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.

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’.

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

The Reserve Bank of India (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’.

Sadhana Co-operative Bank got bankrupt, RBI cancels license

Maharashtra-based Sadhana Co-operative Bank license has been cancelled by the Reserve Bank of India (RBI) due to bankruptcy of the bank.

According to RBI release following the cancellation of its license, Sadhana Co-operative Bank, Maharashtra has been forbidden from carrying on banking business.

The release stated subsequent bankruptcy every depositor will get repayment of his deposit up to a ceiling of Rs one lakh from the Deposit Insurance and Credit Guarantee Corporation.

On January 22 the license of the 13-year-old cooperative lender was cancelled by the apex bank. The bank got the license in June 1996. The release added the license of the cooperative bank was cancelled because all efforts to revive it in consultation with the state government did not work.

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.