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settlements with their banks and got in writing from the lenders that all criminal proceedings against them had been withdrawn.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for Rs 400 crore against Rs 525 crore and also given in writing that all criminal proceedings against him were withdrawn.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.

Cooperative bank to pay penalty of Rs 5 lakh imposed by RBI

Sonepat Urban Cooperative Bank has to pay a penalty of Rs 5 lakh for violating norms of the RBI. The penalty has been imposed by the Reserve Bank of India (RBI) for selling-cum-releasing the SLR investment bonds to the customers in violation of the norms laid down by the RBI in this regard.

As per information provided by official sources RBI has also issued a show-cause notice to the bank in which it has been asked as to why action should not be taken against the officials on the issue as they had violated the rules and norms laid down by it.

According to official sources the cooperative banks are free to sell of release only 10 per cent bonds the limit fixed by the RBI but the bank has violated the rules and norms of the RBI by selling or releasing 15 per cent bonds.

Friday, March 6, 2009

RBI cut in key rates to bring down interest rates on loans

It is expected after the Reserve Bank of India decision to cut key rates will again bring down the interest rates on loans for homes, cars and other kinds of consumer finance. The interest rates are expected to come down by another 0.5 percentage point following.

As per the sources of RBI the repo rate, the rate at which it lends short-term funds to banks, and the reverse repo rate — which it gives on funds parked by banks with the central bank — would be cut by 0.5 percentage point with immediate effect. After the reduction the new repo rate will be 5% and the reverse repo rate 3.5%.

Banks, till now have been aggressively cutting down rates have indicated that after the announcement they would pass on the RBI’s cuts to customers in the form of fresh reduction of interest rates. Moreover they will also be cutting down the interest rates on deposits by a corresponding amount.

UCO Bank chairman and managing director S K Goel stated, ‘‘Banks will soon decide to cut rates, which should help in reviving the economy’’. A senior official of ICICI Bank supported this view.

In the past, banks have occasionally cut rates for new borrowers without changing the rate paid by existing ones. But this time, banks are going to offer benefits to the old customers on floating rates. This will be possible as banks will perhaps cut their prime lending rates (PLR), to which the floating rate is benchmarked.

Currently home loan rates are around 10% for most public sector banks, and the private sector banks are maintaining rates of 11-12%.

SBI has emerged as the most hostile player by announcing a special scheme under which new home loan borrowers are being offered an 8% rate. Most likely after Wednesday’s announcement, other banks might use the opportunity to come closer to the SBI rate.

RBI organize campaign to educate school students about fake currency notes

To develop awareness amongst students about the fake currency notes, the Reserve Bank of India (RBI) launched an awareness campaign in late 2008 for the school students of urban as well as rural areas.

RBI launched the campaign under the financial education initiative program for school kids.

According to RBI figures the value of fake currency detected in 2007-08 at Rs 5.5 crore, a 137% increased on Rs 2.4 crore the previous year.

As per Delhi police sources, "In the last year we have seized fake currency worth roughly Rs. 5 lakh".

The campaign has been launched in 11 other regional languages besides English and Hindi. To make easy for students to understand various currency denominations posters are being used during the campaign.

In the campaign children are educated on how to differentiate between real and fake notes. To make easy young minds receptive essays, games and films are being used.

The RBI conducted online 100 all India scholars test for college students. The selected college students are also adopting three to five schools and making presentations on financial literacy.

R Gandhi, RBI's regional director, said, "The rise in the cases of bogus currency being detected is one of the reasons which encouraged RBI to include this sensitization and awareness program among school children."

According to sources the program will gain momentum once the board exams are over. After school students the campaign will be organized for College students.

Wednesday, March 4, 2009

RBI to switch to macro-prudential approach from micro-regulations regime

The Reserve Bank of India (RBI) will be renewing its regulatory stand for this it is planning to shift from a micro-regulations regime to a macro-prudential approach

The central bank's policy main focus will be on recurring which help it in dealing with recession.

Addressing a banking seminar in Mumbai, RBI executive director, Anand Sinha said, ''The policy (approach) needs to be modified from micro prudential to macro-prudential. The work is going on ensure that policies do not reinforce a downturn.''

Sinha told that across the world central banks have adopted the stance since the crisis.

He further added besides focusing on counter-recurring measures, the central bank will also take in consideration issues like compensation policies and the treatment of unregulated entities.

Sinha informed that the central bank will continue using both conventional and unconventional tools to maintain sufficient liquidity in the banking system.

He told that the country's economy is well protected from the current global disorder by the well-regulated banking industry and central banks across the world are working to avoid such a situation in future.

Sinha notified that banks should aim on capital-building in normal times; as they require more capital to survive in times of economic difficulties.

Speaking about loans he said that the reserve bank will prefer that banks should streamline loans, especially to small industries. He said that rather than looking for relaxation in non-performing assets norms, banks should be given more time for streamlining such loans.

RBI deputy governor Usha Thorat had expressed similar observations recently when she said that banks should set more time to restructure their loans to micro, small and medium enterprises (MSMEs). This would help in a win-win situation for both banks as well as customers.

The Indian overnight cash rates ended flat on Monday with lower second week reporting cycle demand for funds. However most of the banks have sufficient funds to meet reserve requirements.

RBI to make fresh strict norms to make repossession of vehicles easy

The Reserve Bank of Indian (RBI) has come forward to help the auto sector which has been hit badly by the recession, therefore working on this line the apex bank is considering of issuing a separate guideline for the banks and the non-banking financial institutions (NBFCs) so that they can easily repossess the vehicles from the loan defaulters.

Later this week Finance Ministry has called for the meeting which will be attended by the representatives of RBI, the banking industry and the automobile sector, among others and will be discussing about the structure of the new guidelines.

Industry sources told, “This will be the second such meeting,” and added that in present situation it is necessary to structure such guidelines to support financing of vehicles by banks and NBFCs.

The auto loan segment has been facing difficulty due to the continuing slowdown and more particularly by the unwillingness of lending institutions to offer loans for the purchase of vehicles.

Earlier on January 30 the representatives from the Finance Industry Development Council (FIDC) — the apex body of NBFCs — Indian Banks Association (IBA), Society of Indian Automobile Manufacturers (SIAM) and private banks had met in this regard.

FIDC Co-Chairman Raman Aggarwal told PTI that at this time there is a need to have a clear-cut guideline and a regulatory system for the repossession of vehicle from the loan defaulters.

“RBI has taken both conventional and unconventional measures to provide enough liquidity in the system... There are some structural reasons (for interest rates not easing immediately)... Over a period of time the rates will come down,” he said.

He said the central bank will continue to take steps in order to certain sufficient liquidity in the banking system, through conventional and unconventional measures.

Observing that a well-regulated banking industry has helped the country’s economy shield itself from the present global financial turmoil, he added central banks across the world are acting in concert to avoid such situation in future.

He added banks require more capital to survive in financial crisis therefore should pay more attention on capital-building in ‘good times’.