Earlier agencies such as Orion, Little-world, Fino, HCL, Zoom and Entegra — have worked on similar projects in Madhya Pradesh, Andhra Pradesh and Gujarat — have been asked to carry out the survey.

K.K. Sinha the officer deployed on special duty at department of institutional finance and program implementation, informed the project will ensure that those living in rural or remote areas do not get mislead.

It will also be ensured that financial services reach them and connect them to the economic growth of the country.

Friday, June 13, 2008

RBI issued draft operative norms for mobile banking payment system

The Reserve Bank of India's (RBI) has formulated norms for mobile banking to make it easier and safer for carrying out a gamut of banking transactions. Now the much awaiting mobile banking service are likely to be operative after the RBI issuing draft operative norms for such payment system.

According to norms banks will be able to offer mobile-based services only to their own customers. RBI said banks are supposed to have a system of registration before commencing mobile-based payment service to a customer.

The levels of mobile banking services have been divided into two categories. The first category includes information like balance enquiry, SMS alert for credit or debit, status of the last five transactions and others. The second involves the financial transactions such as payments, transfer and stop payments.

There is pretty high risk involved in carrying out financial transactions through mobile banking. Therefore to avoid the risk associated with either of the level; RBI has made a one-time registration process through a signed document mandatory before commencing the mobile-based payment service to a customer.

RBI pointed out for mobile payments the technology used should be secure and must ensure confidentiality, integrity and authenticity. The service can be used for the transaction of Indian rupee only.

RBI said the message formats developed by the Mobile Payments Forum of India should be in such format that they can be used to ensure inter-operability between banks and between their mobile payment service providers.

RBI said with its due permission banks can sign multilateral and bilateral agreements for fund transfer transactions and create mobile switches and inter-bank payment gateways in order to create an infrastructure on a pan-India basis.

Thursday, June 12, 2008

RBI hiked short-term lending rates

The Reserve Bank of India (RBI) today announced a hike in its short-term lending rate to banks by 0.25 per cent to 8 per cent in the face of rising inflation. Due to hike in repo rate consumer, home, auto and other loans can become costlier.

The central bank said the decision of increasing short-term lending rates from 7.75 per cent to 8 per cent was taken to control inflationary expectations as the rate of rise in prices touched a 45- month high of 8.24 per cent.

Analysts are a view of the inflation, is expected to move up over nine per cent once hike in petroleum prices gets reflected in the official wholesale price index.

In this fiscal the decision to increase repo rate, at which the central bank gives short term money to banks in exchange of government securities, has been taken for first time.

Earlier RBI had tried to control inflation by raising cash reserve ratio-- the mandatory deposits that banks keep with RBI.

Commenting on RBI decision Punjab National Bank Chairman K C Chakrabarty said, "All interest rates would be affected. We will take decision by month end. It (the move) will increase the cost of resources."

Country's largest lender SBI sources said in view of increase in the repo rates by RBI, it will be examining lending and deposit rates on Friday.

Real Estate Company Unitech said home loan rates might rise after the Reserve Bank's step.

However the reverse repo rate, at which RBI borrows money from banks in exchange of the government papers, remained untouched at six per cent.

HDFC Bank Chief Economist Abheek Barua said," This (repo rate hike) will have an implication on the bank's lending rates. I think the Prime Lending Rates of the banks will go up by about 50 basis points. There would also be a revision of bank's deposit rates."

Thursday, June 5, 2008

RBI puts ban on Sahara India from accepting deposits

Sahara India Financial Corporation (SIFCL) having political connections and closeness with Bollywood stars has been banned by The Reserve Bank of India (RBI) from raising money through public deposits. RBI said ban is from immediate effect. RBI has put ban because the residuary non-banking finance company (NBFC) has "continuously violated" the requisite directions and guidelines.

In a statement released by the apex bank said the violations were related to maintenance of directed investments, payment of minimum interest rate, asset-liability management guidelines and know-your-customer (KYC) norms stipulated for opening of deposit accounts and the details on the agents of the company deployed for deposit mobilization.

The statement stated violation pertained to intimating depositors in time of maturity of their deposits and repayment of deposits on maturity. Ban will mean that company won’t be able to accept fresh deposits, nor renew deposits it has raised from 42.5 million depositors.

Residuary NBFCs used to accept public deposits in the form of daily deposits, recurring deposits and fixed deposits. The segment also included NBFCs which could not be classified as equipment leasing, hire purchase, loan, investment, nidhi or chit fund companies, but accessed public savings by operating recurring deposit-type schemes.

RBI in April 2007 had cancelled this discretionary investment headroom for Sahara. Therefore, Sahara was asked to invest entirely in government securities and other lower-yielding bonds, which reduced its margins. RNBFCs have to give minimum interest rates to depositors, which could be 3.5% for daily deposits and 5% for fixed deposits.
Sahara has made its presence in India and carries out its operations through a mass of agents.

According to the RBI statement, SIFCL shall immediately inform all its agents and employees that it has been prohibited from accepting deposits, and shall paste a copy of the order in a conspicuous place at each of its branches and offices.

RBI further in order to protect the interest of depositors and in public interest instructed Sahara to repay the deposits as and when they mature.

On the other hand SIFCL had issued a strongly-worded statement asking its depositors not to panic. It stated RBI order as “legally unsound” and is “wanting in prudence and application of mind”. In a statement company said it will be initiating legal proceedings very soon, adding it was “sanguine” about its chances of success. It also clarified that the depositors would be paid as and when the deposits mature, and other activities like insurance and mutual funds would not be affected by the order.

Wednesday, June 4, 2008

RBI implements IT-enabled financial inclusion project in Karnataka

The Reserve Bank of India (RBI) is actively implementing IT-enabled financial inclusion project in Karnataka. Under this scheme bank accounts will be opened and smart cards will be issued through these and business correspondents all the government payments will easily be routed to the beneficiaries of public projects like National Rural Employment Guarantee Project (NREGP) in Karnataka.

Devaki Muthukrishnan, regional director, RBI, said a pilot project is being launched to carry out the project in three districts of Bellary, Chitradurga and Gulbarga. "We are in the advanced stages of finalizing the pilot with the lead banks concerned and government of Karnataka. The project will be launched very soon," she said.

Speaking at a one-day workshop on the role and responsibilities of non-government organizations as business facilitators and business correspondents, held in Karnataka, she informed that the first phase of financial inclusion taken up by banking community has successfully completed, during this ‘no frills' accounts were opened for every household in all 29 districts.

In the Bangalore Metro work of opening of accounts has been completed. During the first phase of financial inclusion in the state about 3 million bank accounts were opened.

"The banks need to redesign their business strategies to incorporate specific plans to promote financial inclusion of "bottom of the pyramid" group treating it both as a business opportunity as well as a corporate social responsibility. They have to make use of information technology-based solutions like smart cards extensively to facilitate offsite banking," she said.

Muthukrishnan told banks should use business correspondents and business facilitators' models for increasing the capacities of existing branches to increase their outreach with proper care. They are required to repeat the model of micro-credit delivery to farmers and artisans through NGOs, self help groups and farmers' clubs selectively.

"Financial inclusion can emerge as a commercially profitable business and can lift the financial condition and standards of life of the poor and the disadvantaged. The bankers, technology providers, NGOs, micro-finance institutions have a small but significant role to play in this unfolding of future story of economic growth and distribution and we shall strive to achieve the set goals," she added.

At the workshop organized by Initiatives for Development Foundation, N K Thingalaya, former chairman of Syndicate Bank, Mahpara Ali, Chief General Manager, State Bank of India were also present on the occasion.

Tuesday, May 27, 2008

Opening bank accounts for small customers still a problem

For the small customers opening bank accounts and carrying out transactions like currency exchange is still a difficult task. Even the Reserve Bank of India expressed discontentment over the issue.

In an annual general meeting of Indian Banks Association’s, RBI Deputy Governor Usha Thorat said still many of the branches are not using a simple form of Know-Your-Customer guidelines for opening accounts. Customers are still finding difficulty to go to a branch for foreign exchange transactions.

Thorat added soon RBI will be issuing further instructions for "operationalising" the farm loan waiver scheme. On rising bad debts in the farm loan sector, she said, "We have data on NPAs in all sectors."

Two – three days back SBI had rolled back ban on new farm equipment financing following pressure from the government and industry bodies. "SBI has clarified the scheme," the RBI deputy governor said at the event.

Friday, May 16, 2008

RBI ask coop banks to abolish cash withdrawal charges

The Reserve Bank of India on Wednesday issued a notification to the cooperative Banks in which it said the banks will not charge more than Rs 20 for withdrawal of cash by ATM card holders of any banks from their vending machines.

The notification also stated that like other banks, the cooperative banks too will be required to stop taking the cash withdrawal charges from ATMs with effect from April 1, 2009.

Besides cash withdrawal charges for balance enquiry or using any other facility also the cooperative banks have been forbidden from charging any fee with immediate effect.

Earlier the RBI in its notification has already removed all charges from using the ATMs of commercial banks, and the charges on cash withdrawal will be removed with from April 1, 2009.

Therefore this means that from April 1, next year an ATM card holder will be able to withdraw cash from ATM maintained by any bank, including cooperative banks, without payment of any fee.

However, the notification authorized the banks to decide themselves the service charges for withdrawal of cash from ATMs through credit cards and ATMs located abroad.

Wednesday, May 14, 2008

RBI working group supports no-frills accounts for farmers

The Radhakrishna experts group, in its report, had made wide-ranging recommendations to tackle the issue of agricultural indebtedness. The recommendations included immediate credit-related measures, reforms in financial and institutional architecture, risk mitigation measures, among others.

After the submission of the report the RBI’s internal working group was set up under the chairmanship of Mr V.S. Das, executive director of the RBI, to study the recommendations made by Radhakrishna experts group, has supported the committee’s suggestion to banks that they should open "no-frills" accounts in the name of small farmers to lend minor amounts as well as term loans.

The RBI internal group’s suggestion has come soon after the UPA government in the Budget announced a Rs 60,000-crore loan waiver package to debt-ridden farmers. However the experts group had included in its suggestions such a loan waiver package.

Professing for financial inclusion, the Radhakrishna experts group in its report has pragmatic that institutional credit should be extended to those excluded farmer households who do not have access to any source of credit. This should involve all institutions — scheduled commercial banks, regional rural banks and cooperatives and through them, agencies like business facilitators and business correspondents.

According to the experts group and agreed to by the RBI study, the first phase of this program, should focus on universal establishment of "no-frills" bank accounts.

In many cases, bank accounts should be accompanied by a small overdraft low-value general purpose credit card for small amount for first time entrants in banking system. Insurance policies are also part of the program in some districts.

"Routing of all payments to such households through the bank accounts, especially National Rural Employment Guarantee Scheme (NREGS), pension payments and other relief and social security payments will go further in capturing all cash flows in such bank accounts and encourage larger extension of credit to poor rural households," the RBI working group report said.

Friday, May 9, 2008

RBI directive against using garlands of currency fall on deaf ears

The Reserve Bank of India (RBI) has been making efforts to keep currency notes clean. In view of this the apex bank has issued directives to the banks not to staple notes.

Alpana Killawala, chief general manager of the public relations division of RBI said, "Whatever we do, we do through the banks. One of the challenges that we had was to do away with stapled notes, a habit that often results in the note getting torn. After issuing a directive to banks, they have done away with the stapling of bundles of currency notes."

Earlier RBI had issued directive that people should discourage using garlands made of currency notes- a common feature in north Indian weddings which seems to be falling on deaf ears.

Alpana Killawala told IANS on phone from Mumbai, "We issued a directive last year that currency notes should not be used in making garlands, which defaces the notes and shortens their life."

She said, "It's part of our continuing efforts of clean notes policy. But no one seems to be paying heed as most weddings, especially in north India, keep using such garlands. We can't take any action against the public. We can only sensitize them".

According to Alok Aggarwal, a sales executive in Delhi for people this directive does not mean anything. He said, "The tradition of making the bridegroom wear the garland of currency notes is a symbol of shagun (good luck).

"In most cases, this garland is then carefully stacked away. So where is the question of misusing the notes?" he asked.

Due to increasing demand for such garlands they are not only used in weddings but also during religious festivities, graduation ceremonies and anniversaries, they are easily available in the market.

"Currency note garlands are always in demand, especially during the wedding season. Some want garlands made of two-rupee notes, some want of 100-rupee notes," says Mohan Lal, a shopkeeper in central Delhi.

Meanwhile RBI is making efforts to inculcate "good habits" among the people - so as to encourage good quality notes.

Killawala said, "We have also asked them to tell people not to give stapled notes when they deposit such notes to the bank. Further, we made a movie in 2006 on the same subject which was telecast on Doordarshan."

The RBI even organized camps to educate people on how to handle currency notes.

"Our latest initiative is making a short film on the dos and don'ts of handling bank notes. People have to be discouraged from scribbling on notes and folding them. The movie will be ready for telecasting in another couple of months," she said.

"The trend of note garlands is mainly north India centric. Therefore, we will have to devise a program specifically for that area," she added.

Wednesday, April 30, 2008

Mobile banking norms on RBI website by June 15

Soon RBI will be issuing regulatory guidelines for mobile payment systems. According to the RBI annual Credit Policy statement the drafted guidelines will be placed on RBI Web site by June 15. After these guidelines the customers will be able to use mobile phone easily and safely to carry out entire banking transactions.

Senior bank officials said the guidelines have been formulated mainly to provide safety and for interoperability issues in using mobile phones for conducting normal banking services.

According to the central bank sources discussion is going on with banks, service providers and industry bodies for the purpose of framing the guidelines. “The focus of the guideline would be on devising an inter-operable system. It is important that banks and various service providers talk to each other so that transactions flow seamlessly between different payment solutions,” said Mr Nitin Chittal, Assistant Vice-President, Alternate Banking Channels, Axis Bank. Inter-operability would require a standardized messaging format between the various service providers and banks, Mr Chittal said.

Senior bank officials are of view that the guidelines will help in ensuring software-related safety and proper risk management in order to encourage more customers to use the mobile platform.

Stressing on the need to use mobile phones for conducting various transactions, the RBI said, “The mobile channel facilitates small value payments to merchants, utility service providers and the like and money transfers at a low cost.”

As per the data available as on December 2007 there were about 231 million mobile phone connections in the country. The rapid expansion of this mode of communication has brought up a new payment delivery channel for banks. Many countries have already adopted this mode of delivery to expand the reach of the banking facility to cover remote parts, the RBI said.

Several banks have tied up with mobile phone operators and service providers to carry out transactions on mobile phones and more banks are to follow. While some banks are offering simple account-related queries on mobile phones and some have gone a step further and stored the debit and credit cards on mobile phone to enable various transactions.

ICICI Bank has already tied up with Airtel and mChek to load a virtual credit card on a mobile phone to carry on complete banking transactions as well as for making payments. “We conducted a pilot in Delhi and received close to a thousand responses. Mobile phones can be safer as compared to physical cards as they are pin protected, thereby minimizing the risk of misuse,” said Mr Sachin Khandelwal, General Manager, Head-Cards Product Group, ICICI Bank.

Axis Bank is also carrying out a similar pilot project with Atom Technologies to store a debit card on the mobile phone.

Monday, April 28, 2008

RBI norms on Cibil will allow tracking of credit record

Many people use credit cards and large group of people take loans from the banks but how many of them are aware that their repayment track record is maintained by an agency-centralized credit information bureau India (Cibil). Not many. Generally the agency gets the information from the banks. The banks pass on the repayment track record of the borrowers and the credit card holders to the agency. From here the banks can get the complete credit history of the individual before lending money.

The data stored with Cibil positive or negative, plays a major role in determining whether a borrower’s future loan application gets accepted or rejected. But it is very unfortunate, unlike US or UK, Indian borrowers cannot access this information to verify its authenticity. The existing state of affairs may hopefully change soon. A senior banker suggested that Cibil should provide written intimation about a borrower's credit history, or publish it on a website, which an individual could access by paying a token fee.

Now Cibil has come forward and in a written communiqué to TOI, the credit bureau said, "We are expecting guidelines from the RBI in this regard. Once the guidelines are made available, we expect to be in a position to share credit information reports with individuals." However, till such a system is in place, "if there is some mistake (in my credit profile), I cannot get it rectified", says Bejon Misra of Delhi's Consumer Voice.

The senior banker said not many borrowers are aware that disputes over an insignificant amount can lead to negative credit history. He gave one instance in relation to this: "Suppose a person owes Rs 10,300 to a credit card company and has a dispute over the Rs 300 in charges, and refuses to pay this balance. Interest will rise on this amount and a small problem will become a big one... Certain systems are triggered off. For such a small dispute, your housing loan of Rs 10 lakh may get rejected." The banker has advised the borrowers, that they must pay up the entire amount and dispute the charges only after doing so.

Even in the recently released 2006-07 annual report on the banking ombudsman's scheme disputes that have reached the redressal body over "wrong reporting of status of (credit) card-holder's dues to credit information companies" has been mentioned.

An official of the ombudsman’s office mentioned such complaints might be over payment disputes which have been resolved but credit bureau might not have been informed about the development. On this subject, the credit bureau clarified, "Cibil is a neutral service provider, which maintains information on borrowers on basis of data reported to it by credit granting institutions. In cases of disputed data, Cibil will consider information provided by credit granting institution and update it in its database. Again, in cases where dispute is resolved, and any modification is made to borrower's details, credit granting institution needs to report rectified data to Cibil and Cibil database is updated immediately."

Relating to credit cards, Sachin Khandelwal, head (cards) at ICICI Bank, said sometimes negative history is created if a consumer stops using the card without informing the card-issuing bank. "My suggestion to customers is to make sure when you exit a card relationship, make the card outstanding zero, and get the bank's written confirmation on this."

Rural bank shows good results after merger

To bring the small banks onto a fast track RBI had permitted the merger of the small banks going in loss, with the big banks. In Muzaffarpur seven rural banks had merged into North Bihar Regional Rural Bank (NBRRB) and have given good result making a big profit during a period of the last one year. The RRB not only has paid a debt of overall loss of Rs 17.82 crore but also has succeeded in making a profit of Rs 11.51 crore during the period.

In a press meet on Wednesday the chairman of NBRRB Avinash Yog told the media person that the bank has made this achievement, mainly due to enhancing its loans, deposits, recovery and productive investments.

He informed that the bank's deposited amount has increased from Rs 3,062 crore to Rs 3,842 crore in 685 branches, making a hike of more than 25 per cent. He claimed the bank made an advance of Rs 1,471 crore as against only Rs 1,149 crore last year, registering a hike of 28 per cent. It did a business of Rs 5,313 crore in comparison to only Rs 4,212 crore. The average increase in business per branch was Rs 7.76 crore.

The NBRRB came into existence in 2006 after the merger of Vaishali, Siwan, Saran, West Champaran, Gopalgamj, Madhubani and Darbhanga rural banks.
The chairman of the bank, as well as the chief manager, S K Singh and the senior manager, R N Paswan, said whole credit of this profit goes to officers and employees of all branches spread in north Bihar region who put in all their efforts of the bank.

Recently there is a proposal to merge Kosi rural bank also in this bank during the current year. With this it will cover 18 districts of north Bihar under the jurisdiction of NBRRB.

All these banks are being sponsored by Central Bank of India. While giving the clarification on the merger of the banks the chairman said as the rest of three districts rural banks including those of Samastipur, Begusarai and Khagaria are being sponsored by other commercial banks, so they will not to be merged with it.

He said the NBRRB has distributed kisan credit cards to 73,409 farmers with a fund of Rs 243 crore at the rate of 109 cards each branch. The bank also opened 309 new kisan clubs in 272 branches during last one year.

Tuesday, April 22, 2008

RBI likely to issue norms for reverse mortgage in credit policy meet

The Reserve Bank of India (RBI) on April 29 in its forthcoming annual monetary policy meeting is likely to announce the prudential norms for reverse mortgage loans to safeguard banks in a falling real estate market.

Reverse mortgage scheme was announced by the Union Finance Minister P. Chidambaram in the Finance Bill 2007 as a social security measure for the elderly. Reverse mortgage allows senior citizens with inadequate income sources to mortgage their own homes for a monthly stream of income for up to 15 years.

It includes a senior citizen borrower mortgaging the house to a lender, who then makes periodic payments to the borrower during the latter’s lifetime. It is a way of monetizing the owner’s equity in the house.

The senior citizen borrower is not required to examine the loan during his lifetime and on the borrower’s death or on the borrower leaving the house permanently, the loan is repaid along with accumulated interest, through sale of the house.

According to the sources close to the development said it has become necessary to introduce the prudential norms for banks as the property mortgaged with banks would wear down the value if the real estate prices continued to fall. This may result in non-performing assets in the books of banks. Currently, such loans are being dealt at par with commercial real estate by banks as far as prudential norms are concerned.

The norms will include capital adequacy and asset classification for such loans.

Which means a bank will have to provide a certain portion of the loan as capital for provisioning if such loans go bad. The standards will be specified to classify such loans as standard or non-performing assets.

Certain risk weights may also be attached to such loans depending on the risk potential of the loan scheme. At present, the reverse mortgage loan carries the same risk weight as that of real estate loans, which are already very high at 150 per cent. Sources made it clear that such loans were non-commercial in nature and thus a lower risk weight akin to residential real estate would be appropriate.

As per banking sources such prudential norms will protect banks from having such loans as NPAs. Further, RBI will also spell out valuation norms for pricing such schemes.

At present several banks are following comprehensive norms introduced by National Housing Bank for the reverse mortgage scheme.

In the meantime the banks are not aggressive since the guidelines from RBI are not clear. In the last Budget, the government had exempted senior citizens from paying tax on the income earned by mortgaging their property to banks.

Monday, April 21, 2008

RBI might increase repo rate to check inflation

The Reserve Bank of India (RBI) to control the high intensity of the inflation which has gone up over 7 per cent is planning to take more monetary measures including a hike in key short term rates in its credit policy on April 29.

According to top bankers there is a possibility of 0.25-0.5 per cent hike in the repo rate to supplement the 0.5 per cent cash reserve ratio (CRR) hike which announced in the last week by the apex bank.

Repo rate is the rate at which the RBI borrows from the banks while CRR is the amount of funds that the banks have to keep with the RBI.

UCO Bank's Chairman & Managing Director, S K Goel, while expressing views on RBI’s step to control inflation said, “The first priority of the Reserve Bank would be to rein in inflation. A 0.25-0.5 per cent hike in repo rates is quite possible.”

On Thursday RBI hiked CRR by 0.5 per cent to 8 per cent to suck out Rs 18,500-crore liquidity from the banking system as a measure to combat ballooning inflation.

Goel added, "The impound on Uco Bank with this CRR hike would be around Rs 400 crore while the loss of income would be around Rs 24 crore. This would have an impact on the lending surplus of the bank.”.

Goel said the bank's Asset Liability Committee (ALCO) will be holding a meeting on May 5 in which decision on lending rates will be taken.

However a 0.25 per cent hike in short-term rates can compel banks to hike lending rates passing on the burden to their customers.

RBI to assist SHGs and MFIs to curb money-lenders

A top RBI official said to curb the influence of money-lenders over poor borrowers the Reserve Bank of India is considering of giving more assistance to Self Help Groups (SHGs) and Microfinance Institutions (MFIs).

In Mumbai speaking in a seminar RBI’s Deputy Governor, Usha Thorat, said, "There is a need to propel the growth of SHGs and MFIs in order to bring down the influence of money-lenders over poor borrowers...RBI is taking regulatory and strategic initiatives to achieve this goal".

Thorat said the apex bank is considering formulating guidelines to allow banks to open savings bank accounts for SHGs and for the de-regulation of interest rates for SHGs, MFIs, Non-Banking Financial Companies, Regional Rural Banks and Urban Co-operative Banks.

In order to facilitate remittances from urban centers and encourage them for opening accounts, it is being assumed soon RBI will be coming up with guidelines to simplify KYC norms for small value accounts which will help urban-migrants to avail banking services.

Saturday, April 19, 2008

Banks to decide on interest rates after RBI’s annual credit policy

On Thursday RBI had announced a hike in Cash Reserve Ratio (CRR) rate by 50 basis points - or half a percentage point- in a two-step process to 8%. After this announcement hike in interest rates is expected although country’s leading bankers have forbidden any possibility from immediate hike in interest rate. The bankers said they will wait for the Reserve Bank’s annual credit policy scheduled for April 29.

This decision has come as a relief for those who are planning to take a home or car loan. For some time now the loan seekers can enjoy the stable interest rate regime.

However many of the financial institutions have started assessing their liquidity positions in milieu of RBI decision to raise CRR – percentage of deposits that banks have to keep with the regulator -- to eight per cent from 7.5 per cent earlier.

Commenting on this ICICI Bank managing director and CEO K V Kamath said, "We will see as we go along. We are all working in a market place. We have to understand market. For that we need next..."

While HDFC chairman Deepak Parekh said the company has not yet decided on its interest rates. He said hike in CRR by 50 basis points will increase pressure on the margin of banks by 3-4 per cent.

"There is going to be profitability impact on banks, that I think is given because whatever is kept aside as CRR, you are not going to get interest on it," Kamath said.

Punjab National Bank chairman and managing director K C Chakrabarty expressing his views said "we have to see how we can cope up with the situation...immediately nothing is going to happen."

He said most of the banks will decide on interest rates after the annual credit policy, as everybody will get the clear picture of monetary stance for 2008-09.

Wednesday, April 16, 2008

Banks to incur additional cost of Rs 800 cr for training program

The Reserve Bank of India recently released its second draft guidelines for recovery agents in which it has proposed that banks should tie up with the Indian Institute of Banking and Finance (IIBF) or organize program in their own training colleges to ensure that every agent passes the exam conducted by IIBF during a one-year period.

In its norms the RBI has clearly defined “agents” to include not just agencies engaged by banks and their agents or employees but also bank employees.

If the banks comply with the RBI proposed loan recovery norms banks might have to spend up to Rs 800 crore training close to one million employees.

The biggest complaint of the bankers is the additional cost that they would have to spend on 100 hours of training, which could be anything between Rs 600 crore and Rs 800 crore.

NIS Sparta, a division of Mudra Communications Pvt. Ltd., a Reliance ADA group organization. which provides training facilities for financial sector, charges around Rs 6,000 per employee.

Another institute run by a public sector bank said the 100-hour training costs Rs 6,500 per employee, which does not include the cost of study material and meals.

Study material, including brochures and CDs it costs to around Rs 500, and if meals are included for 14 days and other costs add up to around Rs 1,000, taking the total package amount to nearly Rs 8,000 per employee.

According to a banker recovery being one of the high-pressure jobs, most of the employees are unwilling to put in long term in the collection department of private banks, resulting in high stir and, therefore, more training needs.

In the public sector banks departments of employees keep changing which means training almost the entire workforce over a period of time.

In the meantime, the Indian Banks' Association (IBA), which represents the interests of both state-owned and private banks, has written to the RBI seeking the clarification on the term “recovery”.

Most of the large banks have customer services departments who do the follow-up with customers who fail to pay their credit card or personal or car loan dues on the due date.

“Before the matter is referred to the collection department, which usually takes a month, it is this department which follows-up. We do not know if even this will constitute recovery activity and if we need to train our customer service executives too,” said a senior banker.

However the IBA has submitted its opinion to RBI, which expects the release of final guidelines shortly.

Banks have also expressed their apprehension over including the telephone numbers of recovery agents in the notice and authorization letter sent to defaulting borrowers.

“These recommendations were listed in the first draft as well. We send our feedback but it seems to be falling on deaf ears. In this day and age how can you expect a bank to make public the number of its recovery agent,” said the collection head of a private bank.

“Today, customers can opt for call-barring facilities. What can a bank do if the customer refuses to receive calls? Unless RBI wants us to not pursue defaulters there is no reason why it should include such a suggestion,” said the banker.

Banks have also said the proposal to implement Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act) to reclaim assets will delay the recovery process which in turn depreciates the value of the asset.

“Under Sarfaesi the bank will have to wait for 90 days which means three installments before it can pursue the defaulter. The bank will also have to send the borrower an official letter before taking any action. This causes delay in recovery and the value of the asset also depreciates,” said a banker.