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.
Thursday, July 31, 2008
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.
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.
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.
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.
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.
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.
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.
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