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.

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.’’

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.

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 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”.

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.

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.

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.

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.

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.