RBI reports state loopholes in banks’ claiming on financial inclusion

As per the Reserve Bank of India (RBI) banks under the guidance of state-level bankers committees (SLBCs) had declared several districts in the country as 100 per cent financially included, but in actual financial inclusion has not been extended to all the districts.

RBI report stated that most of the accounts which have been opened as part of the financial inclusion drive are still inoperative because of various reasons such as distance from the branch, illiteracy, lack of interest and non-availability of passbooks. The RBI added, “There is a need for SLBC/DCCs to actively step up the awareness with regard to no-frills accounts as this continues to be poor in many districts”.

The RBI remarked, “Although the SLBCs have declared several districts as 100 per cent financially included, the actual financial inclusion has not been to that extent”. While in the RBI’s Annual Policy Statement for the year 2007-08 it was announced that an assessment of the progress will be done of the districts where 100 per cent financial inclusion would be taken up by independent external agencies. Therefore, studies were carried out in 26 districts in the states of Andhra Pradesh, Gujarat, Himachal Pradesh, Karnataka, Orissa, Punjab, Rajasthan and West Bengal. Giving examples, the RBI said, in the Ganjam district, Orissa, about 65 per cent keen of having banking facilities have been provided with such facilities. The RBI notified, “However, no bank branch has extended overdraft or general credit card to any no-frills account holder. There were hardly any transactions in more than three-fourth accounts opened under the no-frills account category”. But the villagers felt it is very difficult to complete transactions within a reasonable time and officials were unwilling to sanction credit facilities for their basic needs. It stated therefore villagers preferred to approach informal sources for quick credit.

According to records in Rajsamand district, Rajasthan, 92.27 per cent households in villages have a bank account. Though 52.39 per cent people had no transactions in their bank accounts due to distance of the branch (79.64 per cent), illiteracy (6.60 per cent) and not being interested (10.04 per cent). Whereas in towns, 98 per cent households had a bank account and 86.94 per cent carried out transactions in the accounts. As per records in towns, those who did not carry out transactions pointed toward non-availability of passbook (75.47 per cent) as the major reason. While in Srikakulam district in Andhra Pradesh, about 71 per cent of all those wishing for of having banking facilities had been provided with accounts. But there are no reports of providing KCC, OD (over draft) or GCC (general credit card) facilities to the no-frill account holders.

Bankers request RBI for relaxation in deadline for loan recast

In a meeting with the Reserve Bank of India (RBI), following the monetary policy announcement on Tuesday bank chairmen expressed their apprehension about more loans turning bad in coming quarters as the impact of global slowdown starts setting in.

But some bankers feel that the impact of slowdown on loan quality will be visible only after a few quarters. Bankers feel that despite of the fact textiles, real estate, retail, exports and auto sectors will come under increasing strain, banks will not be left with much options in a couple of quarters to prevent an asset from moving into the sub-standard category.

Therefore bankers are asking RBI to relax the deadline for reworking loan repayment schedules to avert cash-strapped corporates from being graded as defaulters. Earlier the banking regulator had permitted banks to reorganize their bad loans up to June 30, 2009, provided banks ‘initiated restructuring’ of accounts before January 31, 2009. Banks also wanted a explanation on whether instigating restructuring meant the signing of a new agreement or receiving a proposal from the borrower.

They further added, “We have sought a clarification to avoid a dispute with auditors in future. Auditors should not claim that we restructured an account, against RBI norms.”

As loan assets held by banks have started failing, with some banks reporting a rise in bad loans in December 2008. The country’s largest bank, State Bank of India (SBI), have accounted gross NPAs of Rs 13,314 crore for the quarter ended December 2008 as compared to Rs 11,182 crore in the corresponding period last year.

In the same period, India’s second-largest commercial bank ICICI Bank observed its gross NPAs rise to Rs 8,988 crore from Rs 6,474 crore and Canara Bank’s gross NPAs increased to Rs 2,515 crore from Rs 1,524 crore.

However bankers remarked, bankers are closely scrutinizing their asset portfolios and have stepped up their recovery measures in expectation of increased bad loans.

Banks request relaxation in asset classification norms

The Reserve Bank of India has been forwarded the request by the banks for the temporary relaxation in the asset classification norm in view of the severe downturn in the country’s economy. Banks have sent this request in view of fear of building up of their bad loans portfolio, which in sequence can have a serious knock-on impact in terms of provisioning and bottom-line, therefore banks want RBI to relapse, even though for the short-term, to the earlier regime - whereby an asset will be classified as “non-performing” if interest and/or installment of principal due remained unpaid for more than 180 days instead of the existing 90 days.

In the April-November 2008 period as against 9.3 per cent in the corresponding period last year the Index of Industrial Production — comprising basic goods, capital goods, intermediate goods, and consumer goods has slowed considerably to 3.9 per cent. And also the global economic conditions have weighed down India’s exports (which fell in November 2008 by an annual 9.9 per cent and in October 2008 by 12.1 per cent), therefore bankers are of view that RBI should pre-empt the NPA (non-performing asset) problem by allowing temporary accommodation on asset classification till the economic downturn blows over.

In spite of the fact the banks especially the public sector banks have reduced their lending rates at the Government’s behest to increase the economy, but the cycle of lack of demand, production cuts, plant shut-downs, inventory pile-ups, and job-losses have raised worries among the banks about the risk of defaults in repayments which in turn will result in building up of bad loans. Bankers are worried that the higher provisioning on account NPAs will adversely impact their profitability.

In its latest report on Trend and Progress of Banking in India (2007-08), RBI has already

RBI, in the latest Report on Trend and Progress of Banking in India (2007-08), has already signaled that the recession phase of a business cycle increases the possibility of credit losses, leading to higher provisioning requirements. The higher provisioning in the recession phase can thus, lay pressure on the credit availability and emphasize the retrenchment phase of business cycle. A top SBI official pointed out, “Business confidence is flagging. Signals of corporate stress are being thrown up in the economy in the form of lack of global and domestic demand, cutback in production, slowdown in exports, and job losses. The direct implication of this is that bad loans in the banking system may rise. Hence, temporary relaxation in the asset classification norm is desirable.”

Four years ago the asset classification norm were last constricted. In 2004, RBI specified that an asset probable be classified as “non-performing” if interest and/or instilment of principal due remained unpaid for more than 90 days, instead of 180 days, with an aim to ensure sound asset quality in the banking system.

A senior IDBI Bank official remarked, “Given that the economy is experiencing a slowdown, it would be apt if the RBI temporarily allows the banking system to revert to the asset classification norm as prevailing before 2004”.

As per RBI report, the gross NPAs of scheduled commercial banks had increased from Rs 6,136 crore in 2007-08 to Rs 56,435 crore as of March-end 2008. The RBI stated that the increase in gross NPAs was more evident in respect of new private sector and foreign banks, as they have done more vigorous lending in the real estate and housing loan segments.

RBI formulating KYC norms for online money transfer abroad

The Reserve Bank of India (RBI) is thinking over a proposal to allow non-banking entities like online money transfer portals to undertake wire transfers for outward remittances from India. With the implementation of this proposal sending money overseas instantly can become a reality.

Currently this facility is restricted to inward remittances, as only banks are permitted to carry out outward remittance orders.

According to sources connected with this development, the central bank has been approached by a number of banks to allow outward remittance facilities on their money transfer channels. The banking regulator is in the process of formulating the know-your-customer (KYC) norms that are to be followed while sending cash abroad via online payment web-portals.

As per the RBI data the first half of the ongoing financial year has observed outward remittances to the tune of $ 431 million, marking a sharp rise compared to $440.5 million during the full financial year of 2007-08.

As per Money Transfer Service Scheme (MTSS) personal remittances are transferred from overseas to beneficiaries in India. Only personal remittances such as remittances towards family maintenance and remittances favoring foreign tourists visiting India are permissible under the scheme.

The system envision a tie-up between money transfer companies abroad and agents in India such as authorized dealers (ADs) and full-fledged money changers, who would disburse the funds to the beneficiaries at prevailing exchange rates. By the April-end 2008, there were around 26 Indian agents and 11 overseas principals under the MTSS. However currently the system, do not allow the repatriation of such inward remittances.

According to sources soon RBI may approve online outward remittance facilities as well for Indian customers.

At present money transfer operators such as Western Union Money Transfer and Moneygram are not allowed to offer outward remittance facilities in India. But TimesofMoney an online money transfer portal currently provides inward remittance facilities.

Although money changers like Wall Street and Thomas Cook offer outward remittance facilities, but these are not on a real time online basis. Outward remittances in India are mostly carried out at bank-branch levels, and there is an annual remit limit of $200,000 for each customer.

RBI looking at merger proposals of 14 urban co-op banks

The sources from Reserve Bank of India said it is taking into consideration requests for mergers of 14 more urban cooperative banks.

RBI has been persuading consolidation in the urban cooperative banking sector and till now it has allowed merger and acquisition in case of 68 banks.

According to recently released data on the subject, the apex bank told since the issuance of guidelines on mergers of urban cooperative banks in February 2005, it has received 107 proposals for mergers in respect of 92 banks and NOCs has been issued in 68 cases as of November this year.

"Twenty proposals for merger were rejected, five proposals were withdrawn by banks and the remaining 14 are under consideration," the bank said.

According to the apex bank, mergers and acquisitions open way for non-disruptive exit of weak or unviable banks, provide an inorganic route for expansion and facilitate consolidation in the process.

It said that almost consistently banks willingly approach it to obtain NOC for their merger proposal.

RBI sources informed it scrutinize the proposals, form an expert group to go through it before giving approval.

There are around 1,770 urban cooperative banks in the country with total deposits of Rs 1,38,000 crore and advances of Rs 89,000 crore. A large number of these banks are mainly located in states like Maharashtra, Karnataka, Gujarat, Tamil Nadu and Andhra Pradesh.

RBI plans meet with auto industry to discuss financing woes

Last week the Reserve Bank of India (RBI) had a meeting with the small and medium enterprises to discuss about plans and measures that will ease financing woes of the sector. Working on this the RBI is expected to have a meeting with major automobile manufacturers later this week to have discussion on this same issue.

It is believed in the meeting the two sides will be also discussing on the reviewing repossession guidelines of vehicles in cases of default.

"We will seek some assistance for capital required for capacity expansions and working capital and also ask guidelines to be relaxed so that public sector banks can also hire agents," said Dilip Chenoy, director general, Society of Indian Automobile Manufacturers. "Besides we will urge RBI to quickly formulate guidelines for repossesion of vehicles during defaults without which the whole process of financing becomes untenable."

Earlier this year on the bases of the directives issued by the Supreme Court RBI had warned banks against the use of recovery agents in case of defaults. Therefore the private sector banks have become evasive in financing which has badly affected the industry.

Existing guidelines that forbid public sector banks from employing agents is also likely to be discussed in the meeting.

As the private sector banks are becoming cautious and inflexible in financing cars and two wheelers, public sector banks are offering 100 per cent financing for vehicles. Although an inability to hire agents is, a stumbling factor in the process.

"Private Banks are hiring their own agents who are present at the dealership and that is the way auto financing is done traditionally. Unless public sector banks function in a similar format, their entry into the segment will be limited and consumers will not be benefited," said a Maruti official who did not wish to be named.

In November automobile sales has dropped by 18 per cent year on year largely on the back of continual lack of retail finance.

RBI proposes to ease bad loan norms for small firms

Export demand dropped significantly as recession hit the US and Europe. The small and medium sector had to face crisis due to this but now they might be able to get some relief from the banking industry.

The Indian Banks' Association and the Reserve Bank of India together are planning to allow easier restructuring of their non-performing assets by giving them a longer timeframe for repayment of debt.

Besides, a high-level committee will be setup by the government to review the situation and come up with guidelines to improve the sector, which generates large-scale employment.

The committee will be looking into the problems responsible for the slowdown and liquidity crunch, which have led banks to tighten their lending activities. The committee is also likely to act as a link between various ministries including finance and commerce.

In a recent meeting with Prime Minister Manmohan Singh, small and medium enterprises representatives had informed that banks have shown unwillingness in lending to the SMEs, which typically have low credit ratings.

As per the official data available, during the first six months of the current fiscal most banks have shown a deceleration in SME advances. In the April to September, state-run banks like the Central Bank of India and the State Bank of Bikaner and Jaipur have actually faced a negative growth in SME advances.

Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (Fisme) informed that a large number of these small enterprises are facing closure due to the global and domestic situation.

Fisme, in a letter to the Prime Minister, has informed that slowdown has resulted in repayment defaults by these enterprises.