On Wednesday the Reserve Bank of India (RBI) released the provisional data according to which, this year up till December 18 the Indian bank loans had grown to about 11.25 percent.
As on Dec. 18 the outstanding on loans was high up to 2.94 trillion rupees as against 2.64 trillion a year ago. As of Dec. 4 the bank credit had grown up to10.5 per cent. The central bank will be giving final figures for the week to Dec. 18 in its weekly statistical supplement on Friday.
Deposits had risen up 17.85 percent from a year earlier. According to supplement banks’ investments in government approved securities have increased to 24.21 percent during the year.
Thursday, December 31, 2009
Tuesday, December 29, 2009
Finance ministry floats draft paper on consolidation of PSU banks
Finally the finance ministry has prepared a discussion paper titled ‘Consolidation among public sector banks’ to sought out the issue of mergers of public sector banks. In this paper the ministry has drafted the guidelines for mergers of public sector banks. One of the major guideline mentioned in the paper is that the merger entity must get hold of 5 to 7 per cent market share across regions and should be able to establish a pan-India presence.
Other guidelines include that the merger banks must be IT compatible and have proper cultural fit.
The paper states at the time of merger one of two banks chief executive officer should be close to retirement as this will not lead to any type of clash at the top level.
In the paper out of the 19 public sector banks, besides the State Bank of India there are seven other banks have been classified as ‘strong’. These include Punjab National Bank, Bank of Baroda, Union Bank, Canara Bank and Bank of India, Corporation Bank and Vijaya Bank.
A finance ministry official pointed out, “Others have been left out of the ‘strong’ category based on various criteria, including levels of non-performing assets, capital adequacy and technology adoption.” He stated that the banks which have been included in the list do not mean they are ‘weak’ banks but they have to improve in some aspects of their functioning.
With the heads of some ‘string’ banks discussion on guidelines has already been done. Soon the discussion will be taken up with other banks also.
The paper points out it is mandatory that the IT networks of the merger banks should be compatible or one of them must have approved superior technology platform which will be adapted by the other bank in the due course of merger.
Then merging banks should do a proper assessment of the cultural fit of their staff. Giving an example the paper stated the Canara Bank staff are ‘homogenous’, whereas Mumbai-based banks such as Bank of Baroda, Union Bank and Bank of India have a more cosmopolitan staff mix.
The paper has pointed out the rigour of the dozen-odd steps that banks required to go through, at the time of merger process until the final consummation. Some of them are both the merger banks have to prepare proposals and get it approved by their boards, getting consent from the government, carrying out detailed due carefully, evaluation of agreement should be done as per Reserve Bank of India and Securities & Exchange Board of India guidelines, to advertise about merger in newspapers and get the approval of shareholders.
The ministry official clearly stated that the initiative for mergers has to come from banks. “We will act as a facilitator.” At present no merger proposal is pending with the government.
Recently Finance minister Pranab Mukherjee had told the Parliament that the government will not interfere in the working nor any directive issued to any bank for merger or consolidation.
An anonymous chairman and managing director of a large public sector bank told Financial Chronicle the discussion has been done with the government on the issues in the paper. The chairman told, “We told the government that, to begin with, the stronger banks should merge, especially those which have a better cultural fit. Our advice is that all aspects should be evaluated beforehand so that, once the merger process is initiated by two banks, it should be taken to its logical conclusion. Any mid-course failure will send wrong signals.”
Other guidelines include that the merger banks must be IT compatible and have proper cultural fit.
The paper states at the time of merger one of two banks chief executive officer should be close to retirement as this will not lead to any type of clash at the top level.
In the paper out of the 19 public sector banks, besides the State Bank of India there are seven other banks have been classified as ‘strong’. These include Punjab National Bank, Bank of Baroda, Union Bank, Canara Bank and Bank of India, Corporation Bank and Vijaya Bank.
A finance ministry official pointed out, “Others have been left out of the ‘strong’ category based on various criteria, including levels of non-performing assets, capital adequacy and technology adoption.” He stated that the banks which have been included in the list do not mean they are ‘weak’ banks but they have to improve in some aspects of their functioning.
With the heads of some ‘string’ banks discussion on guidelines has already been done. Soon the discussion will be taken up with other banks also.
The paper points out it is mandatory that the IT networks of the merger banks should be compatible or one of them must have approved superior technology platform which will be adapted by the other bank in the due course of merger.
Then merging banks should do a proper assessment of the cultural fit of their staff. Giving an example the paper stated the Canara Bank staff are ‘homogenous’, whereas Mumbai-based banks such as Bank of Baroda, Union Bank and Bank of India have a more cosmopolitan staff mix.
The paper has pointed out the rigour of the dozen-odd steps that banks required to go through, at the time of merger process until the final consummation. Some of them are both the merger banks have to prepare proposals and get it approved by their boards, getting consent from the government, carrying out detailed due carefully, evaluation of agreement should be done as per Reserve Bank of India and Securities & Exchange Board of India guidelines, to advertise about merger in newspapers and get the approval of shareholders.
The ministry official clearly stated that the initiative for mergers has to come from banks. “We will act as a facilitator.” At present no merger proposal is pending with the government.
Recently Finance minister Pranab Mukherjee had told the Parliament that the government will not interfere in the working nor any directive issued to any bank for merger or consolidation.
An anonymous chairman and managing director of a large public sector bank told Financial Chronicle the discussion has been done with the government on the issues in the paper. The chairman told, “We told the government that, to begin with, the stronger banks should merge, especially those which have a better cultural fit. Our advice is that all aspects should be evaluated beforehand so that, once the merger process is initiated by two banks, it should be taken to its logical conclusion. Any mid-course failure will send wrong signals.”
Monday, December 28, 2009
RBI amended mobile banking guidelines increased transaction limit
The Reserve Bank of India has relaxed mobile banking guidelines in order to boost it.
Some of the leading telecom companies like Bharti Airtel are active in taking up pilot project for mobile banking.
The mobile number of users is four and a half times the total number of bank accounts in this country, therefore mobile banking is being largely looked at as a good option for providing transfer facility across the length and breadth.
Some of the operative parts of these guidelines which were introduced after the October 2008 circular and have been amended to a large extent are:
Now RBI has increased the daily transaction limit to Rs 50,000 per customer for both funds transfer as well as transactions which involve purchases of goods and services. At present the transactions are limited to Rs 5,000 and 10,000 respectively.
Secondly, RBI has also relaxed the technology and security standards and banks have been permitted to undertake transactions up to Rs 1,000 without end to end encryption. This way in some of the cost of transaction will be reduced.
The remittance of funds for disbursements in cash is the other major feature of the circular. This feature is directly related to facilitating the use of mobile for cash. In India around 90% of the user base has prepaid mobile phones thus the cash transaction is preferred where user puts in money, gets the credit and uses it.
However mobile phone companies are having discussions for extending this facility for direct transfer in case the individual is staying in Delhi and adds Rs 1,000 the money can be delivered somewhere in the hinterland of Bihar or UP
For this RBI has stated that there are separate guidelines for disbursal of these funds. The maximum amount of these transactions will be Rs 5,000 per transaction to which banks are permitted to put a cap on the rapidity of such transactions subject to a maximum of Rs 25,000 per month per customer. The funds can be transferred through both, an agent or an ATM.
As it is not possible to go to ATM easily and the number of ATMs is also less in some of parts of the country, large parts of the country particularly rural and suburban areas do not have access to ATMs. Thus banks can appoint agents for such transfers.
Then some of the agents can be mobile operators, the service providers and the handset resellers in the hinterland.
According to bankers this can help in financial inclusion in a big way. Also, this will take over from retail payment from cash and cheque based transaction to mobile based transaction which will be convenient and will also reduce the cost.
The bankers said these guidelines are mainly focused on metros. If they were able to get hold of this market, it will increase in transactions. Currently in India, transactions through mobiles are of not importance. Therefore these guidelines can boost the overall transactions.
Thus these guidelines are being looked as most important factor and companies like Bharti Airtel among others will be benefited from this proposal giving them reason to cheer.
Some of the leading telecom companies like Bharti Airtel are active in taking up pilot project for mobile banking.
The mobile number of users is four and a half times the total number of bank accounts in this country, therefore mobile banking is being largely looked at as a good option for providing transfer facility across the length and breadth.
Some of the operative parts of these guidelines which were introduced after the October 2008 circular and have been amended to a large extent are:
Now RBI has increased the daily transaction limit to Rs 50,000 per customer for both funds transfer as well as transactions which involve purchases of goods and services. At present the transactions are limited to Rs 5,000 and 10,000 respectively.
Secondly, RBI has also relaxed the technology and security standards and banks have been permitted to undertake transactions up to Rs 1,000 without end to end encryption. This way in some of the cost of transaction will be reduced.
The remittance of funds for disbursements in cash is the other major feature of the circular. This feature is directly related to facilitating the use of mobile for cash. In India around 90% of the user base has prepaid mobile phones thus the cash transaction is preferred where user puts in money, gets the credit and uses it.
However mobile phone companies are having discussions for extending this facility for direct transfer in case the individual is staying in Delhi and adds Rs 1,000 the money can be delivered somewhere in the hinterland of Bihar or UP
For this RBI has stated that there are separate guidelines for disbursal of these funds. The maximum amount of these transactions will be Rs 5,000 per transaction to which banks are permitted to put a cap on the rapidity of such transactions subject to a maximum of Rs 25,000 per month per customer. The funds can be transferred through both, an agent or an ATM.
As it is not possible to go to ATM easily and the number of ATMs is also less in some of parts of the country, large parts of the country particularly rural and suburban areas do not have access to ATMs. Thus banks can appoint agents for such transfers.
Then some of the agents can be mobile operators, the service providers and the handset resellers in the hinterland.
According to bankers this can help in financial inclusion in a big way. Also, this will take over from retail payment from cash and cheque based transaction to mobile based transaction which will be convenient and will also reduce the cost.
The bankers said these guidelines are mainly focused on metros. If they were able to get hold of this market, it will increase in transactions. Currently in India, transactions through mobiles are of not importance. Therefore these guidelines can boost the overall transactions.
Thus these guidelines are being looked as most important factor and companies like Bharti Airtel among others will be benefited from this proposal giving them reason to cheer.
Monday, December 7, 2009
SBI launched SBI Freedom, a telephone banking facility in Chandigarh
In India public sector banks (PSBs) have steady customer base. The Reserve Bank of India the regulatory body of the banking system has given permission to one of the PSB to introduce telephone banking facility so that banks can offer latest facility to their customers.
On Friday State Bank of India launched a service called SBI Freedom, and the facility is fully functional in its Chandigarh circle.
Currently PSBs are offering internet banking facility to their customers and many of them have linked their branches through the internet.
The bank’s chief general manager for the circle, SK Sehgal, said, “With this launch, our customers will be able to use facilities like balance enquiry, mini statement, fund transfer, cheque book issuance, mobile recharge and bill payment at any time and place through the use of their cell phones. We are also working at adding rail and air ticket booking and shopping to this service.” In the beginning this facility will be available only on Java-enabled mobile phones with GPRS connections. Sources said services for other phones are under process.
The bank has set a limit of Rs 5,000 for daily fund transfers and Rs 10,000 for bill payments.
To enable the services the customers can get the software installed at any of the bank’s branches for free through Bluetooth technology.
An SBI official told, “A customer is registered when he or she sends an SMS to 567676 prefixed with the area code. The service is activated either after the password is verified at an ATM or by the bank branch when the customer appears in person. This makes the system foolproof”.
The official pointed out that people living in remote areas will be benefited the most from this service. “We also expect students to avail of the facility,” he added.
Out of the 30 lakh customers in Chandigarh circle, 7 lakh are expected to get subscribed to the new system.
Punjab National Bank’s Chandigarh circle head, AK Loomba, stated, “We are also working on developing this kind of a service. But first, we will try to understand its limitations.”
On Friday State Bank of India launched a service called SBI Freedom, and the facility is fully functional in its Chandigarh circle.
Currently PSBs are offering internet banking facility to their customers and many of them have linked their branches through the internet.
The bank’s chief general manager for the circle, SK Sehgal, said, “With this launch, our customers will be able to use facilities like balance enquiry, mini statement, fund transfer, cheque book issuance, mobile recharge and bill payment at any time and place through the use of their cell phones. We are also working at adding rail and air ticket booking and shopping to this service.” In the beginning this facility will be available only on Java-enabled mobile phones with GPRS connections. Sources said services for other phones are under process.
The bank has set a limit of Rs 5,000 for daily fund transfers and Rs 10,000 for bill payments.
To enable the services the customers can get the software installed at any of the bank’s branches for free through Bluetooth technology.
An SBI official told, “A customer is registered when he or she sends an SMS to 567676 prefixed with the area code. The service is activated either after the password is verified at an ATM or by the bank branch when the customer appears in person. This makes the system foolproof”.
The official pointed out that people living in remote areas will be benefited the most from this service. “We also expect students to avail of the facility,” he added.
Out of the 30 lakh customers in Chandigarh circle, 7 lakh are expected to get subscribed to the new system.
Punjab National Bank’s Chandigarh circle head, AK Loomba, stated, “We are also working on developing this kind of a service. But first, we will try to understand its limitations.”
Tuesday, November 24, 2009
Banks reduce rates in spite of RBI signal
The Reserve Bank of India (RBI) in its second quarter monetary policy gave a clear signal to the bank about its decision of its exit from accommodative stance. It was believed that due to RBI decision the interest rates will move only upward.
But in the recent months almost all the banks have reduced the interest rates. Thus a month back a loan which could be taken at 8% is now available at a rate which is 100-150 basis points lower.
However, there has been decline in the cost of one-year loans by about 100 basis points to 7-9 per cent over the last four weeks, whereas loans for five years which used to cost 10 per cent, is now become cheaper by about 50-75 basis points cheaper.
After the RBI policy the two largest public sectors lender State Bank of India (SBI) and Punjab National Bank (PNB), reduced its deposit rates by 25-50 basis points, and also extended special home loan schemes for few more months.
Following this Axis Bank announced to offer home loans at 8 per cent for the first year. A few days back HDFC Bank has slashed the interest rate on used car loans similarly PNB has also reduced auto loan rates by 50 basis points. Even the National Bank for Agriculture and Rural Development has reduced their refinance rate, whereas Punjab & Sind reduced interest rates of farm loans.
“One of the main reasons for softening of interest rates is weak credit demand. Also, there is adequate liquidity in the system. A bulk of the lending is happening for the short-term,” said Partha Mukherjee, president (Credit), Axis Bank.
By the end of October, the year-on-year growth of bank credit has dropped to a new 12-year low of 9.8 per cent. Correspondingly on Friday, banks invested Rs 54,470 crore through the Reserve Bank’s reverse repo window, mainly used to absorb excess liquidity, as against over Rs 1,00,000 crore between April and September.
Canara Bank chairman and managing director A C Mahajan stated, “Short-term interest rates have declined because of low credit flow, excess liquidity and the absence of investment options. But they will go back to the original levels once credit flow improves”.
The reserve repo rate being at 3.25 per cent and after investing in a liquid fund scheme obtained an annualized return of 5 per cent, according to banks short-term credit at 7 per cent a year is the better option. On the other hand RBI is not happy with banks increasing their coverage to liquid mutual funds.
“The rates are liquidity-based and not market-linked. It has to be compared with a bank’s treasury operations,” said a public sector bank chief.
Bank of India executive director B A Prabhakar pointed out that in the first half the pressure of government borrowings which had increased, has now eased. He added, “This takes away the trigger for bond yields to move northward”.
Moreover the profit on 10-year paper has also dropped from 7.35 per cent on October 27 to 7.18 per cent on Friday. A section of bankers pointed out indication of easing of rates are coming from the bond markets but according to others the lower profits amounts to nearly 85 per cent of the government’s record borrowings of Rs 4,51,000 crore.
Thus, this is also the reason for cut in deposit rates over the last 12 months. Since April SBI has reduced deposit rates eight times in order to reduced the cost and improve margins.
“If there is no demand for credit, why should banks take deposits at a higher rate of interest? Unless credit expansion takes place, there is no use for deposits at a higher interest... The rate of interest is a function of demand and one of the options is to reduce it,” said Andhra Bank chairman and managing director R S Reddy.
Prabhakar explained as companies are able to strike external commercial borrowings and institutional investors are raising equity, interest rates are likely to remain low for a few more months.
“A shift from short-term to long-term borrowing will not happen until the fourth quarter, as interest rates are expected to rise once demand picks up,” said an executive with a large private sector bank.
But there is another side. “Customers are able to reduce their interest cost, but banks have to worry about the asset quality. At the present rate, the credit risk is not getting factored into the pricing,” said another banker.
But in the recent months almost all the banks have reduced the interest rates. Thus a month back a loan which could be taken at 8% is now available at a rate which is 100-150 basis points lower.
However, there has been decline in the cost of one-year loans by about 100 basis points to 7-9 per cent over the last four weeks, whereas loans for five years which used to cost 10 per cent, is now become cheaper by about 50-75 basis points cheaper.
After the RBI policy the two largest public sectors lender State Bank of India (SBI) and Punjab National Bank (PNB), reduced its deposit rates by 25-50 basis points, and also extended special home loan schemes for few more months.
Following this Axis Bank announced to offer home loans at 8 per cent for the first year. A few days back HDFC Bank has slashed the interest rate on used car loans similarly PNB has also reduced auto loan rates by 50 basis points. Even the National Bank for Agriculture and Rural Development has reduced their refinance rate, whereas Punjab & Sind reduced interest rates of farm loans.
“One of the main reasons for softening of interest rates is weak credit demand. Also, there is adequate liquidity in the system. A bulk of the lending is happening for the short-term,” said Partha Mukherjee, president (Credit), Axis Bank.
By the end of October, the year-on-year growth of bank credit has dropped to a new 12-year low of 9.8 per cent. Correspondingly on Friday, banks invested Rs 54,470 crore through the Reserve Bank’s reverse repo window, mainly used to absorb excess liquidity, as against over Rs 1,00,000 crore between April and September.
Canara Bank chairman and managing director A C Mahajan stated, “Short-term interest rates have declined because of low credit flow, excess liquidity and the absence of investment options. But they will go back to the original levels once credit flow improves”.
The reserve repo rate being at 3.25 per cent and after investing in a liquid fund scheme obtained an annualized return of 5 per cent, according to banks short-term credit at 7 per cent a year is the better option. On the other hand RBI is not happy with banks increasing their coverage to liquid mutual funds.
“The rates are liquidity-based and not market-linked. It has to be compared with a bank’s treasury operations,” said a public sector bank chief.
Bank of India executive director B A Prabhakar pointed out that in the first half the pressure of government borrowings which had increased, has now eased. He added, “This takes away the trigger for bond yields to move northward”.
Moreover the profit on 10-year paper has also dropped from 7.35 per cent on October 27 to 7.18 per cent on Friday. A section of bankers pointed out indication of easing of rates are coming from the bond markets but according to others the lower profits amounts to nearly 85 per cent of the government’s record borrowings of Rs 4,51,000 crore.
Thus, this is also the reason for cut in deposit rates over the last 12 months. Since April SBI has reduced deposit rates eight times in order to reduced the cost and improve margins.
“If there is no demand for credit, why should banks take deposits at a higher rate of interest? Unless credit expansion takes place, there is no use for deposits at a higher interest... The rate of interest is a function of demand and one of the options is to reduce it,” said Andhra Bank chairman and managing director R S Reddy.
Prabhakar explained as companies are able to strike external commercial borrowings and institutional investors are raising equity, interest rates are likely to remain low for a few more months.
“A shift from short-term to long-term borrowing will not happen until the fourth quarter, as interest rates are expected to rise once demand picks up,” said an executive with a large private sector bank.
But there is another side. “Customers are able to reduce their interest cost, but banks have to worry about the asset quality. At the present rate, the credit risk is not getting factored into the pricing,” said another banker.
Increase in smuggling of fake currency notes reported in TN
From the borders of eastern states of the country the Fake Indian Currency Notes (FICN) are being smuggled into Tamil Nadu especially in Chennai. Observing the increase in the smuggling the CB-CID and the city police have decided to carry out joint operation to crack down on these smuggling networks.
T Rajendran, Chennai City Police Commissioner told Express, “We have decided to send two special teams consisting of officers from the city police and CB-CID to Jharkhand and West Bengal from where most FICNs are smuggled into Chennai.”
In the last 10 months the Reserve Bank of India, has referred around 247 FICN cases including 207 cases from Chennai to the CB-CID, the nodal agency for prevention of smuggling of FICN. N Mohan, DSP, CB-CID, CC Wing informed that in all the 11 cases reported in Chennai, one common pattern has been found that all the seized fake notes were of high quality in the denominations of Rs 500 and Rs 1,000, that too with genuine features.
He said, it is believed these high quality notes have been printed outside India and are being smuggled into the country by a network through the permeable borders of West Bengal, Jharkhand, Bihar, and Jammu and Kashmir, and added that all the persons arrested in this connection in Chennai belong to these states. On Wednesday police had arrested two persons from Jharkhand and West Bengal.
Although no concrete evidence is available right now regarding the networks’ linked to the international smugglers particularly from Pakistan, Bangladesh and China, as that in custody were mostly laborers and small-time street vendors. Archana Ramasundaram, ADGP, CB-CID pointed out, “In order to ascertain the link of ISI agents in smuggling FICNs into Tamil Nadu, we have sent a letter to the Uttar Pradesh police to provide information that they have procured from an ISI agent’s son Javed Siddiqui alias Vicky Manihar.”
Mohan added, “We have asked for the prefix code and serial numbers of the notes seized from Siddiqui. If those details match with the prefix and serial numbers seized from the accused in Chennai, then we can prove that it was smuggled from Pakistan.’’
T Rajendran, Chennai City Police Commissioner told Express, “We have decided to send two special teams consisting of officers from the city police and CB-CID to Jharkhand and West Bengal from where most FICNs are smuggled into Chennai.”
In the last 10 months the Reserve Bank of India, has referred around 247 FICN cases including 207 cases from Chennai to the CB-CID, the nodal agency for prevention of smuggling of FICN. N Mohan, DSP, CB-CID, CC Wing informed that in all the 11 cases reported in Chennai, one common pattern has been found that all the seized fake notes were of high quality in the denominations of Rs 500 and Rs 1,000, that too with genuine features.
He said, it is believed these high quality notes have been printed outside India and are being smuggled into the country by a network through the permeable borders of West Bengal, Jharkhand, Bihar, and Jammu and Kashmir, and added that all the persons arrested in this connection in Chennai belong to these states. On Wednesday police had arrested two persons from Jharkhand and West Bengal.
Although no concrete evidence is available right now regarding the networks’ linked to the international smugglers particularly from Pakistan, Bangladesh and China, as that in custody were mostly laborers and small-time street vendors. Archana Ramasundaram, ADGP, CB-CID pointed out, “In order to ascertain the link of ISI agents in smuggling FICNs into Tamil Nadu, we have sent a letter to the Uttar Pradesh police to provide information that they have procured from an ISI agent’s son Javed Siddiqui alias Vicky Manihar.”
Mohan added, “We have asked for the prefix code and serial numbers of the notes seized from Siddiqui. If those details match with the prefix and serial numbers seized from the accused in Chennai, then we can prove that it was smuggled from Pakistan.’’
Monday, November 23, 2009
Subir Gokarn appointed fourth deputy governor
Subir Vithal Gokarn, has been appointed as the fourth deputy governor of the Reserve Bank of India (RBI) by the government. Gokarn, Standard and Poor’s Asia-Pacific Chief Economist and a Business Standard columnist, has been appointed for a three-year term, is likely to take charge next week. Generally deputy governors can be appointed for a maximum of five years or till the age of 62, whichever is earlier.
Gokarn is replacing Rakesh Mohan, who resigned in June. The 50-year-old economist will possibly get the monetary policy department. The other three deputy governors are Usha Thorat, Shyamala Gopinath and KC Chakrabarty.
Usually two deputy governors of the central bank are appointed from outside, one of them being an economist.
After Mohan had resigned, RBI Governor D Subbarao had re-allocated the portfolios of deputy governors, but had held back the monetary policy department (MPD). Currently the department of economic analysis and policy and the department of statistics and information management are being looked after by the governor himself. Gokarn, who is also a macroeconomist like his predecessor, will possibly get some of the key departments that were being looked after by Mohan.
Gokarn was born in October 1959, will be one of the youngest deputy governors of the Indian central bank in recent times. After graduating from St Xavier’s College, Mumbai, and Delhi School of Economics, he did doctorate from Case Western Reserve University of Cleveland, Ohio. His doctoral thesis was “Capital market, liberalization and industrial performance – A study of South Korean manufacturing sector”.
Before joining S&P in 2007, Gokarn was working as the chief economist of Crisil, where the global rating agency holds a majority stake. He also worked as an associate professor of Indira Gandhi Institute of Development Research in Mumbai.
When Gokarn was working as chief economist at the National Council of Applied Economic Research, Mohan was the director-general of the New Delhi-based think-tank.
The economist has been selected for deputy governor position after a round of interaction with an appointment panel headed by the RBI governor. Gokarn’s appointment has taken longer time than expected because the government took time to prepare a database. Others in the race were Arvind Virmani, the government’s chief economic advisor, Ashoka Mody, assistant director at the International Monetary Fund’s European department, and Jahangir Aziz, JPMorgan India’s chief economist.
Gokarn is replacing Rakesh Mohan, who resigned in June. The 50-year-old economist will possibly get the monetary policy department. The other three deputy governors are Usha Thorat, Shyamala Gopinath and KC Chakrabarty.
Usually two deputy governors of the central bank are appointed from outside, one of them being an economist.
After Mohan had resigned, RBI Governor D Subbarao had re-allocated the portfolios of deputy governors, but had held back the monetary policy department (MPD). Currently the department of economic analysis and policy and the department of statistics and information management are being looked after by the governor himself. Gokarn, who is also a macroeconomist like his predecessor, will possibly get some of the key departments that were being looked after by Mohan.
Gokarn was born in October 1959, will be one of the youngest deputy governors of the Indian central bank in recent times. After graduating from St Xavier’s College, Mumbai, and Delhi School of Economics, he did doctorate from Case Western Reserve University of Cleveland, Ohio. His doctoral thesis was “Capital market, liberalization and industrial performance – A study of South Korean manufacturing sector”.
Before joining S&P in 2007, Gokarn was working as the chief economist of Crisil, where the global rating agency holds a majority stake. He also worked as an associate professor of Indira Gandhi Institute of Development Research in Mumbai.
When Gokarn was working as chief economist at the National Council of Applied Economic Research, Mohan was the director-general of the New Delhi-based think-tank.
The economist has been selected for deputy governor position after a round of interaction with an appointment panel headed by the RBI governor. Gokarn’s appointment has taken longer time than expected because the government took time to prepare a database. Others in the race were Arvind Virmani, the government’s chief economic advisor, Ashoka Mody, assistant director at the International Monetary Fund’s European department, and Jahangir Aziz, JPMorgan India’s chief economist.
RBI set up temporary counters for advance income tax assesses
The Reserve Bank of India (RBI) in a statement stated, people can file their advance income tax at RBI and 926 computerized branches of public and private sector banks in Mumbai and Navi Mumbai.
RBI said these counters have been setup for the convenience of the income tax assesses. Out of 926 bank branches 862 branches are of public sector bank branches, while 35 are HDFC bank branches, 10 ICICI bank branches and 19 Axis bank branches.
RBI has advised the income tax assesses to take advantage of these temporary arrangements set up for their convenience. It added tax assesses can avoid long queues and inconveniences at the RBI counters if the assesses in Mumbai and Navi Mumbai make use of services made available at various designated branches of banks and try to deposit their income tax dues in advance before the last date.
RBI said these counters have been setup for the convenience of the income tax assesses. Out of 926 bank branches 862 branches are of public sector bank branches, while 35 are HDFC bank branches, 10 ICICI bank branches and 19 Axis bank branches.
RBI has advised the income tax assesses to take advantage of these temporary arrangements set up for their convenience. It added tax assesses can avoid long queues and inconveniences at the RBI counters if the assesses in Mumbai and Navi Mumbai make use of services made available at various designated branches of banks and try to deposit their income tax dues in advance before the last date.
RBI issue notice to banks to reveal insurance commissions & fees
The banks have been asked by the Reserve Bank of India (RBI) to disclose all the information related to commissions and other fees that they receive from insurance companies, mutual fund houses and other financial companies for marketing or referring their products. The RBI has said the banks will have to disclose the information with immediate effect. It is believed this move will help in bringing transparency in bancassurance channel.
Bancassurance means banks selling insurance products.
The RBI sources said, banks are just referral agents thus they can only market the products and cannot give any discretionary advice to the customers for mutual funds, insurance and other financial products. As per existing norms banks are not required to take RBI approval to offer only referral services on non-risk participation basis to their customers, for financial products depending on certain conditions.
According to RBI notification issued to the banks on Monday, “Banks also provide non-discretionary investment advisory services to clients for which approvals are granted by us on a case-to-case basis. Further, in some cases, banks have also been permitted to offer discretionary portfolio management services through their subsidiaries, subject to certain conditions”.
At present banks can market mutual fund products of more than one company but they cannot act as a distributor for insurance of more than one insurance company each in life and general. Meanwhile the Insurance Regulatory and Development Authority (Irda) looking at the proposal for allowing banks to sell policies of 2-3 insurers at the same time.
When banks were given approval to distribute insurance products for insurers, most of the new- generation companies tied up with the major banks. Now many banks such as SBI, ICICI Bank, Bank of Baroda, HDFC Bank, Union Bank, Bank of India and Kotak Mahindra Bank are getting into insurance business and this will leave less distribution options for insurance companies. The bancassurance committee is likely to announce its recommendations by end of current calendar year.
RBI said there is probability that banks might be marketing or referring several competing products of mutual funds, insurance or financial companies to customers.
RBI stated, “Keeping in view the need for transparency in the interest of the customers to whom the products are being marketed or referred to, it has been decided that banks should disclose to the customers, details of all the commissions or other fees (in any form) received, if any, from the various mutual fund, insurance and other financial companies for marketing or referring their products”.
Bancassurance means banks selling insurance products.
The RBI sources said, banks are just referral agents thus they can only market the products and cannot give any discretionary advice to the customers for mutual funds, insurance and other financial products. As per existing norms banks are not required to take RBI approval to offer only referral services on non-risk participation basis to their customers, for financial products depending on certain conditions.
According to RBI notification issued to the banks on Monday, “Banks also provide non-discretionary investment advisory services to clients for which approvals are granted by us on a case-to-case basis. Further, in some cases, banks have also been permitted to offer discretionary portfolio management services through their subsidiaries, subject to certain conditions”.
At present banks can market mutual fund products of more than one company but they cannot act as a distributor for insurance of more than one insurance company each in life and general. Meanwhile the Insurance Regulatory and Development Authority (Irda) looking at the proposal for allowing banks to sell policies of 2-3 insurers at the same time.
When banks were given approval to distribute insurance products for insurers, most of the new- generation companies tied up with the major banks. Now many banks such as SBI, ICICI Bank, Bank of Baroda, HDFC Bank, Union Bank, Bank of India and Kotak Mahindra Bank are getting into insurance business and this will leave less distribution options for insurance companies. The bancassurance committee is likely to announce its recommendations by end of current calendar year.
RBI said there is probability that banks might be marketing or referring several competing products of mutual funds, insurance or financial companies to customers.
RBI stated, “Keeping in view the need for transparency in the interest of the customers to whom the products are being marketed or referred to, it has been decided that banks should disclose to the customers, details of all the commissions or other fees (in any form) received, if any, from the various mutual fund, insurance and other financial companies for marketing or referring their products”.
Friday, November 13, 2009
RBI directed banks to update their list of terrorists or terror- related funding entities
On Wednesday the Reserve Bank issued notification to the banks and financial institutions that, they should update their list of terrorists or terror-related organizations with the latest UN list of organizations linked with Al-Qaida and Taliban.
The RBI notification stated, "Banks, financial institutions are required to update the consolidated list of individuals, entities as circulated by Reserve Bank and before opening any new account, it should be ensured that the name/s of the proposed customer does not appear in the list.”
"Further, banks should scan all existing accounts to ensure that no account is held by or linked to any of the entities or individuals included in the list".
Before this in August also RBI has issued a similar notification to scheduled commercial banks and financial institutions in which it had instructed them to keep vigil on the new accounts being opened, so that no account is opened or maintained for entities mentioned in the United Nations.
In October, again, it asked central and state co-operative banks to keep a close watch on UN-listed terror funding bodies that might use the banking operations in the country to fund terrorist activities.
Also the market regulator SEBI had issued instructions to all stock exchanges and other securities intermediaries to keep vigil on UN-listed terror funding entities.
As per the RBI rules, in case particulars of any such entity is received then the home ministry would initiate a verification which will be done by the state police and the central agencies.
On getting the confirmation that the properties are owned by for the benefit of the designated individuals/entities, within 24 hours order to freeze the assets will be issued.
The RBI notification stated, "Banks, financial institutions are required to update the consolidated list of individuals, entities as circulated by Reserve Bank and before opening any new account, it should be ensured that the name/s of the proposed customer does not appear in the list.”
"Further, banks should scan all existing accounts to ensure that no account is held by or linked to any of the entities or individuals included in the list".
Before this in August also RBI has issued a similar notification to scheduled commercial banks and financial institutions in which it had instructed them to keep vigil on the new accounts being opened, so that no account is opened or maintained for entities mentioned in the United Nations.
In October, again, it asked central and state co-operative banks to keep a close watch on UN-listed terror funding bodies that might use the banking operations in the country to fund terrorist activities.
Also the market regulator SEBI had issued instructions to all stock exchanges and other securities intermediaries to keep vigil on UN-listed terror funding entities.
As per the RBI rules, in case particulars of any such entity is received then the home ministry would initiate a verification which will be done by the state police and the central agencies.
On getting the confirmation that the properties are owned by for the benefit of the designated individuals/entities, within 24 hours order to freeze the assets will be issued.
Wednesday, November 11, 2009
RRBs follow RBI instructions, prepare guidelines for core banking
The Regional Rural Banks (RRBs) across the country has been directed by the Reserve Bank of India (RBI) to make their branches fully Core Banking Solutions (CBS) complaint by September 2011.
Following the instructions the RRBs in Orissa, have prepared the guidelines for the implementation of 100 per cent CBS before the set time period fixed by RBI. The guidelines have been prepared in association with nationalized banks who are sponsoring the RRBs.
In Orissa there are five RRBs, all of them have speed up work on their IT-systems for the implementation of CBS in line with the RBI guidelines. The nationalized banks that are offering support to these RRBs have extended their help and are taking active interest in guiding them on IT upgradation.
C Doraswamy, chairman, Rushikulya Gramya Bank (RGB) informed the decision on the cost-sharing of the project between the RRBs and the nationalized banks is to be taken though some of the nationalized banks are ready to bear the entire cost of the project. “Andhra Bank has appointed a nodal officer to oversee the implementation of 100 per cent CBS in Rushikulya Gramya Bank operating in Ganjam and Gajapati districts”, he explained. He told Andhra Bank on a pilot basis, is planning to bring one RGB branch to CBS platform before the end of the current financial year and the remaining branches CBS will be implemented in first three to four months of the next fiscal.
At present RGB is having 80 branches and plans to add 5 more branches during the current fiscal.
UGB, sponsored by SBI, is having 333 branches therefore there are no plans to open any new branch during the current year, Das informed.
Following the instructions the RRBs in Orissa, have prepared the guidelines for the implementation of 100 per cent CBS before the set time period fixed by RBI. The guidelines have been prepared in association with nationalized banks who are sponsoring the RRBs.
In Orissa there are five RRBs, all of them have speed up work on their IT-systems for the implementation of CBS in line with the RBI guidelines. The nationalized banks that are offering support to these RRBs have extended their help and are taking active interest in guiding them on IT upgradation.
C Doraswamy, chairman, Rushikulya Gramya Bank (RGB) informed the decision on the cost-sharing of the project between the RRBs and the nationalized banks is to be taken though some of the nationalized banks are ready to bear the entire cost of the project. “Andhra Bank has appointed a nodal officer to oversee the implementation of 100 per cent CBS in Rushikulya Gramya Bank operating in Ganjam and Gajapati districts”, he explained. He told Andhra Bank on a pilot basis, is planning to bring one RGB branch to CBS platform before the end of the current financial year and the remaining branches CBS will be implemented in first three to four months of the next fiscal.
At present RGB is having 80 branches and plans to add 5 more branches during the current fiscal.
UGB, sponsored by SBI, is having 333 branches therefore there are no plans to open any new branch during the current year, Das informed.
Friday, November 6, 2009
RBI to audit risk management capabilities of foreign banks before allowing new branches
The Reserve Bank of India (RBI) with an aim to keep check on the foreign banks operation in order to protect the Indian banking sector from any systemic risk, has decided to audit the risk-management capabilities and review the lucidity in financial affairs of all the foreign banks operating in India. This was reported by a senior central bank official.
The sources said first this process will be completed then only foreign banks will be given permission to open more branches in the country.
As per norms regarding allowing foreign banks to open branches in India, India is committed to allow 12 new branches of foreign banks to be opened in a year, but has been more liberal so far. At present there are 32 foreign banks operating in India having around 300 branches.
Thus the liberal attitude of Indian government has resulted in a comparatively high presence of foreign banks in India. An anonymous RBI official told, “Our WTO commitment allows us to deny licenses to foreign banks once their share in the total assets of the banking system exceeds 15%. Though the actual share of these banks has far exceeded that (limit) long time back, India never evoked the clause to provide license”.
Having faced the consequences of the financial crisis, the audit possibly shows the RBI concern over an excessive presence of foreign banks which can generate risks for Indian financial markets. “The detailed audit of the risk management capability of the banks has nothing to do with protectionism,” the RBI official added.
Recently a RBI working group headed by Mr Vijaya Bhaskar, has released a draft paper on branch licensing norms for banks has evaded the issue of further relaxing the branch expansion norms for foreign banks.
On the other hand the finance ministry and the central bank with a view that increased presence of foreign banks will help in enhancing the efficiency of the domestic banking sector, has always supported allowing of foreign banks operation in India.
“The reciprocity issues will be addressed. With our economy expanding, the number of corporate accessing the international markets is also increasing. This requires larger presence of Indian banks overseas. Further licensing and allowing new branches will be based on reciprocity,” said a senior finance ministry official.
The Indian officials working with foreign banks operating in India, told ET none of the foreign banks were badly hit by the financial meltdown therefore central bank’s move will only increase the trustworthiness to their operations.
Previously in 2005, RBI had released a four-year road map in which norms for the presence of foreign banks in India were set. But the second phase was to be implemented in the beginning of April 2009 with more liberal regulations but this process was delayed due to global financial crisis.
The sources said first this process will be completed then only foreign banks will be given permission to open more branches in the country.
As per norms regarding allowing foreign banks to open branches in India, India is committed to allow 12 new branches of foreign banks to be opened in a year, but has been more liberal so far. At present there are 32 foreign banks operating in India having around 300 branches.
Thus the liberal attitude of Indian government has resulted in a comparatively high presence of foreign banks in India. An anonymous RBI official told, “Our WTO commitment allows us to deny licenses to foreign banks once their share in the total assets of the banking system exceeds 15%. Though the actual share of these banks has far exceeded that (limit) long time back, India never evoked the clause to provide license”.
Having faced the consequences of the financial crisis, the audit possibly shows the RBI concern over an excessive presence of foreign banks which can generate risks for Indian financial markets. “The detailed audit of the risk management capability of the banks has nothing to do with protectionism,” the RBI official added.
Recently a RBI working group headed by Mr Vijaya Bhaskar, has released a draft paper on branch licensing norms for banks has evaded the issue of further relaxing the branch expansion norms for foreign banks.
On the other hand the finance ministry and the central bank with a view that increased presence of foreign banks will help in enhancing the efficiency of the domestic banking sector, has always supported allowing of foreign banks operation in India.
“The reciprocity issues will be addressed. With our economy expanding, the number of corporate accessing the international markets is also increasing. This requires larger presence of Indian banks overseas. Further licensing and allowing new branches will be based on reciprocity,” said a senior finance ministry official.
The Indian officials working with foreign banks operating in India, told ET none of the foreign banks were badly hit by the financial meltdown therefore central bank’s move will only increase the trustworthiness to their operations.
Previously in 2005, RBI had released a four-year road map in which norms for the presence of foreign banks in India were set. But the second phase was to be implemented in the beginning of April 2009 with more liberal regulations but this process was delayed due to global financial crisis.
Tuesday, November 3, 2009
RBI Deputy Governor says: ‘as of now’ no new bank licenses are being issued
The Reserve Bank of India has clarified that it is not issuing any new banking licenses "as of now".
"As of now, we are not giving any new bank licenses. After Yes Bank, no approval has been given so far," Reserve Bank of India Deputy Governor Shyamala Gopinath told reporters while speaking on the sidelines of a symposium.
The Deputy Governor while giving reply to a query on the state government's proposal to set up financial institutions based on the principle of 'Islamic banking' to attract interest free deposits from non-resident Keralites said she has not yet received this proposal.
In a reply to a query whether RBI will permit the Kerala government to increase borrowing limit, she stated the RBI does not have the authority. It is an issue to be decided by the Centre and state, she said. The Centre has to give the permission for this.
"As of now, we are not giving any new bank licenses. After Yes Bank, no approval has been given so far," Reserve Bank of India Deputy Governor Shyamala Gopinath told reporters while speaking on the sidelines of a symposium.
The Deputy Governor while giving reply to a query on the state government's proposal to set up financial institutions based on the principle of 'Islamic banking' to attract interest free deposits from non-resident Keralites said she has not yet received this proposal.
In a reply to a query whether RBI will permit the Kerala government to increase borrowing limit, she stated the RBI does not have the authority. It is an issue to be decided by the Centre and state, she said. The Centre has to give the permission for this.
RBI request to public to provide rare coins for its museum collection
The Reserve Bank of India (RBI) is on hunt of range of historic coins and currency notes belonging to the ancient, medieval and pre-colonial periods for its monetary museum. In view of this RBI has appealed to the public to individuals and professional coin collectors to help it get the rarest of the rare coins. At present RBI is short of coins from the ancient dynasties of Saatwahanas, Mauryas, Samudragupta, Ashoka, Chalukya, Pandavas, Greeks and Romans, the mediaeval dynasties of Vijayanagar, Bahamani, Cholas, Mughals and Marathas and from the British, Portuguese and French.
The coin collectors stated it is too late for RBI. It is difficult to obtain these coins easily at cheaper rates. They told in the world 90% of the coin market is now of Indian coins and over the last 20 years the turnover of these coins has gone up from Rs 20 crore to now over Rs 3,000 crore . They told, there are more than 130 prominent Indian dealers and collectors who are involved in the business and most of the buyers are from outside the country.
"With ancient and medieval coins getting rare with each passing day and being bought at throwaway prices in the international market, the RBI has to make a lot of effort to enrich its museum collection. Being the country's prime banking institution, the RBI should have taken these steps much before,'' said leading coin collectors Farokh Todywalla and Ramesh Velunde.
RBI had set up its monetary museum four years ago and this is the third time in the recent past RBI has issued tenders to buy the coins, for this it has asked individuals and coin collectors to participate in its buying spree. It has advised keen collectors, institutions and vendors to quote their prize to sell their collection of coins and old notes of major dynasties to RBI's museum that is located in its Fort headquarters.
M Siddiqui, a coin collector and dealer from Flora Fountain, said the RBI should have had the collection of these coins in abundance. He expressed grieve over RBI's inaction in this regard for so long.
On the other hand Alpana Killawala, chief of RBI's corporate communication, said it is a regular activity of the RBI to procure rare coins with an aim to expand its exhibits for the people.
However, Todywalla pointed out, "I think the RBI has missed the bus. Its bureaucrats are not aware of the scenario of the market of historic coins.''
According to him, the value of ancient coins varies from Rs 3,000 to Rs 2 lakh, depending upon the quality, period and metals used. However, the collectors assured they will put in immense efforts to get the coins for RBI monetary museum.
The coin collectors stated it is too late for RBI. It is difficult to obtain these coins easily at cheaper rates. They told in the world 90% of the coin market is now of Indian coins and over the last 20 years the turnover of these coins has gone up from Rs 20 crore to now over Rs 3,000 crore . They told, there are more than 130 prominent Indian dealers and collectors who are involved in the business and most of the buyers are from outside the country.
"With ancient and medieval coins getting rare with each passing day and being bought at throwaway prices in the international market, the RBI has to make a lot of effort to enrich its museum collection. Being the country's prime banking institution, the RBI should have taken these steps much before,'' said leading coin collectors Farokh Todywalla and Ramesh Velunde.
RBI had set up its monetary museum four years ago and this is the third time in the recent past RBI has issued tenders to buy the coins, for this it has asked individuals and coin collectors to participate in its buying spree. It has advised keen collectors, institutions and vendors to quote their prize to sell their collection of coins and old notes of major dynasties to RBI's museum that is located in its Fort headquarters.
M Siddiqui, a coin collector and dealer from Flora Fountain, said the RBI should have had the collection of these coins in abundance. He expressed grieve over RBI's inaction in this regard for so long.
On the other hand Alpana Killawala, chief of RBI's corporate communication, said it is a regular activity of the RBI to procure rare coins with an aim to expand its exhibits for the people.
However, Todywalla pointed out, "I think the RBI has missed the bus. Its bureaucrats are not aware of the scenario of the market of historic coins.''
According to him, the value of ancient coins varies from Rs 3,000 to Rs 2 lakh, depending upon the quality, period and metals used. However, the collectors assured they will put in immense efforts to get the coins for RBI monetary museum.
Wednesday, October 28, 2009
RBI reports 44% increase in customer complaints against banks
According to the Reserve Bank of India (RBI) report in 2008-09 there has been increase in the customer complaints related to banking services. The increase is by 44%, mainly related to credit card services and failure in meeting commitments. As per RBI data there has been large number of complaints against State Bank of India (SBI), ICICI Bank Ltd and the local unit of HSBC Holdings Plc.
As per the annual study – Report on Trend Progress of Banking in India, 2008-09 by the end of financial year 31st March the banking ombudsmen received 69,117 complaints as against 47,887 a year earlier.
In India around 70% or more of India’s banking needs are catered by public sector banks, thus complaints against public sector banks rose by 33,141 from 25,694 during 2007-08.
While 21,982 complaints were filed against private sector banks and against foreign banks there were around 11,700 complaints.
Amongst the public sector banks the highest numbers of complaints were registered against the SBI group accounting to 18,167. Out of this, 15,306 complaints registered were against the country’s largest lender, SBI only from which 4,295 related to credit cards, followed by 2,631 over failed commitments.
A year ago there has been increase in the complaints related to credit card which rose from 10,107 a year ago to 17,603.
ICICI Bank is the largest credit card issuer in India with a base of 8.5 million cards, around 3,560 credit card-related complaints were registered against it and 1,914 complaints were filed for failure in meeting commitments made.
The highest number of complaints around 2,838, were filed against HSBC Bank among the foreign banks. Out of this 1,418 complaints were related to credit cards.
“The credit card-related complaints could be associated with the customer being wrongly charged for a transaction not done by her. There could be disputes over certain charges levied by the bank,” informed the anonymous credit card head of a private sector bank, as the bank is in its silent period prior to the announcement of its second quarter results.
The report stated against the public sector banks there is large number of complaints related to pension payments, and in case of private sector banks the complaints were mainly related to the direct-selling agents.
An anonymous RBI official who is not the official spokesperson for the central bank told, “In case of pensioners, the common error made by bankers is when they are doing the dearness allowance computation”.
The report stated, the “banking ombudsman offices at New Delhi, Chennai and Mumbai together accounted for 44.1% of the total complaints received during 2008-09 compared with 36.3% during the previous year”.
The “banking ombudsman offices at New Delhi, Chennai and Mumbai together accounted for 44.1% of the total complaints received during 2008-09 compared with 36.3% during the previous year”, the report said.
As per the annual study – Report on Trend Progress of Banking in India, 2008-09 by the end of financial year 31st March the banking ombudsmen received 69,117 complaints as against 47,887 a year earlier.
In India around 70% or more of India’s banking needs are catered by public sector banks, thus complaints against public sector banks rose by 33,141 from 25,694 during 2007-08.
While 21,982 complaints were filed against private sector banks and against foreign banks there were around 11,700 complaints.
Amongst the public sector banks the highest numbers of complaints were registered against the SBI group accounting to 18,167. Out of this, 15,306 complaints registered were against the country’s largest lender, SBI only from which 4,295 related to credit cards, followed by 2,631 over failed commitments.
A year ago there has been increase in the complaints related to credit card which rose from 10,107 a year ago to 17,603.
ICICI Bank is the largest credit card issuer in India with a base of 8.5 million cards, around 3,560 credit card-related complaints were registered against it and 1,914 complaints were filed for failure in meeting commitments made.
The highest number of complaints around 2,838, were filed against HSBC Bank among the foreign banks. Out of this 1,418 complaints were related to credit cards.
“The credit card-related complaints could be associated with the customer being wrongly charged for a transaction not done by her. There could be disputes over certain charges levied by the bank,” informed the anonymous credit card head of a private sector bank, as the bank is in its silent period prior to the announcement of its second quarter results.
The report stated against the public sector banks there is large number of complaints related to pension payments, and in case of private sector banks the complaints were mainly related to the direct-selling agents.
An anonymous RBI official who is not the official spokesperson for the central bank told, “In case of pensioners, the common error made by bankers is when they are doing the dearness allowance computation”.
The report stated, the “banking ombudsman offices at New Delhi, Chennai and Mumbai together accounted for 44.1% of the total complaints received during 2008-09 compared with 36.3% during the previous year”.
The “banking ombudsman offices at New Delhi, Chennai and Mumbai together accounted for 44.1% of the total complaints received during 2008-09 compared with 36.3% during the previous year”, the report said.
Monday, October 26, 2009
RBI to review new bank licensing norms for the private banks
The Reserve Bank of India (RBI) had first issued the guidelines for licensing new banks in the private sector in 1993 and after that it reviewed them in 2001. This year RBI is again reviewing the new bank licensing norms.
According to sources this time during the review RBI will be taking into account the minimum paid-up capital of the bank, nature of new entities to be allowed in the banking sector, promoters’ contribution in the paid-up capital, nature of promoters and corporate governance norms in the current scenario.
It is stated the net worth of new banks might be increased from Rs 300 crore at present also the corporate governance norms for promoters are likely to be tightened further. As per sources, the RBI might allow the entry of more private well-governed banks having higher capital adequacy and transparency norms, in accordance to the recommendation of the Raghuram Rajan committee on financial sector reforms.
The RBI will have the full control over the private sector banks as of local area banks; the apex bank will formulate norms for enhancing the financial viability of such bodies.
The Rajan committee in its report for small private sector banks has said that initially it will be an entry point for small entities in the banking system that can later grow into large banks.
The report also stated that in case of failure of a few small banks, there will not be much systemic risk as in case of single large bank. However the RBI will be reviewing existing norms for the conversion of a non-banking finance company (NBFC) into a bank, allowing a corporate house-promoted NBFC into a bank may not be examined at present. According to sources there are many large banks which should be made more efficient before allowing other large entities.
Also RBI is looking over the possibility of relaxing norms for entry of agency banks of Indian banks operating overseas or banks with whom Indian banks are having strong business connection overseas. But, RBI at present is not reviewing the roadmap for expansion of foreign banks in India, as this option is a part of the limited review.
The sources pointed out that other country regulators as accepting in their bank licensing policies for Indian banks in their countries as the Indian banking regulator the RBI.
According to sources this time during the review RBI will be taking into account the minimum paid-up capital of the bank, nature of new entities to be allowed in the banking sector, promoters’ contribution in the paid-up capital, nature of promoters and corporate governance norms in the current scenario.
It is stated the net worth of new banks might be increased from Rs 300 crore at present also the corporate governance norms for promoters are likely to be tightened further. As per sources, the RBI might allow the entry of more private well-governed banks having higher capital adequacy and transparency norms, in accordance to the recommendation of the Raghuram Rajan committee on financial sector reforms.
The RBI will have the full control over the private sector banks as of local area banks; the apex bank will formulate norms for enhancing the financial viability of such bodies.
The Rajan committee in its report for small private sector banks has said that initially it will be an entry point for small entities in the banking system that can later grow into large banks.
The report also stated that in case of failure of a few small banks, there will not be much systemic risk as in case of single large bank. However the RBI will be reviewing existing norms for the conversion of a non-banking finance company (NBFC) into a bank, allowing a corporate house-promoted NBFC into a bank may not be examined at present. According to sources there are many large banks which should be made more efficient before allowing other large entities.
Also RBI is looking over the possibility of relaxing norms for entry of agency banks of Indian banks operating overseas or banks with whom Indian banks are having strong business connection overseas. But, RBI at present is not reviewing the roadmap for expansion of foreign banks in India, as this option is a part of the limited review.
The sources pointed out that other country regulators as accepting in their bank licensing policies for Indian banks in their countries as the Indian banking regulator the RBI.
Most of the banks have adopted CBS: RBI reports
The Reserve Bank of India has released a report which stated that between September 1999 and March 2009, around Rs 17,897 crore has been spent by 27 public sector banks on computerization and development of communication networks. With this by the March-end 2008 ratio of public sector bank (PSB) branches to achieve full computerization has increased from 93.7 per cent to 95 per cent in March-end 2009.
Also by the March-end 2009 out of 27 PSBs, 15 banks have fully brought their branches under the core banking solution. These banks include Andhra Bank, Corporation Bank, Indian Bank, Oriental Bank of Commerce, Punjab National Bank, Syndicate Bank, Union Bank of India, Vijaya Bank, State Bank of India and its six associate banks.
The banks that still have to cover all their branches under CBS include Punjab and Sind Bank (1.1 per cent of the total branches on CBS), Allahabad Bank (9.7 per cent), Central Bank of India (30.8 per cent), and Canara Bank (38.6 per cent).
Under the CBS banks are able to computerize their operations through integration of communication and information technology. This also enables bank customers to operate their accounts from any branch of the bank or via internet and mobile phone.
The report added, “The total number of branches of public sector banks which have implemented CBS increased from 35,464 as on March-end 2008 to 44,304 as on March-end 2009. The process of computerisation of the banking sector, which is regarded as the precursor to other technology initiatives, is almost on the completion stage”.
According to report in 2008-09 banks (public sector, old private sector, new private sector, and foreign) had collectively opened 3,479 branches (4,087 in 2007-08) and 8,862 ATMs (7,701 in 2007-08). Thus by March-end 2009, the number of branches and ATMs of scheduled commercial banks reported to be 64,608 and 43,651 respectively.
However in 2008-09, the percentage of ATM branches opened has increased. As per report it has been 40.2 per cent (35.4 per cent) for nationalised banks; 56.9 per cent (47.2 per cent) for old private sector banks; and 296.6 per cent (279.9 per cent) for new private sector banks. But the percentage of State Bank Group and foreign banks, the number of ATMs installed has declined to 29 per cent (55.8 per cent) and 357.3 per cent (377.4 per cent) respectively.
Out of all the ATMs installed in the country by the March-end 2009, the new private sector banks have the largest share in off-site ATMs (7,480), whereas the nationalised banks had the largest share in on-site ATMs (10,233).
Also by the March-end 2009 out of 27 PSBs, 15 banks have fully brought their branches under the core banking solution. These banks include Andhra Bank, Corporation Bank, Indian Bank, Oriental Bank of Commerce, Punjab National Bank, Syndicate Bank, Union Bank of India, Vijaya Bank, State Bank of India and its six associate banks.
The banks that still have to cover all their branches under CBS include Punjab and Sind Bank (1.1 per cent of the total branches on CBS), Allahabad Bank (9.7 per cent), Central Bank of India (30.8 per cent), and Canara Bank (38.6 per cent).
Under the CBS banks are able to computerize their operations through integration of communication and information technology. This also enables bank customers to operate their accounts from any branch of the bank or via internet and mobile phone.
The report added, “The total number of branches of public sector banks which have implemented CBS increased from 35,464 as on March-end 2008 to 44,304 as on March-end 2009. The process of computerisation of the banking sector, which is regarded as the precursor to other technology initiatives, is almost on the completion stage”.
According to report in 2008-09 banks (public sector, old private sector, new private sector, and foreign) had collectively opened 3,479 branches (4,087 in 2007-08) and 8,862 ATMs (7,701 in 2007-08). Thus by March-end 2009, the number of branches and ATMs of scheduled commercial banks reported to be 64,608 and 43,651 respectively.
However in 2008-09, the percentage of ATM branches opened has increased. As per report it has been 40.2 per cent (35.4 per cent) for nationalised banks; 56.9 per cent (47.2 per cent) for old private sector banks; and 296.6 per cent (279.9 per cent) for new private sector banks. But the percentage of State Bank Group and foreign banks, the number of ATMs installed has declined to 29 per cent (55.8 per cent) and 357.3 per cent (377.4 per cent) respectively.
Out of all the ATMs installed in the country by the March-end 2009, the new private sector banks have the largest share in off-site ATMs (7,480), whereas the nationalised banks had the largest share in on-site ATMs (10,233).
RBI caution banks regarding decline in CASA banks’ total deposits
The Reserve Bank of India (RBI) has cautioned banks regarding the decline in share of current account and savings account balances (CASA) in banks’ total deposits. The apex bank said decline in CASA might create a defying situation for the banking sector as CASA deposits is the cheapest source of funds for banking sector.
In case of public sector banks the share of CASA in total deposits keep on declining as large numbers of account holders are transferring their savings to fixed deposits.
In the quarterly report on trends and progress of banking in India RBI has cautioned banks, “In case of drying up of this source alternate sources may be difficult and expensive. In the context of the impending revival of economic growth with commensurate increase in the credit needs of the economy, the banking industry may require to take initiatives to attract more CASA deposits”.
According to a senior SBI official, “While CASA in absolute terms has not come down for the public sector banks but in percentage terms it has dipped as public sector banks mobilized a lot of term deposits last year which resulted in CASA as percentage of total deposits going down. While in private and foreign banks, the CASA ratio has improved as they did not mobilize term deposits”. In case of SBI out of the total deposits, the share of term deposits is 60 per cent, wholesale deposits form 15 per cent while the remaining is CASA.
While in case of Schedule Commercial Banks (SCBs), by the end of March 2009 the CASA deposits has recorded a growth rate of 13.4 per cent as against of 20.2 per cent in the preceding year, registering a decline in growth. In nationalized banks growth of CASA deposits has recorded a marginal decline, in case of private sector banks and foreign banks there has been steep fall. In 2008-09 for SBI and its associates, growth of CASA deposits stood at the same level as in the previous year.
In case of foreign banks the share of current account deposits is higher than saving bank deposits, while for other bank groups, the share of saving bank deposits is higher. Further, by the end March 2009, the share of demand deposits in CASA deposits had declined, in comparison to the preceding year for all the other bank groups. In growth terms, current deposits and saving bank deposits have shown an increase of 6.7 per cent and 17.4 per cent in March 2009 as against to 24.6 per cent and 17.8 per cent in March 2008.
In case of public sector banks the share of CASA in total deposits keep on declining as large numbers of account holders are transferring their savings to fixed deposits.
In the quarterly report on trends and progress of banking in India RBI has cautioned banks, “In case of drying up of this source alternate sources may be difficult and expensive. In the context of the impending revival of economic growth with commensurate increase in the credit needs of the economy, the banking industry may require to take initiatives to attract more CASA deposits”.
According to a senior SBI official, “While CASA in absolute terms has not come down for the public sector banks but in percentage terms it has dipped as public sector banks mobilized a lot of term deposits last year which resulted in CASA as percentage of total deposits going down. While in private and foreign banks, the CASA ratio has improved as they did not mobilize term deposits”. In case of SBI out of the total deposits, the share of term deposits is 60 per cent, wholesale deposits form 15 per cent while the remaining is CASA.
While in case of Schedule Commercial Banks (SCBs), by the end of March 2009 the CASA deposits has recorded a growth rate of 13.4 per cent as against of 20.2 per cent in the preceding year, registering a decline in growth. In nationalized banks growth of CASA deposits has recorded a marginal decline, in case of private sector banks and foreign banks there has been steep fall. In 2008-09 for SBI and its associates, growth of CASA deposits stood at the same level as in the previous year.
In case of foreign banks the share of current account deposits is higher than saving bank deposits, while for other bank groups, the share of saving bank deposits is higher. Further, by the end March 2009, the share of demand deposits in CASA deposits had declined, in comparison to the preceding year for all the other bank groups. In growth terms, current deposits and saving bank deposits have shown an increase of 6.7 per cent and 17.4 per cent in March 2009 as against to 24.6 per cent and 17.8 per cent in March 2008.
Wednesday, October 21, 2009
RBI launched outreach program to educate villagers about banking
The Reserve Bank of India (RBI) has been working to take banking to villages. Following this as part of its platinum jubilee celebrations, has launched an outreach program in the country to educated villagers about banking and its benefits.
In view of this RBI is in a process to develop Khopi, located 30 kilometers from Pune, as a model village with an aim to encourage every villager to open his/her own bank account. Later on the same model will be replicated in other villages. In addition to Khopi, eight more villages around Pune including Kalyan, Shivare, Vinzer, Kusgaon, Shivapur, Kelad, Sangvi and Velhe have been selected for the outreach program.
The RBI has chosen Khopi for its pilot project due to specific reasons. Not only that villager does not have bank accounts, there is not a single doctor in Khopi. People have to go to Pune for every small medical necessity. Thus when Maya More, an MBBS aspirant contacted RBI to get an education loan, the apex bank readily accepted her request.
Maya belongs to a poor family and can not pay for medical study until the RBI gave her an education loan.
Maya was given an amount of Rs 2.80 lakh for the next five years after which she obtained admission into Bharati Vidyapeeth Medical College in Katraj.
"My parents are not very well off. We do a bit of farming, but we are hardly able to run a family of four with what we earn. We don't get enough prices for our crops. And studying MBBS is not easy with the exorbitant fees. When I learnt of this scheme, I told my father about it and he willingly agreed to approach the RBI for a loan, which was accepted."
Maya is not the only one to get the loan. Kamala Rajan, chief general manager and principal of College of Agricultural Banking (CAB), RBI told, “There are several self-help groups (SHG) operating in the villages. In order to strengthen their business, SHGs also need loan but they do not have access to banks as they are unaware of the concept. As part of our drive, we are trying to tell them what banks are, what it means to create an account, how to take loan, repay them among other things".
Under the program, the CAB has been undertaking various programs for creating awareness about financial inclusion among villagers. In view of this, a team of officers from the CAB will be visiting nine different villages in the district till March next year.
In view of this RBI is in a process to develop Khopi, located 30 kilometers from Pune, as a model village with an aim to encourage every villager to open his/her own bank account. Later on the same model will be replicated in other villages. In addition to Khopi, eight more villages around Pune including Kalyan, Shivare, Vinzer, Kusgaon, Shivapur, Kelad, Sangvi and Velhe have been selected for the outreach program.
The RBI has chosen Khopi for its pilot project due to specific reasons. Not only that villager does not have bank accounts, there is not a single doctor in Khopi. People have to go to Pune for every small medical necessity. Thus when Maya More, an MBBS aspirant contacted RBI to get an education loan, the apex bank readily accepted her request.
Maya belongs to a poor family and can not pay for medical study until the RBI gave her an education loan.
Maya was given an amount of Rs 2.80 lakh for the next five years after which she obtained admission into Bharati Vidyapeeth Medical College in Katraj.
"My parents are not very well off. We do a bit of farming, but we are hardly able to run a family of four with what we earn. We don't get enough prices for our crops. And studying MBBS is not easy with the exorbitant fees. When I learnt of this scheme, I told my father about it and he willingly agreed to approach the RBI for a loan, which was accepted."
Maya is not the only one to get the loan. Kamala Rajan, chief general manager and principal of College of Agricultural Banking (CAB), RBI told, “There are several self-help groups (SHG) operating in the villages. In order to strengthen their business, SHGs also need loan but they do not have access to banks as they are unaware of the concept. As part of our drive, we are trying to tell them what banks are, what it means to create an account, how to take loan, repay them among other things".
Under the program, the CAB has been undertaking various programs for creating awareness about financial inclusion among villagers. In view of this, a team of officers from the CAB will be visiting nine different villages in the district till March next year.
RBI suggests banks to keep interest rates stable to ensure economic recovery
In a pre-money policy review meeting the Reserve Bank of India (RBI) governor D Subbarao and the deputy governors told the PSU bankers to keep interest rates stable so that the economic recovery does not get weak.
The RBI said when bankers say increase in the profit on bonds; rising wholesale price inflation and high government borrowings point towards increase in deposit and lending rates therefore they should abstain from random increase in interest rates.
Bankers on their part said they have no tendency to raise rates but due to rising inflation, greater credit demand in the coming months and the government borrowing program taking off Rs 1.23 lakh crore by February, might be forced to raise key rates.
Bankers told the central bank “Taking all these factors into consideration, we may be left with no option but to hike rates”.
The meeting was held ahead of the October 27 monetary policy review, the chief of eight major Indian, private and foreign banks attended the meeting.
RBI issued a paper to the banks in which it had suggested for the exclusion of loans given to sugar mills for on-lending to farmers from priority sector lending, in a response to this the bankers said if they follow this suggestion then it will be difficult for them to meet the priority sector lending target of 40 per cent of total advances also RBI will have to reduce the priority sector target to 20 per cent.
The RBI has planned to categorize lending to sugar mills for on-lending to farmers under indirect finance.
A senior PSU banker who had attended the pre-credit policy meeting said, “If items under priority sector are taken off, then banks will find it difficult to achieve the 40 per cent target”.
In the pre-credit policy meeting between bankers and the RBI loans to priority sector was the major point of discussion.
Earlier, RBI had categorized lending to electricity boards for on-lending to farmers for purchase of motor pumps under priority sector lending. But now these lending has been classified as indirect finance.
The RBI said when bankers say increase in the profit on bonds; rising wholesale price inflation and high government borrowings point towards increase in deposit and lending rates therefore they should abstain from random increase in interest rates.
Bankers on their part said they have no tendency to raise rates but due to rising inflation, greater credit demand in the coming months and the government borrowing program taking off Rs 1.23 lakh crore by February, might be forced to raise key rates.
Bankers told the central bank “Taking all these factors into consideration, we may be left with no option but to hike rates”.
The meeting was held ahead of the October 27 monetary policy review, the chief of eight major Indian, private and foreign banks attended the meeting.
RBI issued a paper to the banks in which it had suggested for the exclusion of loans given to sugar mills for on-lending to farmers from priority sector lending, in a response to this the bankers said if they follow this suggestion then it will be difficult for them to meet the priority sector lending target of 40 per cent of total advances also RBI will have to reduce the priority sector target to 20 per cent.
The RBI has planned to categorize lending to sugar mills for on-lending to farmers under indirect finance.
A senior PSU banker who had attended the pre-credit policy meeting said, “If items under priority sector are taken off, then banks will find it difficult to achieve the 40 per cent target”.
In the pre-credit policy meeting between bankers and the RBI loans to priority sector was the major point of discussion.
Earlier, RBI had categorized lending to electricity boards for on-lending to farmers for purchase of motor pumps under priority sector lending. But now these lending has been classified as indirect finance.
RBI cancelled certificate of registration of three NBFCs
The certificate of registration of three non-banking finance companies has been cancelled by the Reserve Bank of India (RBI). The companies are KNR Finance & Investments Private Limited and Bharat Finance Corporation Private Limited, both of them now cannot continue to do transact business of an NBFC, RBI release stated.
KNR Finance & Investments registered office is located at Channarayapatna at Hassan district of Karnataka. RBI said, it has cancelled the registration under the powers conferred to it under the section 45-IA (6) of the Reserve Bank of India Act, 1934.
The other NBFC whose certificate of registration has been cancelled by RBI is Bharat Finance Corporation Private Limited, who had attained the certificate on 31 August 2009. The registered office of NBFC is in New Delhi.
The certificate of registration of San Components Limited, has also been cancelled by RBI, its registered office is also located in New Delhi.
According to RBI release the company has voluntarily opted to exit from the business of a non-banking financial institution.
KNR Finance & Investments registered office is located at Channarayapatna at Hassan district of Karnataka. RBI said, it has cancelled the registration under the powers conferred to it under the section 45-IA (6) of the Reserve Bank of India Act, 1934.
The other NBFC whose certificate of registration has been cancelled by RBI is Bharat Finance Corporation Private Limited, who had attained the certificate on 31 August 2009. The registered office of NBFC is in New Delhi.
The certificate of registration of San Components Limited, has also been cancelled by RBI, its registered office is also located in New Delhi.
According to RBI release the company has voluntarily opted to exit from the business of a non-banking financial institution.
Wednesday, October 7, 2009
Soon you will see Plastic currency notes in India
Everyone is familiar with word plastic card but now it is plastic currency notes. Yes Reserve Bank of India is planning to introduce polymer, or plastic, currency notes in the country.
From sometime the RBI has been working on the idea of replacing paper currency with polymer notes as the paper notes wear out very quickly due to mishandling and it is not possible for the central bank to print the currency very frequently especially because of security reasons.
In the beginning, the central bank informed has decided to introduce 100 crore (1 billion) pieces of Rs 10 polymer notes, and for this the bank has floated a global tender.
The interested parties have been asked to send 500 pieces of sample banknotes, before the apex bank actually floats the global bids for the main project.
From sometime the RBI has been working on the idea of replacing paper currency with polymer notes as the paper notes wear out very quickly due to mishandling and it is not possible for the central bank to print the currency very frequently especially because of security reasons.
In the beginning, the central bank informed has decided to introduce 100 crore (1 billion) pieces of Rs 10 polymer notes, and for this the bank has floated a global tender.
The interested parties have been asked to send 500 pieces of sample banknotes, before the apex bank actually floats the global bids for the main project.
Thursday, September 17, 2009
RBI to issue guidelines for banks’ entry into private equity business
Addressing a banking conference in Mumbai, jointly organized by the Federation of Indian Chambers of Commerce and Industry and Indian Banks’ Association, the apex bankers’ lobby in the country, the Reserve Bank of India (RBI) deputy governor Usha Throat told that the central bank is thinking of issuing a draft discussion paper on norms for banks’ setting up and operating private equity (PE) funds.
She told that the proposed discussion paper on prudential issues in banks’ floating and managing private pools of capital will help banks in sensing about the risks involved in such activities so that they can limit such exposures adequately with their risk management and available capital.
Thorat said setting regulations for banks who want to enter the PE business will be an addition to several other steps that RBI is planning to strengthen financial regulation in the country.
Several Indian banks, including the country’s largest lender State Bank of India, have set up divisions to enter in this business. Meanwhile SBI (PE) has revealed plans to float a PE firm along with Macquarie group of Australian and International Finance Corp. or IFC, Washington, to float an infrastructure fund. The bank has also attained a 20% stake in PE firm Sage Capital Fund Management.
At present for banks there are no guidelines to regulate the operation of PE funds.
By October RBI will be putting a draft circular detailing modalities for adopting global best practices on liquidity risk management as suggested by the Basel committee in September 2008 on its website. The Basel committee is an international body that prepares accounting norms, especially for banks.
The apex bank will be providing clarification on recommendations on other international best practices to be followed by the banks, Thorat said.
Earlier in July this year, the Basel committee had issued standards for higher capital requirement for trading books and also prescribed a higher capital requirement for securitization and off-balance sheet items such as derivative products. Soon RBI will be issuing guidelines to regulate these recommendations in India, the deputy governor added.
Also additional guidelines on securitization of loans originated and purchased by banks will be issued by the RBI. The main focus of guidelines will be on a minimum lock-in period and minimum retention criteria, she added.
Thorat said that the central bank will be suggesting the sound procedures and principles being developed by the Financial Stability Board for financial institutions related to compensation packages. Earlier in April in its annual policy RBI had given hint about such a move.
She told that the proposed discussion paper on prudential issues in banks’ floating and managing private pools of capital will help banks in sensing about the risks involved in such activities so that they can limit such exposures adequately with their risk management and available capital.
Thorat said setting regulations for banks who want to enter the PE business will be an addition to several other steps that RBI is planning to strengthen financial regulation in the country.
Several Indian banks, including the country’s largest lender State Bank of India, have set up divisions to enter in this business. Meanwhile SBI (PE) has revealed plans to float a PE firm along with Macquarie group of Australian and International Finance Corp. or IFC, Washington, to float an infrastructure fund. The bank has also attained a 20% stake in PE firm Sage Capital Fund Management.
At present for banks there are no guidelines to regulate the operation of PE funds.
By October RBI will be putting a draft circular detailing modalities for adopting global best practices on liquidity risk management as suggested by the Basel committee in September 2008 on its website. The Basel committee is an international body that prepares accounting norms, especially for banks.
The apex bank will be providing clarification on recommendations on other international best practices to be followed by the banks, Thorat said.
Earlier in July this year, the Basel committee had issued standards for higher capital requirement for trading books and also prescribed a higher capital requirement for securitization and off-balance sheet items such as derivative products. Soon RBI will be issuing guidelines to regulate these recommendations in India, the deputy governor added.
Also additional guidelines on securitization of loans originated and purchased by banks will be issued by the RBI. The main focus of guidelines will be on a minimum lock-in period and minimum retention criteria, she added.
Thorat said that the central bank will be suggesting the sound procedures and principles being developed by the Financial Stability Board for financial institutions related to compensation packages. Earlier in April in its annual policy RBI had given hint about such a move.
Thursday, September 10, 2009
RBI ask banks to give details of interest rate swap transactions
Reserve Bank of India officials under the leadership of RBI’s financial markets division Chief General Manager P Krishnamurthy held meeting with several banks officials and told them to provide information of interest rate swap (IRS) transactions carried out with customers on the platform of the Clearing Corporation of India (CCIL).
A banker who was present in the meeting told, “So far, only inter bank transactions were routed through the CCIL”.
A swap dealer informed, “This is done to increase transparency in the IRS market”.
On the other hand banker stated they do not have any clear information on whether under International Swaps and Derivative Association (ISDA) norms banks are allowed to share client information with other entities. Also do banks have to enter any derivative contract as per ISDA norms?
Another banker present in the meeting said, “RBI said they will examine whether there is any legal issue for sharing customer information”.
Swap dealer pointed out however the central bank is trying to screen the domestic swap deals, but there is no plan to stop or control the foreign institutional investors’ approximate participation in the Indian swap market.
Swap dealer added, “There are very few domestic corporates who play in the IRS market like Reliance Industries, L&T. But, the offshore entities contribute to a lot more volume than domestic entities. RBI should clearly articulate that banks should stop offshore play”.
Earlier in May 2008, instability in the IRS market was provoked because of large offshore plays by FIIs through mostly foreign banks.
As per RBI norms banks, primary dealers and mutual funds can contribute in interest rate swaps.
A banker who was present in the meeting told, “So far, only inter bank transactions were routed through the CCIL”.
A swap dealer informed, “This is done to increase transparency in the IRS market”.
On the other hand banker stated they do not have any clear information on whether under International Swaps and Derivative Association (ISDA) norms banks are allowed to share client information with other entities. Also do banks have to enter any derivative contract as per ISDA norms?
Another banker present in the meeting said, “RBI said they will examine whether there is any legal issue for sharing customer information”.
Swap dealer pointed out however the central bank is trying to screen the domestic swap deals, but there is no plan to stop or control the foreign institutional investors’ approximate participation in the Indian swap market.
Swap dealer added, “There are very few domestic corporates who play in the IRS market like Reliance Industries, L&T. But, the offshore entities contribute to a lot more volume than domestic entities. RBI should clearly articulate that banks should stop offshore play”.
Earlier in May 2008, instability in the IRS market was provoked because of large offshore plays by FIIs through mostly foreign banks.
As per RBI norms banks, primary dealers and mutual funds can contribute in interest rate swaps.
Wednesday, September 2, 2009
RBI imposed restriction on ATM use to stop misuse
After April 1, this year it had become easy for the bank customers to with draw money from ATMs as with the implementation of Reserve Bank of India (RBI) new norms for the bank customers doing the transactions at other banks ATM was made free, but the bank with which the customer had the account, has to pay to the other bank for using the ATM, by its customer. But this led to the misuse of the facility by the customers.
On the proposal of Indian Banks Association (IBA), the representative organization of private and public sector banks in India RBI had imposed restriction on the amount and the number of cash withdrawals at ATMs of other banks. Speaking on payment and settlement systems at Corporation Bank head office, G Padmanabhan, chief general manager, RBI said, the recent restrictions imposed by the central bank are based on initial feedback it had received on free usage of ATM services across banks. He said the restrictions are being imposed only to stop misuse of the facility and such measures are not going to hinder normal usage.
Padmanabhan emphasizing on the need for technological improvements in India’s financial system stated, "The success of initiatives should be seen at the counters rather than merely at data centers of the Banks". He added there is a need to focus on strengthening the payment systems so as to safeguard the customer’s interest.
Banks should work hard to promote RBI’s initiatives in implementing secure and sound payment systems. RBI has taken a decision that banks will remain the intermediaries for transfer of funds irrespective of technology service provider to provide such facilities, he informed. Padmanabhan said RBI is also thinking on levying higher penalty for undue retention of customer’s funds, dispatched through electronic payment mechanism.
Padmanabhan also informed with the successful introduction of cheque truncation system, in Delhi the physical movement of cheque has totally eliminated and RBI is considering of introducing the same in Chennai.
J M Garg, chairman and managing director of Corporation Bank, told that over a period of time dramatic changes have occurred in the payment and settlement system. He stressed the settlement system should be made so efficient so that physical clearing can be switched to electronic settlement based clearing. In the beginning B R Bhat, general manager welcomed the gathering and at the end M R Nayak, general manager gave vote of thanks speech.
On the proposal of Indian Banks Association (IBA), the representative organization of private and public sector banks in India RBI had imposed restriction on the amount and the number of cash withdrawals at ATMs of other banks. Speaking on payment and settlement systems at Corporation Bank head office, G Padmanabhan, chief general manager, RBI said, the recent restrictions imposed by the central bank are based on initial feedback it had received on free usage of ATM services across banks. He said the restrictions are being imposed only to stop misuse of the facility and such measures are not going to hinder normal usage.
Padmanabhan emphasizing on the need for technological improvements in India’s financial system stated, "The success of initiatives should be seen at the counters rather than merely at data centers of the Banks". He added there is a need to focus on strengthening the payment systems so as to safeguard the customer’s interest.
Banks should work hard to promote RBI’s initiatives in implementing secure and sound payment systems. RBI has taken a decision that banks will remain the intermediaries for transfer of funds irrespective of technology service provider to provide such facilities, he informed. Padmanabhan said RBI is also thinking on levying higher penalty for undue retention of customer’s funds, dispatched through electronic payment mechanism.
Padmanabhan also informed with the successful introduction of cheque truncation system, in Delhi the physical movement of cheque has totally eliminated and RBI is considering of introducing the same in Chennai.
J M Garg, chairman and managing director of Corporation Bank, told that over a period of time dramatic changes have occurred in the payment and settlement system. He stressed the settlement system should be made so efficient so that physical clearing can be switched to electronic settlement based clearing. In the beginning B R Bhat, general manager welcomed the gathering and at the end M R Nayak, general manager gave vote of thanks speech.
Thursday, August 13, 2009
RBI to circulate new Rs 50, Rs 100 notes
Soon the Reserve Bank of India (RBI) will be issuing Rs. 50 and Rs 100 denomination banknotes having numbering panels in Mahatam Gandhi Series-2005 bearing the signature of Dr. D Subbarao, governor.
The official pointed out only the inset letter has been changed and the rest of the design of these notes to be issued is similar in all respects to the banknotes in Mahatma Gandhi series 2005, along with additional/new security features issued on August 24, 2005.
It stated all banknotes in the denomination of Rs.50 in circulation, issued by the Reserve Bank will continue to be legal tender.
The official pointed out only the inset letter has been changed and the rest of the design of these notes to be issued is similar in all respects to the banknotes in Mahatma Gandhi series 2005, along with additional/new security features issued on August 24, 2005.
It stated all banknotes in the denomination of Rs.50 in circulation, issued by the Reserve Bank will continue to be legal tender.
Former RBI chief says: "Interest rates will harden by the end of year”
C Rangarajan former Reserve Bank Governor stated by the end of the year the interest rates are likely to increase and said the country economy will witness a growth of 6.5 to 6.7 per cent in 2009-10.
He stated, "Interest rates will harden by the end of year," and pointed out that in the second half of current fiscal Indian economy is definitely going to show strong improvement which in turn will lead to increase in demand for credit by industry.
Rangarajan, was giving a lecture on `International financial crisis and its impact on India' for MPs, in his speech in regard to the borrowing program of the centre, said, "as long as the private demand is not picking up, the government will be able to borrow at the same rate."
During the current fiscal the government had planned to borrow Rs 4 lakh crore from the market.
Currently Rangarajan is Rajya Sabha member. He said the effect of massive borrowing program of the government will be visible on the corporate world in the next fiscal and can lead to "crowding out" of capital.
Regarding the growth prospects for the current fiscal he said, economy is likely to grow by 6.5 to 6.7 per cent. He said during 2010-11 there are chances of economy to register a growth of up to 7-8 per cent and added "we would not be able to go back to 9 per cent GDP growth rate, unless the world economy recovers."
He stated, "Interest rates will harden by the end of year," and pointed out that in the second half of current fiscal Indian economy is definitely going to show strong improvement which in turn will lead to increase in demand for credit by industry.
Rangarajan, was giving a lecture on `International financial crisis and its impact on India' for MPs, in his speech in regard to the borrowing program of the centre, said, "as long as the private demand is not picking up, the government will be able to borrow at the same rate."
During the current fiscal the government had planned to borrow Rs 4 lakh crore from the market.
Currently Rangarajan is Rajya Sabha member. He said the effect of massive borrowing program of the government will be visible on the corporate world in the next fiscal and can lead to "crowding out" of capital.
Regarding the growth prospects for the current fiscal he said, economy is likely to grow by 6.5 to 6.7 per cent. He said during 2010-11 there are chances of economy to register a growth of up to 7-8 per cent and added "we would not be able to go back to 9 per cent GDP growth rate, unless the world economy recovers."
Thursday, August 6, 2009
RBI educated student how to identify counterfeit currency
The Reserve Bank of India (RBI) organizes financial literacy programs to educate people about banking services and upgrade their knowledge related to banking. Recently the RBI organized such program to upgrade the knowledge of students of Gulmohar Public school in which it educated the children that how they can identify counterfeit currency and about various functions of RBI as the central bank of the country.
B P S Gautam, assistant manger explained about the innumerable functions performed by RBI as country’s central bank and also informed about the Young Scholar Award and summer placement scheme being run exclusively for the students by the RBI.
After this Pyarelal, deputy treasurer, gave information about the security features of genuine currency notes to the students and teachers to make wiser in matters of currency transactions in future. The program was attended by more than 200 students and teachers.
At the end of the program the free publicity material like comic books Money Kumar, Raju & Money tree, Raju & skyladder along with pamphlets on security features of currency notes for their study and reference was given to the students.
B P S Gautam, assistant manger explained about the innumerable functions performed by RBI as country’s central bank and also informed about the Young Scholar Award and summer placement scheme being run exclusively for the students by the RBI.
After this Pyarelal, deputy treasurer, gave information about the security features of genuine currency notes to the students and teachers to make wiser in matters of currency transactions in future. The program was attended by more than 200 students and teachers.
At the end of the program the free publicity material like comic books Money Kumar, Raju & Money tree, Raju & skyladder along with pamphlets on security features of currency notes for their study and reference was given to the students.
Banks surprised over RBI decision of selectively easing provision norms
The banking industry officials are astonished on the decision taken by the Reserve Bank of India of relaxation of its floating provisioning norm that too selectively
Chairman of a large state-owned bank pointed out, "If RBI tightened the norms once, then how can they immediately relax it, that too selectively." For banks floating provisions are like profits which are kept aside for unseen emergency.
Earlier in March the RBI had said banks can not deduct floating provisions from gross NPAs. Instead the banks are required to add up to the floating provisions made to their Tier-II capital.
This norm was applicable for the quarter ended March, but on the banks’ pleas RBI postponed the decision to quarter ended June.
Following the new norm issued by the RBI most banks classified the floating provisions to Tier-II capital, but some banks asked for flexibility from the RBI. Around five banks requested the central bank to permit them to deduct the floating provisions made from their gross NPAs. Thus RBI permitted Punjab National Bank, Bank of Baroda, and Central Bank of India the flexibility but not gave the permission to the Union Bank of India and Indian Bank.
During the quarterly monetary policy review bankers discussed this matter with the governor D Subbarao. Banker told RBI has given them assurance that regarding this a comprehensive guideline will be issued.
Banks who following the new norms deducted floating provisions from their gross NPA witnessed growth in their net NPAs and fall in provision coverage ratio in the June quarter. On Wednesday Punjab National Bank had announced its results it took advantage of the special consideration by the RBI.
The bank has deducted Rs 1,080 crore floating provision from gross NPA to account net NPAs of 0.19% as on June 30 as against 0.63% of the same period in the previous year. On the other hand Union Bank of India who was not allowed netting off by the RBI had to deem the floating provisions of Rs 530 crore as part of its Tier-II capital which resulted in the rise of bank’s net NPA to 0.72% in the June quarter from 0.15% a year ago.
Chairman of a large state-owned bank pointed out, "If RBI tightened the norms once, then how can they immediately relax it, that too selectively." For banks floating provisions are like profits which are kept aside for unseen emergency.
Earlier in March the RBI had said banks can not deduct floating provisions from gross NPAs. Instead the banks are required to add up to the floating provisions made to their Tier-II capital.
This norm was applicable for the quarter ended March, but on the banks’ pleas RBI postponed the decision to quarter ended June.
Following the new norm issued by the RBI most banks classified the floating provisions to Tier-II capital, but some banks asked for flexibility from the RBI. Around five banks requested the central bank to permit them to deduct the floating provisions made from their gross NPAs. Thus RBI permitted Punjab National Bank, Bank of Baroda, and Central Bank of India the flexibility but not gave the permission to the Union Bank of India and Indian Bank.
During the quarterly monetary policy review bankers discussed this matter with the governor D Subbarao. Banker told RBI has given them assurance that regarding this a comprehensive guideline will be issued.
Banks who following the new norms deducted floating provisions from their gross NPA witnessed growth in their net NPAs and fall in provision coverage ratio in the June quarter. On Wednesday Punjab National Bank had announced its results it took advantage of the special consideration by the RBI.
The bank has deducted Rs 1,080 crore floating provision from gross NPA to account net NPAs of 0.19% as on June 30 as against 0.63% of the same period in the previous year. On the other hand Union Bank of India who was not allowed netting off by the RBI had to deem the floating provisions of Rs 530 crore as part of its Tier-II capital which resulted in the rise of bank’s net NPA to 0.72% in the June quarter from 0.15% a year ago.
Friday, July 31, 2009
Banks penalized for violating RBI guidelines: Pranab told the Lok Sabha
In the last three years numbers of banks both government –run and private sector have violated the Reserve bank of India (RBI) guidelines therefore the RBI has reprimand these banks.
In a written reply the finance minister Pranab Mukherjee told the Lok Sabha the violated norms include “non-adherence of know-your-customer (KYC) norms, failure of internal controls in initial public offerings, violation of foreign exchange management guidelines and non-maintenance of prescribed cash reserve ratio (CRR) and statutory liquidity ratio (SLR)”.
The banks who have been given the warning by the RBI are Bank of Baroda, ICICI Bank, State Bank of Bikaner & Jaipur, Centurion Bank of Panjab, Dena Bank, Bank of India, Deutsche Bank, Yes Bank, Vijaya Bank, ING Vysya Bank, SBI Commercial and International Ltd and ABN AMRO Bank.
KYC norms lay down the suitable meticulousness which banks and financial institutions have to follow before doing business with a client.
Banks are required to maintain a certain amount in cash or in the form of gold or approved securities are known as SLR whereas the minimum reserves banks have to keep with themselves are known as CRR.
Last year in April a notice was sent to the second largest private sector lender ICICI bank for carrying out irregular dealings in securities in Hong Kong.
The reply stated in 2007 an advisory note was issued to the bank by the RBI for allegedly violating the norms at the time of opening deposit accounts.
Mr Mukherjee also informed the house that a punitive interest of over Rs 1 crore has been imposed on ING Vysya Bank and Vijaya Bank for failure in maintaining CRR.
In a written reply the finance minister Pranab Mukherjee told the Lok Sabha the violated norms include “non-adherence of know-your-customer (KYC) norms, failure of internal controls in initial public offerings, violation of foreign exchange management guidelines and non-maintenance of prescribed cash reserve ratio (CRR) and statutory liquidity ratio (SLR)”.
The banks who have been given the warning by the RBI are Bank of Baroda, ICICI Bank, State Bank of Bikaner & Jaipur, Centurion Bank of Panjab, Dena Bank, Bank of India, Deutsche Bank, Yes Bank, Vijaya Bank, ING Vysya Bank, SBI Commercial and International Ltd and ABN AMRO Bank.
KYC norms lay down the suitable meticulousness which banks and financial institutions have to follow before doing business with a client.
Banks are required to maintain a certain amount in cash or in the form of gold or approved securities are known as SLR whereas the minimum reserves banks have to keep with themselves are known as CRR.
Last year in April a notice was sent to the second largest private sector lender ICICI bank for carrying out irregular dealings in securities in Hong Kong.
The reply stated in 2007 an advisory note was issued to the bank by the RBI for allegedly violating the norms at the time of opening deposit accounts.
Mr Mukherjee also informed the house that a punitive interest of over Rs 1 crore has been imposed on ING Vysya Bank and Vijaya Bank for failure in maintaining CRR.
Monday, July 27, 2009
RBI for implementation of guidelines for online card use from August 1
The Reserve Bank of India (RBI) has tightened online card use. Regarding this RBI had issued guidelines this year in February according to which it is mandatory to have additional authentications/verifications based on information about the card-holder that is not mentioned on the card. It is believed this will help in curtailing online card fraud.
It has been five months and till now the banks have not started updating their systems to acclimatize this change. One of the ICICI bank credit card holder informed, “My bank has not contacted me about any additional requirement”.
On the other hand banks say it is the responsibility of the customers to register themselves for a new password on their bank’s websites or activate this service to do online shopping.
The Indian e-commerce players fear drop in their business as they get 80% of the business from the use of credit cards. Although they admit that from August 1 the online shopping for India’s 24 million-odd online credit card and 140 million debit card users will become safe but also have fear that there will be approximately 30% decline in business due to inclusion of additional authentication step and also the banks have also not done any up gradation on their part.
Even the customers such as Anand Sharma (not his real name) who is proficient in online shopping is also not aware that from August 1 he along with his 16-digit credit card number, card expiry date and 3-digit CVV number (on the back of the card) also have to enroll his card with VBV (Verified by Visa) or MSC (Mastercard Secure Code) to complete a transaction to buy something online.
Anupam Mittal, chairman and managing director, People Group said though he is in favor of additional security measures but e-commerce players will be loosing revenue of around Rs 2,500 crore. He stated, “As a result, the exchequer may stand to lose up to Rs 300 crore in service tax”.
P K X Thomas, COO of Cleartrip.com, informed, “On cleartrip.com, when users were redirected for 3-D secure authentication, we noticed a 25 to 35 per cent drop in payment completion rates.”
Out of the large number of Cleartrip customers around 45 per cent of them doing transaction by credit card on its website are Visa card holders. While 34 per cent are Master card holders, followed by netBanking, debit cards, cash cards and Amex credit cards.
An eBay India spokesperson pointed out the move to be “neutral to positive”. She said it would customer’s responsibility to recall that extra password.
In the meantime the Internet & Mobile Association of India (IAMAI) has requested the RBI for the extension of the deadline by 60 days. A memorandum sent by the association stated, “We believe the major banks have registered less than 40 per cent of their active base, despite active advertising by all our major members to their customers”.
According to association the directive may end up being the biggest disincentive to India’s promising e-commerce business rather than an enabler.
Association stated as per information online fraud is just 0.16 per cent of the e-commerce industry in India and is not placed in the top 10 online fraud-perpetrating countries. According to the Internet Crime Complaint Center (IC3) report the US and UK has the largest online fraud-perpetrators.
Usage of international cards is primarily responsible for the online card frauds the Indian cards contribution is very less in percentage, moreover these cards will not be controlled by this directive, thus the Indian card user have little respite from online card fraud and even with the directive, IAMAI pointed out.
Subho Ray, President, IAMAI also said that in India in the e-commerce environment the banks are merely payment enablers therefore the merchant site has to bear the risk arising from non-payment or fraud and not the banks and the card companies Visa and Master. He added it is the online merchants who are already facing problem will have to face serious implications of the implementation of these guidelines.
In the international countries where there is much larger e-commerce markets than India and also high rate of online card frauds like the US and UK have not implemented any mandatory requirements for additional verifications like the one RBI is proposed to do, such practices are best as recommendations, Ray pointed out.
On the other hand ICICI Bank spokesperson informed the bank has already started corresponding to its customers about the importance of these guidelines through statements. She added, “We will be soon sending out SMS alerts and emails to our entire base. We will also be using the print media to educate all online customers (irrespective of bank) of the need and process to register and make online transactions safe and secure”. In India ICICI Bank has the largest base of about 7 million credit cards.
Other large card issuers of the country have speed up their efforts to certain they are complaint with the new directive. SBI Cards, a joint venture between GE Capital and State Bank of India (SBI), pointed out now only those transactions are processed which are verified by a separate password. SBI Cards are having 3 million credit cards.
A bank spokesperson explained now it is mandatory for customers to create a password that they will have to enter when transacting online. SBI Card has implemented these measures from July 1.
While the customers have been given some flexibility and can carry out up to three transactions without a password. In case of foreign banks most of the lenders including Citibank have already made mandatory for the customers to have an I-PIN to use their credit cards to do online transaction.
It has been five months and till now the banks have not started updating their systems to acclimatize this change. One of the ICICI bank credit card holder informed, “My bank has not contacted me about any additional requirement”.
On the other hand banks say it is the responsibility of the customers to register themselves for a new password on their bank’s websites or activate this service to do online shopping.
The Indian e-commerce players fear drop in their business as they get 80% of the business from the use of credit cards. Although they admit that from August 1 the online shopping for India’s 24 million-odd online credit card and 140 million debit card users will become safe but also have fear that there will be approximately 30% decline in business due to inclusion of additional authentication step and also the banks have also not done any up gradation on their part.
Even the customers such as Anand Sharma (not his real name) who is proficient in online shopping is also not aware that from August 1 he along with his 16-digit credit card number, card expiry date and 3-digit CVV number (on the back of the card) also have to enroll his card with VBV (Verified by Visa) or MSC (Mastercard Secure Code) to complete a transaction to buy something online.
Anupam Mittal, chairman and managing director, People Group said though he is in favor of additional security measures but e-commerce players will be loosing revenue of around Rs 2,500 crore. He stated, “As a result, the exchequer may stand to lose up to Rs 300 crore in service tax”.
P K X Thomas, COO of Cleartrip.com, informed, “On cleartrip.com, when users were redirected for 3-D secure authentication, we noticed a 25 to 35 per cent drop in payment completion rates.”
Out of the large number of Cleartrip customers around 45 per cent of them doing transaction by credit card on its website are Visa card holders. While 34 per cent are Master card holders, followed by netBanking, debit cards, cash cards and Amex credit cards.
An eBay India spokesperson pointed out the move to be “neutral to positive”. She said it would customer’s responsibility to recall that extra password.
In the meantime the Internet & Mobile Association of India (IAMAI) has requested the RBI for the extension of the deadline by 60 days. A memorandum sent by the association stated, “We believe the major banks have registered less than 40 per cent of their active base, despite active advertising by all our major members to their customers”.
According to association the directive may end up being the biggest disincentive to India’s promising e-commerce business rather than an enabler.
Association stated as per information online fraud is just 0.16 per cent of the e-commerce industry in India and is not placed in the top 10 online fraud-perpetrating countries. According to the Internet Crime Complaint Center (IC3) report the US and UK has the largest online fraud-perpetrators.
Usage of international cards is primarily responsible for the online card frauds the Indian cards contribution is very less in percentage, moreover these cards will not be controlled by this directive, thus the Indian card user have little respite from online card fraud and even with the directive, IAMAI pointed out.
Subho Ray, President, IAMAI also said that in India in the e-commerce environment the banks are merely payment enablers therefore the merchant site has to bear the risk arising from non-payment or fraud and not the banks and the card companies Visa and Master. He added it is the online merchants who are already facing problem will have to face serious implications of the implementation of these guidelines.
In the international countries where there is much larger e-commerce markets than India and also high rate of online card frauds like the US and UK have not implemented any mandatory requirements for additional verifications like the one RBI is proposed to do, such practices are best as recommendations, Ray pointed out.
On the other hand ICICI Bank spokesperson informed the bank has already started corresponding to its customers about the importance of these guidelines through statements. She added, “We will be soon sending out SMS alerts and emails to our entire base. We will also be using the print media to educate all online customers (irrespective of bank) of the need and process to register and make online transactions safe and secure”. In India ICICI Bank has the largest base of about 7 million credit cards.
Other large card issuers of the country have speed up their efforts to certain they are complaint with the new directive. SBI Cards, a joint venture between GE Capital and State Bank of India (SBI), pointed out now only those transactions are processed which are verified by a separate password. SBI Cards are having 3 million credit cards.
A bank spokesperson explained now it is mandatory for customers to create a password that they will have to enter when transacting online. SBI Card has implemented these measures from July 1.
While the customers have been given some flexibility and can carry out up to three transactions without a password. In case of foreign banks most of the lenders including Citibank have already made mandatory for the customers to have an I-PIN to use their credit cards to do online transaction.
RBI allows cash withdrawals at POS terminal at stores
The Reserve Bank of India (RBI) has allowed cash withdrawals at point –of-sale- (POS) terminals which will make convenient for customers to use the debit card. In case the customer runs out of cash during shopping, need not have to search for an ATM he can get the debit card swiped at nearest retail shop, encash and carry. The facility can be availed by the 14.3 crore people who own debit cards issued in India.
On Wednesday RBI had issued a notification to all system providers like VISA, MasterCard and American Express and all scheduled commercial banks, which stated, “To start with, this facility will be available for all debit cards issued in India, up to Rs. 1,000 a day”.
In a day the customer can withdraw up to Rs 1,000 and to avail this facility customer don’t require do purchasing from that shop. For this withdrawal the customer has to pay a fee of 2-3%. If the cardholder does purchasing at the same shop then the cash withdrawn has to be separately mentioned on the receipt.
The swipe machines, or point-of-sale (POS) terminals, will be upgraded and it might take a month’s time for smooth service.
The banks might divide the service charge with retailers in order to lure them for offering this service. Currently the merchants are paying a fee of 1.5-2% for every card transaction.
With the introduction of this service the customers of small towns and rural areas having few ATM machines installed will be benefited. Hemant Kaul, executive director, Axis Bank pointed out, “In a small town, where ATMs are few and far between, the ability to withdraw cash from a nearby PoS would be a matter of great convenience. This will also encourage the use of debit cards at PoS-enabled merchant establishments”.
A retailer is required to deposit a certain amount of money in a bank everyday but er this move will reduce the amount of money as the retailer can use it for a fee. On the other hand increase in the debit card usage will transform into higher fee income. Presently for every ATM 10 swipe machines are available in the country.
RBI sources said the facility will be available at the merchant establishment which has been selected by the bank after due meticulousness.
According to the data available around 2-3% PSU bank customers make payments with their debit cards while most of the customers use their debit cards for withdrawal of money from ATMs. Around 14-19% private and foreign banks customers do the same.
The RBI said it is up to the boards of banks to decide whom to offer this service after checking the product profile, risk perception and risk mitigation measures.
When the boards have given the final approval, banks will have to take a one-time approval from RBI.
On Wednesday RBI had issued a notification to all system providers like VISA, MasterCard and American Express and all scheduled commercial banks, which stated, “To start with, this facility will be available for all debit cards issued in India, up to Rs. 1,000 a day”.
In a day the customer can withdraw up to Rs 1,000 and to avail this facility customer don’t require do purchasing from that shop. For this withdrawal the customer has to pay a fee of 2-3%. If the cardholder does purchasing at the same shop then the cash withdrawn has to be separately mentioned on the receipt.
The swipe machines, or point-of-sale (POS) terminals, will be upgraded and it might take a month’s time for smooth service.
The banks might divide the service charge with retailers in order to lure them for offering this service. Currently the merchants are paying a fee of 1.5-2% for every card transaction.
With the introduction of this service the customers of small towns and rural areas having few ATM machines installed will be benefited. Hemant Kaul, executive director, Axis Bank pointed out, “In a small town, where ATMs are few and far between, the ability to withdraw cash from a nearby PoS would be a matter of great convenience. This will also encourage the use of debit cards at PoS-enabled merchant establishments”.
A retailer is required to deposit a certain amount of money in a bank everyday but er this move will reduce the amount of money as the retailer can use it for a fee. On the other hand increase in the debit card usage will transform into higher fee income. Presently for every ATM 10 swipe machines are available in the country.
RBI sources said the facility will be available at the merchant establishment which has been selected by the bank after due meticulousness.
According to the data available around 2-3% PSU bank customers make payments with their debit cards while most of the customers use their debit cards for withdrawal of money from ATMs. Around 14-19% private and foreign banks customers do the same.
The RBI said it is up to the boards of banks to decide whom to offer this service after checking the product profile, risk perception and risk mitigation measures.
When the boards have given the final approval, banks will have to take a one-time approval from RBI.
Thursday, July 9, 2009
Banks urge RBI to relax provisioning norms for home loans and other assets
There is improvement in delinquency thus the leading banks have urged the Reserve Bank of India to relax provisioning norms for home loans and other assets.
According to norm banks are required to classify the entire loans given to the borrower as non-performing assets (NPAs) if one of the loans given to borrower turns bad. For instance a customer defaults on credit card dues the bank will not only classify the card out standings but also the home and auto loans taken by the same borrower as non-performing assets (NPAs), in spite of the fact the borrower might have been paying the EMIs for home and auto loans.
Banks are now requesting the RBI to delink the bad loan and good loan so that the classification and provisioning of the assets can be done. The suggestion was given by CEOs of large banks when they met RBI governor D Subbarao. The point has been raised at that time when banks are battling a slowdown in credit growth. The loan demand from corporate is still low, whereas some large banks are trying to give push to retail loans.
According to RBI norms in case a borrower defaults in repaying any loan EMI, all other facilities taken by this borrower shall be treated as bad loans. Once a loan has been categorized as a bad account the bank has to set aside 10% of the outstanding loan as a provision. Therefore in this process not only the end result of the bank gets upset but also increases the ratio of bad loans – a dishonor to a lender.
Banks in their suggestion have told the RBI that in case a borrower is not able to repay a particular loan EMI; all other facilities shall not be classified as substandard if the borrower is making regular payments on them. An anonymous senior banker told, “This happens very often, when a customer has taken both a credit card loan and a home loan from the same bank. At times, due to a dispute on credit card payments, a customer may not pay card dues for some months, but may continue to service home loan dues”.
On the other hand some of the banks have also suggested that a similar relaxation should be given for loans to corporates. Regarding corporate loans, if a borrower is unable to pay the interest component on working capital, the term loan or any other facility taken by the corporate is classified as an NPA. Currently, an exception has been given only in the case of financial institutions; in this the provisioning has been linked to the facility taken by the borrower. Some banks also gave suggestion that even in case a home loan borrower defaults on EMI payments for 90 days, the bank should be permitted to treat the account as a standard asset if the borrower has paid the installments for earlier periods. Currently, the RBI follows a 90-day norm, where an installment is not paid within 90 days from the due date has to be classified as an NPA on the 91st day. For instance, a loan installment due on April 1, and the installment remains unpaid till July 1, has to be classified as a bad loan. A senior banker who attended the meeting informed, “A bank with a large retail home loan portfolio suggested to the RBI that so long as a borrower pays installments due in, say, February and March in the April-June quarter, RBI should allow banks to classify the loan as a standard asset”.
According to norm banks are required to classify the entire loans given to the borrower as non-performing assets (NPAs) if one of the loans given to borrower turns bad. For instance a customer defaults on credit card dues the bank will not only classify the card out standings but also the home and auto loans taken by the same borrower as non-performing assets (NPAs), in spite of the fact the borrower might have been paying the EMIs for home and auto loans.
Banks are now requesting the RBI to delink the bad loan and good loan so that the classification and provisioning of the assets can be done. The suggestion was given by CEOs of large banks when they met RBI governor D Subbarao. The point has been raised at that time when banks are battling a slowdown in credit growth. The loan demand from corporate is still low, whereas some large banks are trying to give push to retail loans.
According to RBI norms in case a borrower defaults in repaying any loan EMI, all other facilities taken by this borrower shall be treated as bad loans. Once a loan has been categorized as a bad account the bank has to set aside 10% of the outstanding loan as a provision. Therefore in this process not only the end result of the bank gets upset but also increases the ratio of bad loans – a dishonor to a lender.
Banks in their suggestion have told the RBI that in case a borrower is not able to repay a particular loan EMI; all other facilities shall not be classified as substandard if the borrower is making regular payments on them. An anonymous senior banker told, “This happens very often, when a customer has taken both a credit card loan and a home loan from the same bank. At times, due to a dispute on credit card payments, a customer may not pay card dues for some months, but may continue to service home loan dues”.
On the other hand some of the banks have also suggested that a similar relaxation should be given for loans to corporates. Regarding corporate loans, if a borrower is unable to pay the interest component on working capital, the term loan or any other facility taken by the corporate is classified as an NPA. Currently, an exception has been given only in the case of financial institutions; in this the provisioning has been linked to the facility taken by the borrower. Some banks also gave suggestion that even in case a home loan borrower defaults on EMI payments for 90 days, the bank should be permitted to treat the account as a standard asset if the borrower has paid the installments for earlier periods. Currently, the RBI follows a 90-day norm, where an installment is not paid within 90 days from the due date has to be classified as an NPA on the 91st day. For instance, a loan installment due on April 1, and the installment remains unpaid till July 1, has to be classified as a bad loan. A senior banker who attended the meeting informed, “A bank with a large retail home loan portfolio suggested to the RBI that so long as a borrower pays installments due in, say, February and March in the April-June quarter, RBI should allow banks to classify the loan as a standard asset”.
Thursday, July 2, 2009
RBI & govt. allows banks to write-off farm loans not fully paid
The government and the Reserve Bank of India (RBI) have provided relief for farmers who have defaulted on loan repayments. The RBI and government has permitted banks to cancel loans even if only a part of the 75 per cent outstanding amount, as fixed in last year’s debt relief scheme was repaid.
The only condition for write-off loans is that the government will not give any additional funding and limit reimbursement to the bank to 25 per cent of the outstanding amount.
Moreover the banks have been allowed by the government to recover the 75 per cent outstanding amount in one tranche in place of three installments as was permitted originally
However the farmers, who had defaulted on loan repayment, will be required to repay the 75 per cent of their loan by the month-end to avail the scheme. Before, the installments were to be paid by September 30, 2008, March 31, 2009 and June 30, 2009.
According to the loan settlement scheme, a farmer was eligible for 25 per cent relief, if he repays 75 per cent of the outstanding amount. But many farmers could not meet the set deadlines due to which they were afraid that they will miss out on the benefit of the biggest ever farm loan relief and waiver scheme. This impelled banks to take the issue to the finance ministry, which issued the required instructions.
The decision was communicated to the RBI by the government early this month. The apex bank has issued the necessary instructions today.
A government official said, “The ultimate aim was to clean up the books of banks and make thousands of farmers, who had defaulted on loan repayment, to be eligible for fresh loans. If we can do so by tweaking the scheme a little, without any impact on banks or government finances, then there is nothing wrong”.
The only condition for write-off loans is that the government will not give any additional funding and limit reimbursement to the bank to 25 per cent of the outstanding amount.
Moreover the banks have been allowed by the government to recover the 75 per cent outstanding amount in one tranche in place of three installments as was permitted originally
However the farmers, who had defaulted on loan repayment, will be required to repay the 75 per cent of their loan by the month-end to avail the scheme. Before, the installments were to be paid by September 30, 2008, March 31, 2009 and June 30, 2009.
According to the loan settlement scheme, a farmer was eligible for 25 per cent relief, if he repays 75 per cent of the outstanding amount. But many farmers could not meet the set deadlines due to which they were afraid that they will miss out on the benefit of the biggest ever farm loan relief and waiver scheme. This impelled banks to take the issue to the finance ministry, which issued the required instructions.
The decision was communicated to the RBI by the government early this month. The apex bank has issued the necessary instructions today.
A government official said, “The ultimate aim was to clean up the books of banks and make thousands of farmers, who had defaulted on loan repayment, to be eligible for fresh loans. If we can do so by tweaking the scheme a little, without any impact on banks or government finances, then there is nothing wrong”.
Wednesday, July 1, 2009
RBI advice banks to take organized action against unscrupulous borrowers to curtail fraud
In spite of introduction of new technology in sharing of information, launching of credit information bureaus and fine tuning of regulations, dishonest borrowers are still taking banks for a ride. The Reserve Bank of India (RBI) on Wednesday instructed lenders to take organized action against dishonest borrowers who have still managed to take loan even after defrauding banks.
In a circular issued to the banks RBI stated, “It has come to our notice that certain unscrupulous borrowers enjoying credit facilities under ‘multiple banking arrangement’ have, after defrauding one of the financing banks, continued to enjoy the facilities with other financing banks and in some cases availed even higher limits at those banks”.
In some of the cases the borrowers used the accounts maintained at other financing banks to draw off funds deceitfully diverted from the bank on which the fraud was carried out. The RBI said, “This could be possible due to lack of a formal arrangement for exchange of information among various lending banks”.
In certain fraud cases, at a later stage it was discovered that the borrowers provided the same securities to different banks. The defrauding is continuing in spite of the advice given to the banks last year by the RBI’s Department of Banking Operations and Development to reinforce the sharing of information about the status of borrowers.
The DBOD circular had advised a system of obtaining declaration from borrowers, there should be exchange of information among banks on regular intervals and obtaining regular certification by a professional regarding compliance of various statutory prescriptions. In cases where banks have financed a borrower under multiple banking arrangements should exchange information on multilateral basis regarding incidents of fraud, legal actions taken and secret activities or operations of the borrower after the fraud.
In a circular issued to the banks RBI stated, “It has come to our notice that certain unscrupulous borrowers enjoying credit facilities under ‘multiple banking arrangement’ have, after defrauding one of the financing banks, continued to enjoy the facilities with other financing banks and in some cases availed even higher limits at those banks”.
In some of the cases the borrowers used the accounts maintained at other financing banks to draw off funds deceitfully diverted from the bank on which the fraud was carried out. The RBI said, “This could be possible due to lack of a formal arrangement for exchange of information among various lending banks”.
In certain fraud cases, at a later stage it was discovered that the borrowers provided the same securities to different banks. The defrauding is continuing in spite of the advice given to the banks last year by the RBI’s Department of Banking Operations and Development to reinforce the sharing of information about the status of borrowers.
The DBOD circular had advised a system of obtaining declaration from borrowers, there should be exchange of information among banks on regular intervals and obtaining regular certification by a professional regarding compliance of various statutory prescriptions. In cases where banks have financed a borrower under multiple banking arrangements should exchange information on multilateral basis regarding incidents of fraud, legal actions taken and secret activities or operations of the borrower after the fraud.
Tuesday, June 16, 2009
RBI deputy governor: rate cuts benefit must be passed to existing borrowers
The newly-appointed Reserve Bank of India deputy governor KC Chakrabarty has pointed out that the existing borrowers should also get the benefits of the reduced interest rates. He said the same rates should be charged from the existing borrowers with floating rate loans as being charged from the new borrowers.
In an interview to ET soon after taking the charge, Mr Chakrabarty said: “A bank cannot offer differential rates for old and new customers if both have floating interest rate.” He stated the same rate should be charged from the old and new customers in line with international best practices.
Generally, banks have always extended better terms for new borrowers by varying the spread between the interest rate on the loan and the benchmark prime lending rate (BPLR). Expressing their views in favor of this flexibility bankers say that it is easy to pass on the benefit of lower incremental cost of funds to new customers as they do not have to wait for their portfolio costs to come down. It will not be possibe for them to launch any special scheme if the banks are forced to match rates for existing and new borrowers. Earlier KJ Udeshi, chairperson, the Banking Codes and Standard Board of India, had also indicated that benefits of any reduction in interest rate costs should be passed on evenly to all borrowers.
Mr Chakrabarty’s comments have corresponded with the central bank proposal of appointing a working group headed by RBI executive director Deepak Mohanty to review the benchmark prime lending rate (BPLR) of banks and recommend changes to the present system to make credit pricing more transparent. BPLR is the reference rate to which all floating rate loans advanced by a bank, including floating rate home loans, are tethered to.
Informing the appointment of the working group, the central bank has said that in the current scenario BPLR has lost its relevance because most of bank loans are advanced below PLR.
The working group will also recommend loan pricing measures set up on international best practices. Along with other things, it will also analysis the administered lending rates for small loans up to Rs 2 lakh and for exporters recommend suitable benchmark for floating rate loans in the retail segment.
Mr Chakrabarty, pointed out there is a need for strengthening the law to ensure that retail customers are protected. “We not only have to ensure that rates are linked to a floating rate, but also ensure that this rate moves in tandem with other rates in the system.”
In an interview to ET soon after taking the charge, Mr Chakrabarty said: “A bank cannot offer differential rates for old and new customers if both have floating interest rate.” He stated the same rate should be charged from the old and new customers in line with international best practices.
Generally, banks have always extended better terms for new borrowers by varying the spread between the interest rate on the loan and the benchmark prime lending rate (BPLR). Expressing their views in favor of this flexibility bankers say that it is easy to pass on the benefit of lower incremental cost of funds to new customers as they do not have to wait for their portfolio costs to come down. It will not be possibe for them to launch any special scheme if the banks are forced to match rates for existing and new borrowers. Earlier KJ Udeshi, chairperson, the Banking Codes and Standard Board of India, had also indicated that benefits of any reduction in interest rate costs should be passed on evenly to all borrowers.
Mr Chakrabarty’s comments have corresponded with the central bank proposal of appointing a working group headed by RBI executive director Deepak Mohanty to review the benchmark prime lending rate (BPLR) of banks and recommend changes to the present system to make credit pricing more transparent. BPLR is the reference rate to which all floating rate loans advanced by a bank, including floating rate home loans, are tethered to.
Informing the appointment of the working group, the central bank has said that in the current scenario BPLR has lost its relevance because most of bank loans are advanced below PLR.
The working group will also recommend loan pricing measures set up on international best practices. Along with other things, it will also analysis the administered lending rates for small loans up to Rs 2 lakh and for exporters recommend suitable benchmark for floating rate loans in the retail segment.
Mr Chakrabarty, pointed out there is a need for strengthening the law to ensure that retail customers are protected. “We not only have to ensure that rates are linked to a floating rate, but also ensure that this rate moves in tandem with other rates in the system.”
Banks seek for relaxation in norms of classifying loans of delayed infrastructure projects
In the recent meeting with Finance Minister Pranab Mukherjee the bankers have raised an issue of infrastructure financing where they have asked for tax breaks for accessing cheaper funds to finance infrastructure projects. The lenders are demanding for the relaxation in the norms of classifying loans of delayed infrastructure projects as sub-standard assets even though the Reserve Bank of India (RBI) has given its unwillingness to lower the group exposure ceiling.
The suggestions put forwarded in the meeting included permission for the issuance of tax-free bonds, access to refinance and tax exemptions on loans for infrastructure projects under the Income Tax Act. However the government has already given approval to India Infrastructure Finance Co (IIFCL) to issue tax-free bonds and banks have also wanted the similar facility.
The sources say, the central bank is not keen on relaxing the group exposure ceiling in spite of government urge. It is believed that higher ceiling might create concentration risk for certain industrial groups.
In July last RBI had issued the master circular on exposure norms which stated a scheduled commercial bank’s exposure to a single company is restricted at 15 per cent of the capital funds, along with an additional exposure of 5 per cent allowed for financing infrastructure projects. Likewise, the exposure ceiling to a group of companies is restricted at 40 per cent, along with an additional 10 per cent lending permitted for infrastructure projects.
As many infrastructure project developers, especially of the power sector, have been raising the issue, therefore finance ministry had written to RBI lookout for relaxation.
On the other hand bankers present at last week’s meeting informed that the central bank has pointed out that it would not relax the ceiling. “Exposure beyond 50 per cent can create problems, especially during uncertain times,” stated a bank chief. A senior executive of an infrastructure-focused finance company also has the view point that the ceiling should not be raised.
Sources informed that in the meeting, the banks have requested the apex bank to simplify the provisioning norms for those infrastructure projects which were unable to start repayment on schedule due to project delays. A banker informed, “There are a lot of projects where implementation is delayed by a few months, but banks have to make provisions. It is not a case of default, but the provisions have to be made”.
As per RBI guidelines, regarding infrastructure projects financed by banks and financial institutions after May 28, 2002, the completion date should be clearly mentioned at the time of financial closure. From April 1 last year, if the date of commencement of commercial production is beyond two years as originally predicted, the account should be taken as a sub-standard asset, which requires provisioning.
In November 2008, RBI has given special relaxation in the rules for seven infrastructure projects which, post-restructuring continued to be treated as standard assets.
The projects which were given relaxation included Nandi Economic Corridor, gas-based power projects of GVK Industries, Gautami Power, Konaseema Gas Power, Vemagiri Power, a development project of Tirupur area and another being implemented by Delhi Gurgaon Super Connectivity.
Besides this, loans restructured under the special scheme announced last year can also be treated as standard assets in spite of restructuring.
The suggestions put forwarded in the meeting included permission for the issuance of tax-free bonds, access to refinance and tax exemptions on loans for infrastructure projects under the Income Tax Act. However the government has already given approval to India Infrastructure Finance Co (IIFCL) to issue tax-free bonds and banks have also wanted the similar facility.
The sources say, the central bank is not keen on relaxing the group exposure ceiling in spite of government urge. It is believed that higher ceiling might create concentration risk for certain industrial groups.
In July last RBI had issued the master circular on exposure norms which stated a scheduled commercial bank’s exposure to a single company is restricted at 15 per cent of the capital funds, along with an additional exposure of 5 per cent allowed for financing infrastructure projects. Likewise, the exposure ceiling to a group of companies is restricted at 40 per cent, along with an additional 10 per cent lending permitted for infrastructure projects.
As many infrastructure project developers, especially of the power sector, have been raising the issue, therefore finance ministry had written to RBI lookout for relaxation.
On the other hand bankers present at last week’s meeting informed that the central bank has pointed out that it would not relax the ceiling. “Exposure beyond 50 per cent can create problems, especially during uncertain times,” stated a bank chief. A senior executive of an infrastructure-focused finance company also has the view point that the ceiling should not be raised.
Sources informed that in the meeting, the banks have requested the apex bank to simplify the provisioning norms for those infrastructure projects which were unable to start repayment on schedule due to project delays. A banker informed, “There are a lot of projects where implementation is delayed by a few months, but banks have to make provisions. It is not a case of default, but the provisions have to be made”.
As per RBI guidelines, regarding infrastructure projects financed by banks and financial institutions after May 28, 2002, the completion date should be clearly mentioned at the time of financial closure. From April 1 last year, if the date of commencement of commercial production is beyond two years as originally predicted, the account should be taken as a sub-standard asset, which requires provisioning.
In November 2008, RBI has given special relaxation in the rules for seven infrastructure projects which, post-restructuring continued to be treated as standard assets.
The projects which were given relaxation included Nandi Economic Corridor, gas-based power projects of GVK Industries, Gautami Power, Konaseema Gas Power, Vemagiri Power, a development project of Tirupur area and another being implemented by Delhi Gurgaon Super Connectivity.
Besides this, loans restructured under the special scheme announced last year can also be treated as standard assets in spite of restructuring.
Wednesday, May 13, 2009
RBI handed over 1,440 fake notes of various denominations to the police
Bhubaneswar Reserve Bank of India regional office handed over as many as 1,440 fake notes of various denominations to the police. The value of these notes amounts to Rs 3.07 lakh. These fake notes will be sent for examination.
The circulation of these notes has signified the State is providing ground to the market for the fake notes. Though it is neighboring Andhra Pradesh which is a transit route for such a trade
The RBI receives counterfeit notes from the people for exchange thus it handover the same with the local police every six months. After this case is lodged and on its basis investigation is initiated.
Previously a couple of years back, Malgodown Police in Cuttack had apprehended fake notes of Rs 3 lakh and arrested several persons in this connection. Police traced the ground of fake currency in Andhra Pradesh but later police lost track of the persons.
The circulation of these notes has signified the State is providing ground to the market for the fake notes. Though it is neighboring Andhra Pradesh which is a transit route for such a trade
The RBI receives counterfeit notes from the people for exchange thus it handover the same with the local police every six months. After this case is lodged and on its basis investigation is initiated.
Previously a couple of years back, Malgodown Police in Cuttack had apprehended fake notes of Rs 3 lakh and arrested several persons in this connection. Police traced the ground of fake currency in Andhra Pradesh but later police lost track of the persons.
RBI draft guidelines make repossession of vehicles easier for banks
Couple of years ago, Prakash Kaur had moved the Supreme Court against a leading bank as bank had taken away his car on the grounds he was not repaying the loan. Bank argued that it took the vehicle in its custody because Kaur was not repaying the loan he had taken to buy the car.
The apex court gave judgment in favor of Kaur and many other such borrowers, but the judgment created a dilemma amongst the banks exactly when a bank can take away a borrower's vehicle.
Bankers reported that misinterpretations of the Supreme Court order bought repossessions (banking jargon for takeover of a vehicle or asset for which a person has taken a loan and is repaying it) to a halt as the judgment was "heavily biased in favor of the defaulting borrower."
Bankers stated after the regulatory clarification situation has improved and may give a boost to the auto lending activity.
On April 24, 2009 the Reserve Bank of India issued draft guidelines in which the NBFCs has been asked to include clauses in the loan document on the process and the conditions under which their vehicle can be repossessed in case of default.
Mahesh Thakkar, general secretary, Finance Industry Development Council (FIDC), pointed out the RBI guidelines has given a clear distinction between recovery agents and repossession agents, which the industry was looking for.
Thus the recovery agent is behind the defaulter, while the repossession agent is behind the underlying security, i.e. vehicle. He said, "We are repossession agents, often mistaken to be recovery agents and this created a problem for us in the last 3-4 years".
Govind Sankaranarayanan, chief financial officer, Tata Capital, pointed out, "The draft guidelines attempt to formalize the means with which repossession of secured asset can be done. We have always been having a clear clause in the loan document on the procedure for repossession."
When asked whether the RBI notification will provide a fillip to auto lending, Sankaranarayanan replied, "Now that there are formal guidelines from RBI, it will provide some degree of comfort to lend. It is a step in the right direction."
On the other hand the Indian Banks' Association (IBA) is in a process of issuing a clarification on the issue. When asked in case the IBA clarification is issued will there be increase in lending activity, the head of loans at a leading bank replied, "It should, because the financials will become easy on credit."
"We finance both old and new vehicles and the margins are very high in old-vehicle financing. With the code of conduct in place, even marginal cases will get clearance from the credit departments. This will definitely boost auto financing, especially for commercial vehicles."
Ramesh Ayer, managing director, Mahindra Finance, explained the confusion over how, when and who can repossess will now get removed. He said, "With the RBI guidelines, legally enforcing the document becomes easy. Also, when matters are taken to the court, the case will become stronger for us as all the clauses will now be clearly mentioned in the contract".
The apex court gave judgment in favor of Kaur and many other such borrowers, but the judgment created a dilemma amongst the banks exactly when a bank can take away a borrower's vehicle.
Bankers reported that misinterpretations of the Supreme Court order bought repossessions (banking jargon for takeover of a vehicle or asset for which a person has taken a loan and is repaying it) to a halt as the judgment was "heavily biased in favor of the defaulting borrower."
Bankers stated after the regulatory clarification situation has improved and may give a boost to the auto lending activity.
On April 24, 2009 the Reserve Bank of India issued draft guidelines in which the NBFCs has been asked to include clauses in the loan document on the process and the conditions under which their vehicle can be repossessed in case of default.
Mahesh Thakkar, general secretary, Finance Industry Development Council (FIDC), pointed out the RBI guidelines has given a clear distinction between recovery agents and repossession agents, which the industry was looking for.
Thus the recovery agent is behind the defaulter, while the repossession agent is behind the underlying security, i.e. vehicle. He said, "We are repossession agents, often mistaken to be recovery agents and this created a problem for us in the last 3-4 years".
Govind Sankaranarayanan, chief financial officer, Tata Capital, pointed out, "The draft guidelines attempt to formalize the means with which repossession of secured asset can be done. We have always been having a clear clause in the loan document on the procedure for repossession."
When asked whether the RBI notification will provide a fillip to auto lending, Sankaranarayanan replied, "Now that there are formal guidelines from RBI, it will provide some degree of comfort to lend. It is a step in the right direction."
On the other hand the Indian Banks' Association (IBA) is in a process of issuing a clarification on the issue. When asked in case the IBA clarification is issued will there be increase in lending activity, the head of loans at a leading bank replied, "It should, because the financials will become easy on credit."
"We finance both old and new vehicles and the margins are very high in old-vehicle financing. With the code of conduct in place, even marginal cases will get clearance from the credit departments. This will definitely boost auto financing, especially for commercial vehicles."
Ramesh Ayer, managing director, Mahindra Finance, explained the confusion over how, when and who can repossess will now get removed. He said, "With the RBI guidelines, legally enforcing the document becomes easy. Also, when matters are taken to the court, the case will become stronger for us as all the clauses will now be clearly mentioned in the contract".
Tuesday, May 5, 2009
RBI requested to strengthen norms for the end use of bank credit to help micro units
Arjun Sengupta noted economist in its report had advised that RBI should direct banks to increase flow of funds to micro enterprises at reasonable rates just pushing in more liquidity in the system is not enough. He said there is need of strong norms for end use of bank credit.
The National Commission for Enterprises in the Unorganized Sector (NCEUS) pointed out, "Liquidity in itself will not solve the problem (faced by micro enterprises in getting credit) unless there are directive to banks on the end use of credit, in particular, more credit has to flow in favor of vast informal sector...." .
The NCEUS, headed by noted economist Arjun Sengupta, last week submitted its report on 'The Challenge of Employment in India - an Informal Economy Perspective' submitted said the recent policy measures to undertake the impact of the global meltdown have not been of much help for micro units.
Banks liquidity has witnessed the growth of Rs 45,28,277 crore in November 2008 from Rs 34,67,098 crore in March 2007 after RBI took steps to tackle the crisis.
In spite of lowering of prime lending rate, banks are not passing full benefits to the customers. Loans are given at a minimum of 16 per cent, to the micro and small units which are almost double the rate offered to large industries.
It stated, "There is an urgent need to reorient banking system and its goals in general and credit policy in particular ".
The National Commission for Enterprises in the Unorganized Sector (NCEUS) pointed out, "Liquidity in itself will not solve the problem (faced by micro enterprises in getting credit) unless there are directive to banks on the end use of credit, in particular, more credit has to flow in favor of vast informal sector...." .
The NCEUS, headed by noted economist Arjun Sengupta, last week submitted its report on 'The Challenge of Employment in India - an Informal Economy Perspective' submitted said the recent policy measures to undertake the impact of the global meltdown have not been of much help for micro units.
Banks liquidity has witnessed the growth of Rs 45,28,277 crore in November 2008 from Rs 34,67,098 crore in March 2007 after RBI took steps to tackle the crisis.
In spite of lowering of prime lending rate, banks are not passing full benefits to the customers. Loans are given at a minimum of 16 per cent, to the micro and small units which are almost double the rate offered to large industries.
It stated, "There is an urgent need to reorient banking system and its goals in general and credit policy in particular ".
RBI to issue new Rs 100 notes with inset letter ‘R’
Soon Rs.100 denomination notes will be in circulation in the market. The Reserve Bank of India will be issuing a new Rs.100 denomination notes with inset letter `R’ in both numbering panels in Mahatma Gandhi series - 2005 bearing the signature of RBI Governor D Subba Rao.
Now the notes design will be similar in all respects to the notes in Mahatma Gandhi Series -2005 with additional new security features issued on August 24, 2005, except for the change in the inset letter. An official press release stated notes in the denomination of Rs.100 issued by the RBI in the past will continue to be a legal tender.
Now the notes design will be similar in all respects to the notes in Mahatma Gandhi Series -2005 with additional new security features issued on August 24, 2005, except for the change in the inset letter. An official press release stated notes in the denomination of Rs.100 issued by the RBI in the past will continue to be a legal tender.
RBI handed over 1,440 fake notes of various denominations to the police
Bhubaneswar Reserve Bank of India regional office handed over as many as 1,440 fake notes of various denominations to the police. The value of these notes amounts to Rs 3.07 lakh. These fake notes will be sent for examination.
The circulation of these notes has signified the State is providing ground to the market for the fake notes. Though it is neighboring Andhra Pradesh which is a transit route for such a trade
The RBI receives counterfeit notes from the people for exchange thus it handover the same with the local police every six months. After this case is lodged and on its basis investigation is initiated.
Previously a couple of years back, Malgodown Police in Cuttack had apprehended fake notes of Rs 3 lakh and arrested several persons in this connection. Police traced the ground of fake currency in Andhra Pradesh but later police lost track of the persons.
The circulation of these notes has signified the State is providing ground to the market for the fake notes. Though it is neighboring Andhra Pradesh which is a transit route for such a trade
The RBI receives counterfeit notes from the people for exchange thus it handover the same with the local police every six months. After this case is lodged and on its basis investigation is initiated.
Previously a couple of years back, Malgodown Police in Cuttack had apprehended fake notes of Rs 3 lakh and arrested several persons in this connection. Police traced the ground of fake currency in Andhra Pradesh but later police lost track of the persons.
Wednesday, April 29, 2009
Banks continue to park surplus funds with RBI, earn profits of 50-100 basis points a day
Last week the Reserve Bank of India (RBI) had cut reverse repo rate by 25 basis points, the funds which banks park with RBI. In spite of the cut the options seems to be attractive among the banks.
Banks, especially Government owned, borrow against their excess holdings of government securities at a lower rate under Clearing Corporation’s Collateralized Borrowing and Lending Obligation (CBLO) mechanism and invest these funds at a higher rate with RBI.
By doing so banks are making profits of 50-100 basis points a day.
For instance: On Monday a bank borrows against its surplus government securities holding at the biased average interest rate of 2.72 per cent under CBLO and invest funds at RBI’s Reverse Repo (R/R) window at 3.25 per cent. Therefore bank makes gain of 53 basis points (100 basis points equals 1 per cent) in just a day.
However CBLO is a discounted money market device which allows banks and other market participants to borrow and lend funds via electronic book entry. It inflicts a responsibility on the borrower/lender to return the money borrowed/receive the money lent, at a specified future date. The principal charge on securities is held back (with CCIL) for the amount borrowed/lent.
As per banking sources, the central bank on April 21 had reduced the reverse repo rate with an aim to encourage banks to lend to the productive sectors of the economy. But, due to slack credit off take, banks with surplus Statutory Liquidity Ratio (SLR) portfolio are making the most of the arbitrage opportunity due to differential in the interest rate between CBLO and RBI’s R/R window.
In spite of the reverse repo rate cut, during the last four working days after the RBI’s rate cut, banks, on an average, have invested around Rs 1 lakh crore daily with the RBI.
As of March-end 2009, listed commercial banks’ investment in Statutory Liquidity Ratio (SLR) securities — the segment of net demand and time liabilities (NDTL) that banks have to park in government securities has increased to 28.1 per cent from 27.8 per cent a year ago.
As per RBI records Banks, as of March-end 2009, were holding excess government securities worth Rs 1,13,817 crore or 2.7 per cent over the prescribed SLR of 24 per cent of NDTL.
In view of that at the beginning of April CBLO has witnessed rates as low as 0.50 per cent, thus banks would have made a huge earning a clean return of 3 per cent in just a day.
A senior public sector bank official explained, “Feeble credit offtake coupled with the fear of bad loans going up in the current scenario of economic slowdown is prompting banks to park their surplus funds with the RBI. Not many bankable loan proposals are coming our way. So, it’s a Hobson’s choice for us.”
As per RBI’s statistics, scheduled commercial banks have together disbursed Rs 1,429 crore in the fortnight ended April 10, 2009. This, bankers believe, is an indication of a slowdown.
Market players believe that banks continue to flood the central bank’s reverse repo window with surplus liquidity in spite of the cut in the interest rate, therefore the regulator might move to limit surplus funds the banks park by imposing a cap.
Banks, especially Government owned, borrow against their excess holdings of government securities at a lower rate under Clearing Corporation’s Collateralized Borrowing and Lending Obligation (CBLO) mechanism and invest these funds at a higher rate with RBI.
By doing so banks are making profits of 50-100 basis points a day.
For instance: On Monday a bank borrows against its surplus government securities holding at the biased average interest rate of 2.72 per cent under CBLO and invest funds at RBI’s Reverse Repo (R/R) window at 3.25 per cent. Therefore bank makes gain of 53 basis points (100 basis points equals 1 per cent) in just a day.
However CBLO is a discounted money market device which allows banks and other market participants to borrow and lend funds via electronic book entry. It inflicts a responsibility on the borrower/lender to return the money borrowed/receive the money lent, at a specified future date. The principal charge on securities is held back (with CCIL) for the amount borrowed/lent.
As per banking sources, the central bank on April 21 had reduced the reverse repo rate with an aim to encourage banks to lend to the productive sectors of the economy. But, due to slack credit off take, banks with surplus Statutory Liquidity Ratio (SLR) portfolio are making the most of the arbitrage opportunity due to differential in the interest rate between CBLO and RBI’s R/R window.
In spite of the reverse repo rate cut, during the last four working days after the RBI’s rate cut, banks, on an average, have invested around Rs 1 lakh crore daily with the RBI.
As of March-end 2009, listed commercial banks’ investment in Statutory Liquidity Ratio (SLR) securities — the segment of net demand and time liabilities (NDTL) that banks have to park in government securities has increased to 28.1 per cent from 27.8 per cent a year ago.
As per RBI records Banks, as of March-end 2009, were holding excess government securities worth Rs 1,13,817 crore or 2.7 per cent over the prescribed SLR of 24 per cent of NDTL.
In view of that at the beginning of April CBLO has witnessed rates as low as 0.50 per cent, thus banks would have made a huge earning a clean return of 3 per cent in just a day.
A senior public sector bank official explained, “Feeble credit offtake coupled with the fear of bad loans going up in the current scenario of economic slowdown is prompting banks to park their surplus funds with the RBI. Not many bankable loan proposals are coming our way. So, it’s a Hobson’s choice for us.”
As per RBI’s statistics, scheduled commercial banks have together disbursed Rs 1,429 crore in the fortnight ended April 10, 2009. This, bankers believe, is an indication of a slowdown.
Market players believe that banks continue to flood the central bank’s reverse repo window with surplus liquidity in spite of the cut in the interest rate, therefore the regulator might move to limit surplus funds the banks park by imposing a cap.
Wednesday, April 22, 2009
RBI recommends uniform formula for restructured loans
The Reserve Bank of India has formulated a uniform formula to work out the reduction in fair value of restructured loans.
Reduction is the cut down value of loans that have come for restructuring.
Banks rate restructured loans differently in different economic cycles. This is because the reduction or depreciation in rate generally linked with the universal rise in the interest rates in the economy.
The formula was particularly required due to higher provisioning because of rise in the rate of interest during last few years which added to the financial difficulties when banks’ margins were already under stress because of the current downturn.
Thus, the RBI analyzed that the formula can be modified in such a way that the changes in fair value of the loan credited to the changes in market interest rates are not taken into account while calculating the reduction.
RBI rule
Last month the Reserve Bank of India had directed the banks to consider floating provisions as part of tier capital II instead of deducting them to arrive at net NPA position for the financial year ended March 2009. But on Thursday RBI postponed the implementation of rule that prevents banks from deducting floating provision (made for non-performing assets) from the Gross NPAs for the financial year 2009-10.
Reduction is the cut down value of loans that have come for restructuring.
Banks rate restructured loans differently in different economic cycles. This is because the reduction or depreciation in rate generally linked with the universal rise in the interest rates in the economy.
The formula was particularly required due to higher provisioning because of rise in the rate of interest during last few years which added to the financial difficulties when banks’ margins were already under stress because of the current downturn.
Thus, the RBI analyzed that the formula can be modified in such a way that the changes in fair value of the loan credited to the changes in market interest rates are not taken into account while calculating the reduction.
RBI rule
Last month the Reserve Bank of India had directed the banks to consider floating provisions as part of tier capital II instead of deducting them to arrive at net NPA position for the financial year ended March 2009. But on Thursday RBI postponed the implementation of rule that prevents banks from deducting floating provision (made for non-performing assets) from the Gross NPAs for the financial year 2009-10.
Tuesday, March 17, 2009
RBI formulate directives for PSU banks to get CBI nod for settlement of bad loans
For the one-time settlements of bad loans where criminal proceedings are underway the Reserve Bank of India (RBI) will soon issue new directives. Under these directives RBI has made it compulsory for all the public sector banks to attain clearance from the Central Bureau of Investigation (CBI) in bad loan cases involving criminal proceedings.
According to RBI sources, the central bank is ready with the new directive following a CBI proposal to this effect.
The sources informed few instances have come in the lime light where CBI had carried out prosecution against a company or an individual and it was found that those involved in bad loans had already made one-time settlements with their banks and got in writing from the lenders that all criminal proceedings against them had been withdrawn.
In one of such case, CBI had prosecuted a businessman for fake while obtaining loans from a public sector bank. Later, on investigation the agency found in the Supreme Court that the bank had made a one-time settlement for Rs 400 crore against Rs 525 crore and also given in writing that all criminal proceedings against him were withdrawn.
After this incidence CBI approached the bank through the Central Vigilance Commission (CVC) and a meeting with the Chairman and Managing Directors (CMDs) of the six public sector banks was held. In the meeting it was decided that the RBI would be approached for issuing such a circular to all the banks, making it compulsory for them to attain CBI clearance wherever a criminal case was pending.
In the meeting, it was pointed out by CBI that its corruption cases were pending in courts after banks reached out-of-court deals with individuals and corporate houses through one-time settlements.
The meeting was attended by Managing Directors of Punjab National Bank (PNB), State Bank of India (SBI), Bank of India (BoI), Bank of Baroda (BoB), Union Bank and Canara Bank.
The bank officials have been asked to restructure the one-time settlement mechanism, as well reframing their list of members comprising lawyers and property evaluators.
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