RBI to roll out plastic currency on pilot basis

In order to stop damaged currency from further circulation, the Reserve Bank of India has instructed all the bank branches to install note-sorting machine. The step will discourage the further circulation of the unfit currency.

Governor of Central Bank Mr. D Subbarao said "The Reserve Bank is committed to a 'clean note' policy. RBI exchanges soiled notes for clean ones, and mutilated notes for new ones subject to certain conditions."

He also said "In pursuit of our clean note policy and to check counterfeiting, we also prescribed that by March 31, 2011, all bank branches with cash receipts of over Rs 50 lakhs per day be equipped with a note sorting machine so that every high denomination currency note is checked for fitness and genuineness before being put back in circulation."

Speaking about the plastic currency, he said that at first they are planning to launch it on pilot basis. Initially the bank will issue plastic notes in the Rs. 10 denominations. During this phase bank will monitor various factors including the cost and the disposal of the plastic currency. The further implementation will depend on the outcome.

Plastic currency is already in use in countries like Australia and Singapore.

RBI levied The Janata Co-op Bank Ltd, Godhara branch

The Reserve Bank of India has levied the Godhara branch of The Janata Co-op Bank Ltd in Panchmahal District with Rs one lac. The bank was charged in violation of the norms laid by Reserve Bank of India on persistence of irregularities of previous inspection report and requirement of reporting of cash transactions in excess of 10.00 lakh to FIU-IND, as required under AML guidelines.

The Central Bank issued a show cause notice to the bank to which the bank gave a written reply. RBI then discussed the case and levied the bank with a penalty of Rs one lac.

RBI not happy with prepayment penalty from banks

The Reserve Bank of India recently expressed discontent on the practice of the bank of imposing high prepayment penalty on housing loans. In some cases borrowers are levied with prepayment penalty as high as 5 percent. RBI is not at all happy from the banks following such practices.

A senior RBI official said "RBI is clearly not happy with high prepayment charges. But should the regulator put a ban on prepayment charges is still a matter of further discussion.”

However the banks strongly advocate the practice of prepayment penalty as they say that such an act creates gaps in their asset-liability management. The largest lender of the country State Bank of India does not levy any charge on it’s customers on the prepayment of home loan.

Banks starts reacting to rate hike by RBI

Reacting to the hike made by the Reserve Bank of India in the policy rates, several banks including Punjab National Bank announced an increment in the deposit and lending rates by up to 100 basis points.

PNB raised BPLR from 12.50 to 13.00 percent while Allahabad Bank revised BPLR from 13.25 to 13.50 percent, Punjab and Sind Bank raise the BPLR by 25 basis points to 14.25 percent.

The three banks also raised their base rates by 50 points. The banks also revised the deposit rates across various maturities and also introduced new deposit schemes.

In a statement Punjab National Bank said "in response to changing liquidity conditions in the system, inflation, other macroeconomic factors and monetary measures undertaken by the Reserve Bank".

The new rates are in effect from today itself.

RBI settles with 0.25 percent interest hike

The Reserve Bank of India announced a raise in the lending borrowing rates by 25 basis points applicable with immediate effect. Now the Repo Rate is fixed at 6.5 percent and the Reverse Repo Rate at 5.5 percent.

The Governor of Central Bank Mr D Subbarao said "Indeed we did (consider 50 basis point hike)...Its not as if it was straight-forward decision that fell out of some analytical model."

He also said , "Dilemma before Reserve Bank mainly was how to balance between concern of growth and concerns of inflation...Our challenge is to restrain demand pressures in the short term, and support supply response. So, with one monetary policy instrument how do we restrain demand and support supply, that has been the challenge."

RBI is desperately trying to curb out the inflation problem from the Indian market and it is yet another step from the Central Bank in the same direction.

RBI urges banks to keep an eye on utilization of loans

The Reserve Bank of India has outlined certain flaws in keeping a follow up of the lent money to the borrowers by some banks. The Central Bank said that some banks are not keeping a proper follow up of where the lent money is being utilized.

According to the central bank some of the banks blindly follow the Chartered Accountants reports and do not keep proper check of the work on their own.

The Central Bank said "In the context of the above, it is advised that the efficacy of the existing machinery in your bank for post-sanction supervision and follow-up of advances may please be evaluated and made robust, wherever considered necessary,"

The improper utilization of the lent money adds to the bad debt of the bank and thus deteriorates the performance of the bank. The Central Bank urged the banks to discontinue such practices and to keep a proper record of books of the account of the borrower.

RBI sets new deadline to implement OTP

The RBI has spared banks for one month more to implement the one-time user password for credit card transactions over phone. Earlier this technology has to come into effect from January 1, 2011, but now RBI has now postponed the deadline to February 1 this year .

After this system comes into effect the customers would require an additional password for telephonic credit card payment. The bank would decline the transaction if the customer would not provide one-time password (OTP) after February 1 .

The system has to come into effect from January 1, but some banks expressed their inability to complete the installation process by the due date . So after consulting the officials , RBI gave extra time of one month to the banks to comply the guidelines.

The new system will check credit card frauds, as lost credit cards could be used by anyone and was an area of deep concern for the banks . Earlier the banks made it mandatory to provide an identification proof and matching of signatures for every transaction in which credit card was to be used physically, but phone and internet banking were a lot more areas of concern in term of misuse.

The proposed OTP will be valid for a single use and would remain in effect for a period of 2 hours. The customers would need to generate a separate OTP for each IVR transaction. The password will be sent only to the registered mobile number and email address of the customer.

HDFC bank said in a circular "The date of implementation (of additional password) has been revised to February 1, 2011, as advised by RBI,"