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.