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.
Friday, July 31, 2009
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.
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