Tuesday, December 28, 2010

RBI advises Co-ops to follow KYC norms

Reserve Bank of India has advised the co-operative banks to follow the Know Your Customers (KYC) norms more strictly. According to the bank it will prevent the illegal funding for terrorist and criminal activities and will be beneficial for the bank also to keep proper record of their customer.

RBI said "It has been brought to our notice that 'Money mules' can be used to launder the proceeds of fraud schemes (e.g phishing and identity theft) by criminals, who gain illegal access to deposit accounts by recruiting third parties to act as 'money mules',"

In a money mule transaction a person with a bank account is recruited to receive cheques, the person has to transfer money from his account to another account. These money mules are recruited by various methods including spam e-mails.

Many a times the account holders are found innocent but sometimes the account is found to be a fake or not up to date. That is why it becomes hard to locate such account holder. Such practices can be checked if the banks properly follow the Know Your Costumer guidelines.

In a statement RBI said to the executives of central and co-operative banks "State and central Co-operative Banks are, therefore, advised to strictly adhere to the guidelines on KYC/AML/ CFT...in order to protect themselves and their customers from misuse by such fraudsters

Monday, December 20, 2010

Hike in interest rates further expected

Reserve bank of India has warned that the inflation rate is still well above the comfort level and unveiled steps to address persistently tight liquidity, and further added that it it will maintain monetary tightening in January too.

Reserve bank of India has already raised the interest rates six times since march in order to fight rising food costs in a economy that is growing at nearly 9 % per annum..

"The very hawkish tone of today's statement has persuaded us that the next repo and reverse repo rate hike is most likely to come at the RBI's next meeting on 25 January," said Robert Prior-Wandesforde, an economist at Credit Suisse in Singapore.

Still, bond yields and swap rates tumbled after the RBI announced steps to cut the statutory liquidity ratio (SLR) -- the minimum level of deposits banks must hold in government approved securities -- to 24 per cent from 25 per cent, and unveiled $10.6 billion worth of bond purchases over the next month.

Indian is not the only country that is dealing with this severe problem of inflation. The neighboring country china recorded inflation rate at 5.1 per cent at the end of the month of November. It was their highest in pat 28 months.

"There is a risk that rising international commodity prices will spill over into domestic inflation. Going forward, rising domestic input costs for the manufacturing sector combined with aggregate demand pressures could weigh on domestic inflation," the RBI said in a statement.

Due to tight liquidity conditions the banks are forced to borrow around 1 lakh crore per day from RBI,. This decreases their capacity to act as a inflation fighting tool. After the buyback of the bonds it is very much expected that RBI intends to infect liquidity into the system.

"RBI wants to address liquidity first and then get on to hiking rates. After these measures, we expect liquidity to come back to comfortable zones by January," said Ananth Narayan G, head of fixed income, currencies, commodities for South Asia at Standard Chartered in Mumbai.

"Earlier we were expecting liquidity to do the job for RBI and they wouldn't need to hike rates in January, but now it seems if inflation remains high, RBI may hike rates in January," he said.

Friday, December 17, 2010

Govt to review fin. Inclusion plan of banks

Indian economy is the world’s second fastest growing economy. The banking sector of the country is so well organized that even the world crisis could not effect it.

There are very few villages in the country that have banks. Most of the rural population in India is still not able to enjoy the benefits of banking.

So, the Government of India introduced financial Inclusion Plan, in order to bring financial literacy amongst the masses. The Reserve Bank of India has asked the banks to extend their services to every village above the population of 2,000. According to the top official of a private sector bank, most of the banks have already started working in this direction.

But the banks working in this direction are facing some difficulties in their mission of financial inclusion. The literacy rate amongst the people in rural India is very low. With low availability of banks in the villages people have to go for more expensive options.

As the literacy rate in the villages is low, it makes very difficult for the intermediaries to make the population aware of the financial services of the bank. It is rather not very profitable deal for the banks too, as they do not find sufficient business volumes.

As most of the villages in India still lacks in basic infrastructure, the banks find it very difficult and expensive to provide their services to the rural population.