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Tuesday, December 15, 2009

SBI Pension Fund can manage staff corpus

SBI Pension Fund has received permission from the Pension Fund Regulatory and Development Authority (PFRDA) to manage the pension money of State Bank of India employees. Prior to the approval, the fund with a corpus of Rs 15,000 Cr. was managed by an in-house trust. According to sources, initially, SBI PF has been given around Rs 2,000 Cr. of the total funds to manage. The remaining corpus amount will be gradually transferred to SBI PF. This move will substantially increase the funds under the management of SBI Pension Fund. However, it is learnt, that the transfer is yet to the approved by the SBI Board. SBI PF has also been allowed to charge higher rates for managing the pension funds of SBI employees. SBI PF has been permitted to charge 13 paise per Rs 100 (expenses and management fee) for managing pension funds of SBI employees whereas it gets less than one paise per hundred rupees while managing funds under NPS for Government employees. The same rules and regulations will apply that are applicable to other pension funds. SBI PF will have to invest the funds as per the PFRDA architecture. The entire SBI employee pension money that is coming to SBI PF will be treated as one subscriber. Therefore, only a single entry will be made by National Securities Depository Ltd (NSDL). SBI PF is among the three pension fund managers managing funds under the New Pension Scheme for Central and State Government employees. Of the Rs 3,100-Cr. corpus under the NPS for Central Government employees, SBI Pension Fund manages more than Rs 1,600 Cr. This permission will in one go more than double the corpus managed by SBI PF. It is also one of the six pension fund managers under the NPS for the unorganised sector. The NPS for the unorganised sector has collected around Rs 4.46 Cr. since its inception in May this year.
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Govt to support banks merger: Mukherjee

The Central Government would support public sector banks to merge if they wanted, provided they fulfilled the guidelines of the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), Finance Minister Pranab Mukherjee said on Monday.
“If someone decides to merge, if we see it is in conformity with our policy and if we find that parameters are being followed as per SEBI and RBI guidelines,” then the government would play a “supportive role,” he said in reply to a calling attention motion in the Lok Sabha.
Maintaining that the government had itself not taken any initiative to ask public sector banks to go for merger, he said it did not intend to interfere in their routine financial activities.
“The current policy of the government on consolidation leaves the initiative to come from the management of the banks themselves, with the government playing a supportive role as the common shareholder.” He said that no directive on consolidation was being issued by the government or the RBI.
The boards of the banks had to take a decision in this regard “based on the synergy levels of merging or consolidating entities,” he said.
The calling attention motion was moved by CPI leader Gurudas Dasgupta who asked whether the government had taken any initiative “overtly or covertly” to merge various public sector banks resulting in “discontent” among the bank employees. Mr. Dasgupta referred to the move for merger of State Bank of India and State Bank of Indore and asked why the latter was being merged despite it doing well in terms of per employee performance. Mr. Mukherjee assured him that the interests of the stakeholders, including the employees of the merging banks and customers, would be fully protected. Asserting that there was no government interference in the normal day-to-day financial and commercial activities of state-owned banks, he said, “We are giving them managerial autonomy. We cannot give them a directive not to merge.” Noting that such mergers had taken place even when the Left was participating in the United Front government in 1996-98, the Minister said while 46 banks were merged till 1969 when banks were nationalised, 33 banks were merged after that year. Mr. Mukherjee said consolidation was a “continuous process” as mergers had occurred during “every regime.” Maintaining that the banking system had undergone major changes since nationalisation, he said the State Banks of Travancore-Cochin, Bikaner and Saurashtra were doing a ``good job” and were being encouraged to do better. Mr. Dasgupta said mergers would not only lead to monopoly and lower competition in the banking sector, it would also lead to reducing access to banking for the vast majority of people.
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Govt not forcing public sector banks on consolidation'

The Finance Minister, Mr Pranab Mukherjee, on Monday said that although mergers and acquisitions are needed in the interest of the economy, the Government was not forcing public sector banks (PSBs) to go in for consolidation.
He made it clear that the Government would endorse consolidation proposals of PSBs if the parameters were in conformity with the Securities and Exchange Board of India and Reserve Bank of India guidelines.
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Friday, November 20, 2009

Centre puts SBI merger on hold

The State Bank of India chairman, Mr O.P. Bhatt, has been asked by the ministry of finance, department of financial services, to withhold the merger process of the State Bank of Indore with itself.
In a confidential letter to the SBI chairman dated October 8, (which is in the possession of this newspaper), the ministry said, “You are requested to kindly consider any further acquisition of the Associate Banks only after a view is crystallised on the subject by the government.”
The letter was in reply to the three letters sent in July, August and September by the SBI regarding its proposed acquisition of its associate banks. The finance ministry said that the government is presently “considering a comprehensive paper for taking a holistic view on consolidation in the public sector banks” and “on further mergers in the SBIgroup.”
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RBI Reference rate for US dollar and Euro

The Reserve Bank of India today fixed the Reference rate for the US currency at Rs 46.58 per dollar and the single European unit at Rs 69.54 per euro from Rs 46.41 per dollar and Rs 69.26 per euro, respectively, yesterday.

In a note issued here by the apex bank, the exchange rates of Great Britain's Pound and Japanese Yen against the Rupee have been given as Rs 77.5650 per pound and Rs 52.49 per 100 yen, respectively, based on the Reference rate for US dollar and middle rates of the cross currency quotes at noon.

The Reference rate is based on 12 noon rates of a few select banks in Mumbai and the SDR-Rupee rate will be based on this rate, the release added.
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Union Bank starts Auditing Branches

After some of its branches were interrogated by the income-tax department for their involvement in the Madhu Koda money-laundering case, state-owned Union Bank has started auditing the accounts of the branches which had shown high transactions.
Talking to FE, a top brass of the bank said on condition of anonymity, “We have already asked some of those branches to go for fresh audit that are having high-value transactions.” However, he refused to give any further details.
The bank official stressed that entire transactions in his bank was in compliance with Know-your-customer (KYC) and anti-money laundering (AML) norms.
Another official of the bank said that like other banks, all the branches of his bank had undergone audit on a regular basis.
However, the periodicity of the audit depends on the risk categorisation of the branches, added the official.
It means that while some of the branches undergo audit on an annual basis, there may be quite a few branches of the bank that may require audit on a half-yearly basis, he said without giving any further details.
The act of special audit by the banks comes in the wake of the government asking the bank to carry out an audit of all its branches without delay so as to find out if any large deposits in the bank went unreported.
The bank chairman & managing director, MV Nair, was questioned by the officials of the income tax department in Mumbai on Monday.
The I-T department, during a probe into alleged money laundering by former Jharkhand chief minister Madhu Koda, had stashed Rs Rs 214 crore on a bank account at one of the bank’s branches in Zaveri Bazar between January 5 and March 30, 2007.
Nair was not available for his comments as he is busy with the preparations of the board meeting of his bank in New Delhi.
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Corporation, Andhra & Dena Bank hot picks on M&A street

Corporation Bank, Andhra Bank and Dena Bank, are the hot favourites takeover targets among the large PSU banks which met the Finance

Ministry officials on Wednesday.

Chiefs of Punjab National Bank, Canara Bank, Union Bank of India, Bank of India and Bank of Baroda met Finance Ministry official to discuss the pros and cons of consolidation among banks in India.

Sources from banking industry, on condition of anonymity, said Union Bank, Bank of Baroda and Punjab National Bank were keen on acquiring Corporation Bank while Canara Bank and Punjab National had shown interest in Dena Bank.

Bank of India had expressed interest in Oriental Bank of Commerce. Union Bank and PNB had also shown interest in Andhra Bank.

Bankers point out that the discussions on are in preliminary stage and it may take very long for it to materialise. Sources said that the Finance Ministry officials are likely to meet CEOs of small to medium size PSU banks to read their mind on consolidation. CEOs of small-to-medium-size banks are most likely to oppose any move of being acquired by large bank on the grounds that loyal customers will desert them and that the banks are performing better on stand alone basis.

Interestingly, none of the large banks were keen on acquiring any bank located in eastern belt namely UCO Bank, Allahabad Bank or United Bank of India on fears that there could be resistance from the political front and other labour issue.

In fact one of the suggestion that came forth during the discussion was to merge all the three Kolkata based banks into one. None of the large banks showed interest in Bank of Maharashtra, Central Bank of India, Punjab & Sind Bank. Sources said that the resistance was largely due to union problems faced by these banks.

Government has been talking of consolidation among Indian banks for over five to six years. However, sources said that this time large banks were eyeing smaller banks which gave them better geographical reach and had relatively clean balance sheets. This was not the case in the previous round of discussion.

For instances, on Wednesday, PNB made a pitch for banks located in the west namely Gujarat and Maharashtra, Union Bank of India and Bank of Baroda showed interest in southern belt, Bank of India was keen on increasing its presence in the north belt while Canara Bank also showed interest in increasing its presence in western India.

In the past, chiefs of Bank of India and Union Bank of India were keen on merger which would make them a strong bank in the western belt since both banks have huge presence in Gujarat and Maharashtra. But the talks failed to materialise due to strong resistance from the Left front.

During the meeting with Finance Ministry on Wednesday, banks urged them to frame rules for M&A. "Every bank would like to acquire another bank irrespective of its size. Nobody wants to be acquired. But if there is a set rule on which banks are eligible to acquire and what would be to the terms, it would enable banks to work on consolidation," suggested one of the bank chief in the meeting.

Government has received $2 billion from World Bank which is aimed at providing financial support to PSU banks to help them meet the capital requirement. Many banks have indicated to the Finance Ministry of the capital requirement over the next three years to maintain growth.

Bankers say that before allocating the capital to banks, government is making a bid for consolidation.
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Wednesday, November 11, 2009

Appointment of a Nodal Officer by banksin respect of their Currency Management Operations

The High Level Group on Currency Management chaired by Smt. Usha Thorat, Deputy Governor, Reserve Bank of India submitted its Report in August 2009. The Group, inter alia, emphasized the importance of using modern technology and security systems for stocking, processing and distribution of currency to ensure adequate availability of genuine and clean notes to the members of public.2. With a view to ensure that the banks accord due priority to the above objective, it is proposed that all banks maintaining currency chests shall entrust the responsibility of currency management to a functionary not less than the level of General Manager, who will be the nodal point of contact for Reserve Bank of India and will be accountable for the obligations cast upon currency chests by the Reserve Bank of India. Other banks shall also entrust the responsibility to a sufficiently senior functionary. 3. Banks may inform us the names of such Nodal Officers, along with his/her office address, contact number (landline as well as mobile number, fax number) e-mail address, etc. at the earliest. 4. Detailed guidelines based on the report of the High Level Group are being issued separately.
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Banks may park excess funds in short-term debt instruments

Banks are expected to step up investment of their surplus funds in short-term debt instruments such as commercial papers, treasury bills, and government securities with one-two years residual maturity. This is to address the Reserve Bank of India’s concerns over circular movement of liquidity from banks to the liquid schemes of mutual funds (MFs) and vice-versa. The central bank’s apprehension over circular movement of funds stems from the fact that should liquidity start drying up (on the back of improved credit pick-up) banks would redeem their mutual fund investments to shore up their funds position. Faced with redemption pressure, MFs would then resort to heavy borrowing via Clearing Corporation of India Ltd’s collateralised borrowing and lending obligation (CBLO) facility, thereby putting upward pressure on CBLO as well as call money rates. Bankers hold the view that the RBI’s “banks should lend directly to corporates and not through the intermediation of mutual funds” message implies that the central bank is anxious about the systemic implications of the circular movement of liquidity. According to Mr. Arun Kaul, Executive Director, Central Bank of India, once the board approves internal prudential limits for investment in mutual fund schemes so as to mitigate risks, banks will actively invest in short-term debt to manage their short-term liquidity. According to industry observers, a good chunk of the over Rs 1 lakh Cr. excess liquidity parked by banks in liquid schemes of mutual funds could find its way into short-term debt instruments. Tepid credit appetite in the economy in the financial year, so far, has forced banks to make large investments in government securities and also fairly sizeable investments in units of mutual funds. Credit pick-up in the financial year up to October 9 at Rs 1,14,766 Cr. is less than half the off-take (Rs 2,47,775 Cr.) during the corresponding period last year. Hence, banks had no choice but to collectively channelises their daily surplus aggregating over Rs 1 lakh Cr. to the low-yielding RBI’s reverse repo window. Further, banks also invested Rs 2,11,500 Cr. in the financial year up to October 9 in government securities (Rs 6,169 Cr. in the corresponding year ago period) and deployed Rs 1,28,772 Cr. in liquid scheme of mutual funds (Rs 9,079 Cr.).
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Govt plans system to track corporate fraud

Having failed to detect the Satyam scam, the government has embarked on a new vigilant system to track corporate frauds as part of which it has decided to look into companies whose financials are found to be suspicious. According to an official in the ministry of corporate affairs, the government's new drive would be technology-driven and bank heavily on the MCA21 e-governance programme that is now the main gateway for corporates to file their statutory documents. "This is part of our efforts to have an effective early warning system and the idea is to detect frauds, or any tendency of fraud, early," the official said, adding that pilot work on the project has already been kick started. Giving details of the programme, he said the government plans to involve the regional directorates (RDs) and registrar of companies (RoCs) in the exercise after it gets computer-generated alerts on suspect companies through the e-governance network. "There would be several triggers to generate any suspicion on the activities of a corporate. These include things like unusually-high jump in profits; suspect related-party transactions; and huge amounts of unutilised cash and bank balance," the official said. Once a list of suspect companies is drawn up, these would be looked into by the RDs and the RoCs who would look into their filings and financials further. "However, this would be a non-invasive document verification exercise," the official said, pointing out that there was no intention of hounding the corporate sector.
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Wednesday, November 4, 2009

D.A. Chart for Nov-09,Dec-09 and Jan-2009

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Tuesday, October 13, 2009

Bank guarantee issue limits

Banks can now issue guarantees to service importers for an amount of up to $5,00,000 or equivalent, following the move by the Reserve Bank of India to increase the limit. In a notification, the RBI increased the limit for issuing bank guarantees from the earlier $1,00,000 or equivalent. Banks are allowed to issue guarantees in favour of a non-resident service provider, on behalf of a resident customer who is a service importer.
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Banks prepared to check fake currency menace: RBI

Banks are fully geared to check the menace caused by fake currency, a senior official of the Reserve Bank of India said. Reserve Bank of India Regional Director J Sadakkadulla said a high-level committee headed by RBI Deputy Governor Usha Thorat had recommended installing of note sorting machines (NSMs) in all bank branches in a phased manner and has asked the banks to give a road map to the RBI to achieve this task. He said the number of fake notes in India was just eight pieces per million which is one of the lowest in the world. "The total circulation of the currency in India is 48 billion pieces and the fake currency merely 0.0008 per cent of that," he added. "The market price of the note-sorting machine is Rs 10 lakh and will decrease in the near future,' said Sadakkadulla. He said earlier, it was only the currency chest of the banks which were required to install note sorting machines. "But now each branch of the bank will have to go for note-sorting machines," he asserted. At present, only about 4,000 currency chests have these machines and about 70,000 bank branches that are present all over the country require them.
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Rising rupee a big worry for exporters

Over 10 per cent rise of rupee against the US dollar has become a "big worry" for exporters at a time when they saw arrest in sharp decline in the country's exports amidst a hope of recovery. The dollar is trading at below Rs 47, weakening by over 10 per cent from Rs 52.17 in the first week of March 2009. "The appreciating rupee will have negative effect on exporters, who are already facing lack of orders," Federation of Indian Export Organisations President A Sakthivel said. He said weak dollar results in falling margins for exporters as their rupee realisations drop, which in turn affects their negotiating power with the global buyers. "Appreciating rupee is a big worry ... we were getting help from strong dollar," Chairman of Council for Leather Exports Habib Hussain said. Though dollar has seen a sharp decline against major currencies of the world, bulk of India's trade is done through the US currency. Exports have been declining since October 2008 under the impact of recession in the world's major economies. However, the contraction in exports, which dipped by 30 per cent in March and April, reduced to 19.4 per cent in August this year.
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Coming soon: Cheque-reading ATMs

Need cash urgently but have already overdrawn from your account? You have a cheque from a client but it is of little use in the dead of night. Lost or misplaced your debit card and need cash to pay the party organiser for your little one's first birthday celebrations? Help is on way, as a couple of banks in India are testing a technology that facilitates instant cheque encashing at ATMs. Used widely across North America and Europe, cheque truncating machines (CTM)—the contraption that make real-time cheque verification and clearance possible—sit inside special ATMs that the world’s largest makers of these machines, like US-based NCR Corp and Diebold Inc, are now hawking to few banks in India. Governmentowned State Bank of India, the country’s largest lender, IDBI and ING Vysya are a few banks that have evinced interest in such ATMs. Banking regulator RBI too has welcomed the move, saying it will be good for customers. Pradeep Sen, MD, NCR India says that the company has been showcasing its CTM-ATMs to banks in India since last month. “We will also be launching new ATM machines, in which you can just insert a bundle of notes of any denomination. The ATMs will read the notes, and credit the amount in your account instantly,” he says. Currently, one has to put cash inside an envelope to deposit inside ATM. It gets credited in about 24 hours. There are over 48,000 ATMs in the country, split between three big makers––NCR , Diebold and Germanybased Wincor Nixdorf.
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RBI says no to full rupee convertibility

The Reserve Bank of India (RBI) today ruled out full rupee convertibility as of now and said the failure of Bharti-MTN deal cannot hasten it. Asked if complete capital account convertibility is possible, RBI Deputy Governor K C Chakrabarty told reporters here: "As of now, no." "Whether it's desirable or not, that we have to examine and whether we have capability", he said. On whether Bharti-MTN deal failure would quicken the process of complete convertibility, Chakrabarty said: "Nothing will quicken the capital account convertibility." While the rupee is fully convertible on the current account, it is not so in capital account. This means that control exists on converting rupee into other currencies when there is movement of capital from one country to India and vice versa. The Tarapore Committee as well as other experts have recommended full convertibility of the Rupee in a phased manner. Last week, the $23 billion Bharti-MTN deal was called off after regulatory hurdles in the way of dual listing could not be removed. One of the hurdles was that India does not have full rupee convertibility. Chakrabarty also indicated that RBI is considering plea of banks for a hike in a limit for bonds that can be held till maturity. Initially, he said the issue did not come under his purview but later, when asked if RBI favoured raising the Held-To-Maturity cap, added: "They (RBI) were considering it. My knowledge is that they were considering it." Asked if RBI proposed to revise its expectation on inflation, he said the policy statement would be released (by RBI Governor) on October 27. "We don't predict about inflation everyday. 27th October, it will be known."
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Interest rate hikes expected in coming months: Moody's

Central banks in India, China and South Korea are closely monitoring the emerging inflationary pressures on their economies and hikes in interest rates could be expected across the Asia-Pacific region after Australia raised key interest rates, says Moody's Australia is the first G20 country to raise interest rates yesterday, with the country's apex bank declaring recession over. The Reserve Bank of AustraliaAsian central banks have intervened in the currency markets in an attempt to slow the slide of the US dollar. Asian countries are worried about their export industries, which would be hurt by a weaker dollar. Central banks in South Korea, Taiwan, the Philippines and Thailand have been buying the US currency, traders said. As signs of economic recovery begin to emerge, traders have switched from the traditionally "safe" US dollar to buying other currencies. A fresh wave of dollar-selling may have led to the banks' intervention. The dollar fell to a 14-month low against a basket of currencies on Thursday. Analysts believe that other countries have also intervened. "It was reported earlier this morning that Russia was one of at least six central banks buying dollars," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.
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Bounced cheque: No case if borrower hasn't issued it

While accepting a cheque from someone who owes you money, make sure that he himself — or his authorised representative — has signed it. Otherwise, in case the cheque bounces, you won’t be able to file criminal case against the actual borrower, as per a judgement of the Bombay High Court. Viral Filaments, a Mumbai-based company, borrowed certain amount from one Arvind Degvekar sometime in 1997. When the time to return the money came, the company gave him a cheque. The cheque was issued by one Balram, an associate of Viral Filaments and owner of another firm. It bounced, and even after Degvekar informed Viral Filaments about it, he did not get his money back. Degvekar filed criminal case against both Balram and Viral Filaments under Section 138 of the Negotiable Instruments Act. Viral Filaments then moved the high court, seeking to quash the complaint. In the order last week, Justice R Kingaonkar noted that the company itself had not issued the cheque, though it owed the money. Under the provisions of Section 138, "action could be initiated against the drawer of the cheque", Justice Kingaonkar observed, quashing the case against Viral. However, Degaonkar was free to file a civil suit against the company, the judge added.
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RBI says no to full rupee convertibility

The Reserve Bank of India (RBI) today ruled out full rupee convertibility as of now and said the failure of Bharti-MTN deal cannot hasten it. Asked if complete capital account convertibility is possible, RBI Deputy Governor K C Chakrabarty told reporters here: "As of now, no." "Whether it's desirable or not, that we have to examine and whether we have capability", he said. On whether Bharti-MTN deal failure would quicken the process of complete convertibility, Chakrabarty said: "Nothing will quicken the capital account convertibility." While the rupee is fully convertible on the current account, it is not so in capital account. This means that control exists on converting rupee into other currencies when there is movement of capital from one country to India and vice versa. The Tarapore Committee as well as other experts have recommended full convertibility of the Rupee in a phased manner. Last week, the $23 billion Bharti-MTN deal was called off after regulatory hurdles in the way of dual listing could not be removed. One of the hurdles was that India does not have full rupee convertibility. Chakrabarty also indicated that RBI is considering plea of banks for a hike in a limit for bonds that can be held till maturity. Initially, he said the issue did not come under his purview but later, when asked if RBI favoured raising the Held-To-Maturity cap, added: "They (RBI) were considering it. My knowledge is that they were considering it." Asked if RBI proposed to revise its expectation on inflation, he said the policy statement would be released (by RBI Governor) on October 27. "We don't predict about inflation everyday. 27th October, it will be known."
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Banks step in as dollar tumbles

Asian central banks have intervened in the currency markets in an attempt to slow the slide of the US dollar. Asian countries are worried about their export industries, which would be hurt by a weaker dollar. Central banks in South Korea, Taiwan, the Philippines and Thailand have been buying the US currency, traders said. As signs of economic recovery begin to emerge, traders have switched from the traditionally "safe" US dollar to buying other currencies. A fresh wave of dollar-selling may have led to the banks' intervention. The dollar fell to a 14-month low against a basket of currencies on Thursday. Analysts believe that other countries have also intervened. "It was reported earlier this morning that Russia was one of at least six central banks buying dollars," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.
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Divestment road map gets PM, Pranab nod

The disinvestment policy and road map prepared by the disinvestment department, which has already received the stamp of approval from the prime minister and the finance minister, will be discussed by the Cabinet Committee on Economic Affairs. “The note floated by the disinvestment department will now go to the Cabinet Committee on Economic Affairs (CCEA). The committee will discuss it this Thursday or the next at the latest before announcing it,” said an official in the department of disinvestment, who requested anonymity as he was not authorised to speak to the media. Addressing newspersons in Delhi in last month, the finance minister had said he was confident that he would be able to persuade the naysayers among allies to give up their traditional stance on disinvestment. “I’ve handled the coalition members for so many years. I’ll handle this issue. I’ll manage them (the coalition partners) just as I’ve done in the past,” he said in response to specific queries on whether the government would be able to get its disinvestment programme back on track in the face of stiff opposition from allies such as Trinamool and DMK. Sidhartha Pradhan, joint secretary at the department of disinvestment, told the media in Mumbai last week that the government is looking to offload stake in at least five state-run companies during the rest of the year.
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Banks wash their hands of faulty e-mail, mobile alerts

Banks may boast of providing 24X7 services through mobile and internet banking, but they have decided not to take the blame for any delay and errors in the mobile or e-mail alerts sent to their customers. Ever since the Reserve Bank of India issued its operating guidelines regarding mobile banking transactions to the banks last year, almost all the banks in the country have started the service, as part of which customers also get alerts on their mobile phones for all important transactions. Similarly, internet banking is also growing by leaps and bounds as it saves cost for the banks and also gives the customers anytime-banking service without going to the bank branches or even ATMs. However, banks have now decided that the liability does not lie with them if the customers do not get the mobile or e-mail alerts on time, or if the alerts contain errors and lack accuracy, as they believe it could be due to fault at the end of the mobile, internet and third-party service providers. According to new credit card terms and conditions, being effected by the country’s largest private sector lender ICICI Bank from October 5, the bank would not be liable for “non-delivery or delayed delivery of alerts, error, loss or distortion in transmission of alerts to the cardholders’’ . Similar terms are being implemented by many other banks as well, while some others have already such clauses in place. “The cardholder acknowledges that the provision of the facility of receiving alerts on mobile phone number of e-mail provided by the cardholder while applying for the credit card facility , is dependent on the infrastructure , connectivity and service providers engaged by ICICI Bank or otherwise,’’ the new clause says.
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Saturday, October 3, 2009

More capital expected for the state-run banks

Fresh capital worth Rs 10,000 crore is expected for the public sector banks. Official sources said that Credit amounting to $2 billion is likely to come by November end and thereafter disbursal to individual banks will start depending on the financial status of each bank at that time.

The loans are a part of the World Bank's $14 billion crisis-related lending for India. This will help the country in faster recovery.

This credit infusion would ensure credit flow in productive sectors. It aims at enabling banks to maintain a Capital to risk weighted assets ratio (CRAR) of 12 percent in order to sustain economic growth.

The finance Ministry have received petitions from various banks regarding a share of these funds and the ministry is examining these requests.

Earlier this month, the World Bank's executive board approved a loan of $2 billion with the. The loan is intended at helping infrastructure development, small and medium enterprises and the rural economy.

World bank Country director for India said that he preferred to call it " injection of capital" to "recapitalization" since liquidity was not an issue for the Indian banking sector. He added that the sector had done "remarkably well".

Dena bank has asked the government for a capital infusion of Rs 500 crore whereas union Bank of India has approached the government for a capital infusion of Rs. 1800 crore for its expansion plans. Punjab Sind Bank has asked for Rs 700 crore during the current fiscal. Besides these, UCO Bank, Central Bank of India and Vijaya Bank - together are expected to get Rs 2,150 crore.
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Rs 10,000-cr of WB fund to flow into banks by December

More than half a dozen PSU banks are expected to get about Rs 10,000 crore as fresh capital by December following the World Bank board's decision to inject funds into these PSBs and enhance their capacity to lend.

Loans worth $2 billion is likely to come by the end of November and thereafter disbursal to individual banks would start depending on the financial status of each bank at that time, said official sources.

Various banks have requested for capital infusion and the Finance Ministry is examining those request, sources said.

Earlier this month, the executive board of the World Bank approved $2 billion loan to enhance banks' capital.

The World Bank fund would be utilised to shore up their capital against various risks to ensure credit flow to productive sectors.

The capital infusion would come with the objective to enable banks to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent to ensure credit growth continues to sustain economic growth.

The World Bank's $2 billion Banking Sector Support Loan, with 30 year maturity, would help select public sector banks expand credit for infrastructure development, small and medium enterprises, and the rural economy.

Preferring to call it "injection of capital" instead of "recapitalisation" as the latter could mean banks are short of capital, World Bank Country Director for India Roberto Zagha had said liquidity is not an issue with the banks as the Indian banking sector has done "remarkably well".

Many public sector banks like Union Bank of India, Dena Bank, Punjab Sind Bank, Bank of Maharashtra, UCO Bank, Central Bank of India and Vijaya Bank.

Dena Bank has requested the government for capital infusion of Rs 500 crore while Punjab Sind Bank has asked for Rs 700 crore during the current fiscal.

At the same time, UBI has approached the Centre for a capital infusion of Rs 1,800 crore to fuel its expansion plans.

"We have asked for Rs 1,800 crore capital from the government. Whether this will be availed in equity or some other form remains to be worked out," UBI Executive Director S Raman had said.

Besides, three public sector banks — UCO Bank, Central Bank of India and Vijaya Bank — together are expected to get Rs 2,150 crore.

UCO Bank is expected to get Rs 750 crore, while Central Bank of India and Vijaya Bank will receive Rs 700 crore each
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Friday, September 25, 2009

$3-bn World Bank funds for PSU banks

The World Bank is likely to approve by the end of this month a proposal to provide $3 billion (nearly Rs 15,000 crore) to the government to recapitalise public sector banks.

While $2 billion from this is expected to be disbursed by December or so, the remaining amount is expected at the end of next year.

The government had proposed Rs 18,000 crore to replenish the capital of state-owned banks during the current fiscal year in a bid to boost their balance-sheet muscle in line with international regulatory standards to help them lend more money to companies and individuals.

Barring a handful like the State Bank of India and Punjab National Bank, most public sector undertaking (PSU) banks are likely to get a share of the capitalisation funds.

“We are planning to recapitalise most of the banks except just three or four,” a senior government official told HT.

Three public sector banks —UCO Bank, Central Bank of India and Vijaya Bank — have already got Rs 3,800 crore.

The fund would help these banks to shore up their capital adequacy ratio (CAR) while helping them to adhere to the stringent Basel II norms.

Several banks including the United Bank of India and Punjab and Sind Bank also have the option of raising additional funds by tapping the capital market.
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World Bank stimulus: $4.3-bn loan to boost PSBs, IIFCL & Power Grid

The World Bank has approved $4.3 billion loans for India, including a $2-billion fund to recapitalise seven public sector banks. Along with $1.2 billion for India Infrastructure Finance Company Ltd (IIFCL) and $1 billion for the Power Grid Corporation, the loans make up the largest block released by the World Bank to India in one go. A World Bank statement said the ‘banking sector support loan’ will help India maintain the economic stimulus programme by shoring up the capital base of banks, whose capital adequacy ratio has slipped to less than 12%. “A possible second loan, for about $1 billion, is likely to be provided by June 2010,” the statement said. The loan will supplement the government’s efforts to improve the financial health of the banks as they migrate to a higher capital adequacy ratio under Basel II standards from March 31, 2009. “Supporting infrastructure is particularly important during the current crisis, not just to sustain the domestic economy at a time of reduced global demand, but even more to lay the foundations for stronger future growth,” said World Bank’s India director Roberto Zagha. As on March 31 2009, Uco Bank had the lowest capital adequacy ratio at 9.75%, followed by Dena Bank at 10.73%, Bank of Maharashtra at 10.75%, Syndicate Bank at 11.37%, IDBI at 11.57%, Central Bank of India at 11.75% and Punjab Sind Bank at 11.88%. These banks would be among the first to benefit from the recapitalisation move. India estimates that public sector banks will require an injection of at least $4.8 billion during 2009-11 to maintain credit expansion over the medium term, the World Bank said. The larger amounts of loans are also an indication of the deeper involvement of the Bank in India. The loans for the bank recap will be priced at Libor plus 0.17% and a service charge of 0.25%. With Libor at about 1.1%, the rate works out to less than 2%. The loans for IIFCL and Power Grid Corporation are at lower, at Libor minus 0.03%. The bank loans will be given as a budgetary support, which will then be used for bank recapitalisation. The finance ministry has promised to ensure banks’ capital adequacy ratio is at least 12%, more than the 9% prescribed by RBI. The IIFCL loan has a maturity of 28 years, including a grace period of seven-and-a-half years. The loan will enable IIFCL it to catalyse private financing for public-private partnerships in the infrastructure sector, the World Bank noted. It would also stimulate the development of a long-term local currency debt financing market. The loan for the Power Grid Corporation will finance the fifth power system development project to expand the electricity transmission networks in the western, northern and southern parts of India. Of the total $14 billion loans committed to India during 2009-12, the World Bank has already granted about $5 billion, including the current set....
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Friday, September 11, 2009

Home loans up to Rs 10 lakh get 1% interest rate subsidy

Affordable housing, especially in non-metros, could get a much-needed boost with the Government on Thursday approving the one per cent interest subvention scheme for housing loans up to Rs 10 lakh. The Centre has allocated Rs 1,000 crore for the scheme.
Under the new scheme approved by the Cabinet, the interest subsidy will be made available through commercial banks and housing finance companies for construction/purchase of a new house or extension of an existing one. This will be allowed so long as the cost per housing unit does not exceed Rs 20 lakh. The move augurs well for the sector as it comes at a time when there has been a notable slide in the flow of credit to the sector. This was largely on account of increase in real estate prices, slackening of income growth, and rise in interest rate for home loans — all of which have brought home sales to a near standstill since late last year.
The sop will be available only for the first twelve instalments for loans sanctioned and disbursed in the twelve months running from the date of publication of the scheme.
Also, the one per cent subsidy will be computed for 12 months on disbursed amount, and adjusted upfront in the principal outstanding irrespective of whether the loan is taken on fixed or floating rate basis.
On a housing loan of Rs 10 lakh, the interest relief will amount to Rs 10,000 per account, an official release said. As such, the scheme of a size of Rs 1,000 crore is expected to cover 10 lakh beneficiaries in one-year period.
Meanwhile, Mr S. Sridhar, Chairman, National Housing Bank (NHB) — the designated nodal agency for this scheme — told Business Line that the scheme will help improve sentiment in the housing sector, especially those in the non-metros.
“A home loan borrower will be encouraged to take a decision. The developers can also quickly get their act together to increase the supply of affordable housing,” Mr Sridhar said. Developers such as DLF and Unitech said that the scheme would “galvanise” buying sentiments. Clearly, it would benefit buyers in tier-II and tier-III cities as also affordable housing projects that are now coming up in the suburbs of major cities. But, it may not be of much benefit to buyers in prime locations of metros where the ticket sizes tend to be over Rs 20 lakh.
“Nearly, 50-60 per cent of potential home buyers belong to the low cost housing category. So, the scheme is a welcome step and would benefit buyers in smaller cities and suburban locations”, Mr Pradeep Jain, Chairman of Parsvnath Developers, said.
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RBI not for single market regulator

The Reserve Bank of India has reservations about the unified market regulator approach recommended by the Raghuram Rajan Committee report on Financial Sector Reforms.
It wants the current silo approach to the regulation of financial markets to continue for preserving financial stability.
Exercise oversight
“Unlike equity prices, interest rates and exchange rates are key macroeconomic variables with implications for monetary policy and overall macroeconomic stability. In addition, banks dominate the interest and exchange rate markets. By also being the regulator of these markets, the RBI is in a position to exercise oversight of institutions, markets and products, to monitor market developments…… and maintain financial stability at the systemic level. This is an arrangement that has stood the test of time and protected our financial stability even in the face of some severe onslaughts. This is an arrangement that we should not jettison lightly in quest of a unified market regulator,” the RBI Governor, Dr D. Subbarao, said.
The Governor pointed out that the responsibility for financial stability cannot be fragmented across several regulators; it has to rest unambiguously with a single regulator, and that single regulator optimally is the central bank. And second, there is need for coordination across regulators on a regular basis and for developing a protocol for responding to a crisis situation.
He also expressed concern about a proposal in the Raghuram Rajan Committee report about bringing all trading of financial products under the Securities and Exchange Board of India (SEBI).
“Two recent reports, both influential, one by Percy Mistry on Mumbai as an International Financial Centre and the other by Raghuram Rajan on Financial Sector Reforms, have recommended that regulation of all trading of financial products and instruments be brought under SEBI. We need to seriously debate the advisability of such a unification,” the Governor said at FICCI-IBA banking conference.
Currently, the RBI regulates banks, NBFCs, the money market, and the markets for government securities market, credit, foreign exchange market and derivatives.
Products traded on exchanges fall within the regulatory purview of SEBI.
Dr Subbarao said India would exit the expansionary monetary regime sooner than other countries as inflationary pressures are showing up. He, however, did not provide a timeline for exiting the accommodative regime.
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'RBI to exit expansionary stance before others

The easy monetary stance, which has been adopted by the Reserve Bank of India (RBI) since October last year, might be reversed before other economies due to inflationary pressures, Reserve Bank Governor D Subbarao indicated today.
“We may have to take the call (to exit) sooner than most other countries. Because as we know inflationary pressures are showing up and we need to be sensitive to them,” Subbarao said at a banking seminar organised by the Federation of Indian Chambers of Commerce and Industry (Ficci) and Indian Banks’ Association.
He, however, was candid in admitting that RBI had no clear idea on when to exit the current accommodative policy stance.
“The current state of expansionary monetary and fiscal policy is not a steady state. We got to do it at the appropriate time, in the right sequence. It is not that I know when I am going to do it and I am not telling the market. We have no clear idea,” the governor said.
RBI is not getting clear signals as the economy is yet to shift into higher growth mode following the financial crisis, but at the same time, inflationary pressure is building up due to a rise in global commodity prices and weaker monsoon in India.
Since the global financial crisis broke out in September last year, RBI lowered cash reserve ratio by 400 basis points (bps), while repo and reverse repo rates were cut by 425 and 275 bps, respectively, to infuse liquidity. The government has also announced three stimulus packages in the last one year to boost demand.
Though RBI may unwind before other central banks, the governor highlighted the importance of coordination in withdrawing the accommodative policy among nations.
“Coordination is important but it does not mean synchronisation. It does not mean everybody does it in the same time. It means that everybody has broad understanding that when others are going to play the game,” he said.
Subbarao said the RBI has set up a multi-disciplinary financial stability unit which would put out regular financial stability report. The first report will come out in the next few months.
“This report will present an overall unified assessment of the health of the financial system with a focus on identification and analysis of potential risks to systemic stability,” he said.
Commenting that tension between fiscal and monetary policies could potentially militate against financial stability, he said, India too was confronting the dilemma of managing the tension.
“The government has asked the Finance Commission to indicate a road map for returning the path of fiscal consolidation. It is imperative that both the centre and states return to a path of fiscal responsibility, for a number of reasons, including the need to preserve financial stability.
He also assured the global financial crisis has not dented the enthusiasm for financial sector reforms.“We will not slow down on reforms, but will surely rework the road map to reflect the lessons of the crisis,” Subbarao said.
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Uniform retirement age for tribunal chairpersons favoured

The Law Commission has recommended that the Centre fix a uniform retirement age of 70 years for chairpersons of tribunals and 65 years for members against the present limit of 68 for chairpersons and 62 years for members.
In its 232nd report, the Commission, headed by Chairman Justice A.R. Lakshmanan, has said: “It needs no mention that an enhanced age of retirement is prescribed in the higher echelons of the administrative and judicial services because the professional experience gained by those working in them needs to be fully tapped for the good of society.”
“In the present liberalised economic era, the experience gained by government employees is being fruitfully tapped after their retirement by many multinational companies. These private enterprises pay the retired government employees hefty salaries because the valuable professional experience they gained during their government service is put to a profitable use. In such a scenario, the government should utilise the services of its retired employees to the fullest extent possible.”
It said: “The practice being followed for fixing the age of retirement for chairpersons and members of various tribunals reveals that there exists no rationale for fixing different retirement age limits. It may be seen that there is neither any uniformity in the age of retirement, nor have any cogent reasons been given in the Acts, justifying the criteria.”
The Commission said the question of increasing the retirement age of judges of the High Courts and the Supreme Court from 62 to 65 and from 65 to 70 respectively was a matter of serious discussion at different levels of the government. Retirement age in many government departments, especially educational and scientific and research institutions, had already been increased.
The Commission said a High Court judge was considered for appointment as chairperson or member of a tribunal after he retired at the age of 62.
If an incumbent was to retire within two-three years of his joining a tribunal, he could not contribute much to its functioning. Therefore, the retirement age of chairpersons and members should be fixed at 70 and 65 respectively.
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Thursday, September 10, 2009

Norms soon to make banks UID-ready

The Unique Identification Authority of India (UIDAI) would draw up standards for banks in the next six months to make them UID-ready. Based on the standards, the banks should put their systems in place by the time the first UID numbers are rolled out in the next 12-18 months, Mr Nandan Nilekani, Chairman, UIDAI, said.
“UID and financial inclusion go hand-in hand. It will help banks reduce financial costs while reaching out to the poor,” he said in his address at the FICCI-IBA seminar.
Banks will be the enrolling partners and the users of the authentication service, he said.
The UIDAI has initiated talks with the Indian Banks’ Association, the RBI, SEBI, IRDA, LIC, TRAI and PFRDA to get their feedback.
UIDAI plans to use the databases of a wide range of organisations for building its master database. The issuances will be demand led. It is looking to issue unique identification numbers to 60 crore Indians in the next 4-5 years.
The registrars will have to agree to a standardised authorisation process. The Authority will have a different strategy to reach out to the poor, as demand-led issuance will not be very effective here.
“UIDAI will issue numbers, not cards. It will be ensured that the numbers are not duplicated. That is one person will get only one number,” Mr Nilekani said.
Information The authority will issue a number based on two kinds of information — demographic information such as name, address, date of birth and so forth and biometric information such as fingerprints that can uniquely identify the person. When a new user comes in for a number, his/her biometric information will be screened to check if a UID number has already been issued to the person. This will help to control the duplication at source.
The database will just be a master database and will have no transaction records. It will not have information such as income details, religion etc.
All Indian residents will get this number, including infants and students. For infants and students, the UID of the guardian will be the legal ID number.
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RBI Deputy Governor’s term extended by two years

The RBI Deputy Governor, Ms Shyamala Gopinath, has been given a two-year extension till June 20, 2011. She was appointed as Deputy Governor in 2004 for five years, and her term was to expire this year.
Ms Gopinath handles, among others, the Internal Debt Management Department, the Foreign Exchange Department, the Department of Non-Banking Supervision, the Department of External Investments and the Operations and Financial Markets Department.
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Wednesday, September 9, 2009

RBI to introduce 100 crore Rs 10 plastic note

Soiled notes may soon be a thing of past with the Reserve Bank planning to introduce Rs 10 polymer banknotes whose life span would be 4

times the normal currency notes and would be difficult to imitate.

The apex bank has initially decided to introduce 100 crore pieces of Rs 10 polymer notes, for which it has floated a global tender, a senior central bank official said.

Explaining the rationale for introduction of polymer notes, the official said, these notes would have an average life span of 5 years compared to one year for the currency notes.

Besides, the official said, these notes are cleaner than paper notes and it would be difficult to counterfeit the currency.

The polymer notes were first introduced in Australia to safeguard against counterfeiting of currency.

Besides Australia, other countries which have introduced plastic notes include New Zealand, Papua New Guinea, Romania, Bermuda, Brunei and Vietnam
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High capital base needed for banks with PE arm: RBI

Soon banks such as ICICI Bank, Axis Bank and State Bank of India with a private equity (PE) arms may have to keep enhanced capital base to mitigate risks arising from such exposures.
The private equity business of banks involve reputational risk as people putting money (into private fund) look at credentials of those banks.
“So you have to recognise that this requires some capital. So some capital need to be provided for that,” RBI Deputy Governor Usha Thorat told reporters on the sidelines of the Ficci-IBA Banking Summit here today.
It meant banks would have to maintain additional capital if they were sponsoring and floating private equity funds, she added. She said that RBI would shortly be issuing a draft discussion paper on prudential issues on banks’ floating and managing a private pool of capital.
The purpose of the exercise was to sensitise banks about risks inherent in such activities (PE business) and limit such exposures commensurate with their risk management and available capital, she added.
While ICICI Bank, Axis Bank and Yes Bank already have active private funds, SBI has floated an infrastructure fund in collaboration with Macquarie.
Regarding steps to improve the regulation of financial conglomerates, Thorat said the central bank recently reviewed the regulatory and supervisory framework for them. RBI would shortly issue enhanced norms reflecting an improved regulatory framework.
Similarly, the central bank will issue a draft circular on modalities to adopt the integrated liquidity risk management system.
A guidance note on ‘Liquidity Risk Management’ based on the Basel Committee’s principles and other international best practices will be put on the RBI website by October 31.
Similarly, additional guidance on minimum lock-in period and minimum retention criteria for securitising loans originated and purchased by banks would be issued shortly, she said.
For the development of the financial market infrastructure, RBI has prescribed capital adequacy norms for central counter party (CCP). Clearing Corporation of India’s role is being gradually extended to the over-the-counter interest rate and foreign exchange derivatives segment. Initially, it will work as a reporting platform and, later, to cover the settlement aspect.
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RBI frowns on sub-PLR loans, bankers resist

The Reserve Bank of India (RBI) is against lending by banks below their benchmark prime lending rates (BPLRs) — a stance that has met with stiff opposition from bankers.
The central bank’s committee on BPLR review, which met last week, was of the view that the practice of lending below BPLR needed to be discouraged in order to make pricing of risk more transparent.
According to a banker who attended the meeting of the panel, which is headed by RBI Executive Director Deepak Mohanty, the central bank was of the view that core deposits of the banks should not be used for lending below the prime lending rate.
About three quarters of the bank lending happened at sub-BPL rates, while core deposits constituted around 80 per cent of banks’ total deposits. Deposits having tenure of more than one year are considered core deposits which gives stability to a bank’s liability portfolio.
Over the last few months, RBI has made known its concerns over lending below BPLR and had set up a committee to review the structure.
However, bankers have pointed out since BPLRs of banks were very high with some having it at around 16 per cent, it will be difficult for banks to disallow sub-PLR lending.
“If a bank has surplus liquidity, then instead of lending it to call market or parking in the reverse repo tender for 3.25 per cent, banks can deploy resources on short-term basis for 7 per cent,” a banker who attended the meeting said.
Another banker said that large companies might be unwilling to borrow for the short term at the prevailing BPLR.
On the issue of separate BPLR for retail and wholesale customers, there seemed to be disagreement among RBI officials, sources said. “Some RBI officials feel that separate benchmark is not a good idea as pricing should be done on the basis of risk perception of the borrower and not on whether it is corporate or retail,” sources said.
A section of the committee members suggested separate BPLRs for retail and corporate sectors with the former BPLR at a higher level than that for companies. Though most of the Indian banks presently have one BPLR, ICICI Bank has two benchmark rates for its retail and corporate clients. However, ICICI Bank’s retail BPLR is lower than its corporate benchmark.
The committee has already missed one deadline for submitting the report which was extended by a month to end September. IBA Chief Executive K Ramakrishnan had said that the report would come out by the end of the month.
After the last week’s meeting, RBI has referred back its suggestion in the form of a draft report to the Indian Banks’ Association which is seeking further feedback from banks.
Based on the IBA recommendations, the committee is once again scheduled to meet by the middle of this month.
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Tuesday, September 8, 2009

Banks step back as you draw out!

Banks are not geared up for such a steep rise in volumes.
Confess! Haven’t you all been going to bank ATMs regularly during the past few months? The sharp rise in the number of transactions at ATMs in the country seems to prove it.
You probably wanted to check out if it was really true that you could draw your money from any ATM. And barring an occasional hiccup, you got the money. And you were able to check out your bank balance on a daily basis – following up every credit that came into your account and carefully monitoring the debit of every amount from the account. Just admit it.
Data from the National Payments Corporation show that the number of balance enquiries at the ATMs went up 14 fold and the number of cash withdrawals rose ten-fold even as the number of ATMs themselves doubled during the past one-and-a-half years (see table).
It takes an average of 200 hits or withdrawals from an ATM a day for the investments to break even. Going by the usage patterns a little over a year ago, it seemed as though that was not happening.

But ever since April 1 of this year, when the RBI threw open access to all ATMs for all bank customers, ATM usage has sky-rocketed. Average hits every day was about 1,100 (about 800 for cash withdrawals alone) for August spread across 42,375 ATMs in the country.
If you assume that each transaction takes about a minute, what you have is a situation where ATMs were probably occupied for about 19 hours every day! Imagine the logistical nightmare of having to load up the cash every few hours as ATMs dry out. If one goes by these statistics, it seems that bankers didn’t get any respite last month.
Clearly, banks were not geared up for such a steep rise in volumes. And, therefore, the chorus to limit the number of free transactions to just five in another bank’s ATM.
Better stay away from ATMs for a while.
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Farm growth expectation unchanged: RBI

Despite the country experiencing deficient rainfall, the Reserve Bank of India (RBI) has not changed its growth projections for the agricultural sector in the current financial year.
It expects the farm sector to grow at 4 per cent in 2009-10.
“It (farm growth expectation) was given in the month of July. It will be again given in October. Till October, we are not going to change the number,” KC Chakrabarty, deputy governor of RBI, told at the sidelines of a seminar on Monday.
He, however, said drought would always be a concern. He highlighted the need for relocation of surplus agricultural labour to other sectors for sustaining economic growth. When asked if extension of repayment under farm loan waiver scheme would weaken credit discipline, Chakrabarty said, “It is important to help those who need the relief package. Helping the poor can never create moral hazard on credit discipline,” he said.
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RBI to ensure regular supply of fresh bank notes

Besides examining options to enhance the life of bank notes, the Reserve Bank of India has initiated a multi pronged approach involving regular supply of fresh bank notes, speedier disposal of soiled bank notes and extended mechanisation of cash processing activity to ensure that good quality bank notes are in circulation in the system. The Bank has in its Annual Report stated that during 2008-09, the value of bank notes increased by 17.1 per cent and by 10.7 per cent in volume terms. The total supply of bank notes by the Bharatiya Reserve Bank Note Mudran (P) Ltd during 2008-09 (July-June) was 8,501 million pieces as compared with 8,488 million pieces during 2007-08.The Government-owned Security Printing and Minting Corporation of India supplied 5,160 million pieces of notes in 2008-09 compared with 5,442 million pieces in 2007-08.
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Govt extends agri debt relief scheme

The government has extended the debt relief scheme for farmers with land holdings in excess of 5 acres by six months till December. It has also given banks the discretion to make payments out of provisions set aside for such loans in case the farmer is unable to repay three-fourth of the loan amount as stipulated by the scheme, according to a Reserve Bank of India circular on Monday. The remaining 25% of the loan will continue to be provided by government under the compromise package to banks. According to MV Nair, chairman, Indian Banks’ Association, and chairman, Union Bank of India, the move will enable banks to speedily settle farm loans and reduce non-performing assets from bank balance sheets. The one-time settlement scheme was part of the FY09 budget announcement, which recommended a complete waiver of agri loans taken by small and marginal farmers, with land holdings of up to 5 acres and 2.5 acres, respectively, and partial relief to ‘other’ farmers. The debt waiver and relief scheme was eligible on short-term and long-term agri loans disbursed up to March 31, 2007, and overdue as on December 31, 2007, and which remained unpaid till February 29, 2008. Banks will also not charge any interest on the eligible amount (75%) from February 29, 2008, to June 30, 2009, (the earlier date of settlement). However, banks can charge a normal rate of interest on the 75% from July 01, 2009, up to the revised date of settlement on the unpaid amount. The loans eligible for debt waiver and relief were short-term crop loans (from six to eighteen months) and for term loans (investment credit) for longer duration.
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Thursday, September 3, 2009

SC bench to decide on insurers' liability to pay claims

A larger bench of the Supreme Court will decide the issue of whether insurance companies can be compelled to pay the claim even if they

are under no liability to pay such amount? A bench comprising Justice Markandey Katju and Justice AK Ganguly said: “We are of the opinion if the insurance company proves that it has no liability to pay compensation to the claimants, the insurance company cannot be compelled to make payment and later on recover it from the owner of the vehicle.” No doubt, there are some decisions of the apex court which have taken the view that even if the insurance company has no liability, yet it must pay and later on recover it from the owner of the vehicle, the court said. The bench said, we have some reservations about the correctness of such decisions of this court (SC). If the insurance company has no liability to pay at all, then, in our opinion, it cannot be compelled by order of the court in exercise of its jurisdiction under Article 142 of the Constitution of India to pay the compensation amount and later on recover it from the owner of the vehicle. The court framed two issues to be decided by a larger bench of the apex court. One, if an insurance company can prove that it does not have any liability to pay any amount in law to the claimants under the Motor Vehicles Act or any other enactment, can the court yet compel it to pay the amount in question giving it liberty to later on recover the same from the owner of the vehicle? Two, can such a direction be given under Article 142 of the Constitution (discretionary power of the apex court) and what is the scope of Article 142? Does Article 142 permit the court to create a liability where there is none?. The court passed the order on the plea of National Insurance Co. It said there was no valid insurance coverage on the date of the accident i.e. 30th November, 2003. The cheque towards premium for renewal of the policy was issued on November 29, 2003, but it was dishonoured. Hence, the contention of the insurance company was that it has no liability to pay any compensation amount to the claimants since there was no insurance coverage on the date of the accident. Despite this, the AP high court had directed the insurance company to pay the compensation amount to the claimants with liberty to recover the same from the owner of the vehicle.
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Hedging loans with interest rate futures

Interest rate futures (IRFs), which made a comeback this Monday after six years, has opened up a lot of interesting options for an individual.
Especially, for high networth individuals (HNIs), IRFs could be a good hedge against loans or existing fixed deposits. Here’s how it will work:
Say, a person has taken a home loan of Rs 40 lakh at 8 per cent floating rate for 15 years. His equated monthly instalment (EMI) would be Rs 38,226.

Home loan = Rs 40 lakh
Rate of interest = 8 per cent
Tenure = 15 years (180 months)
EMI = Rs 38,226
After one year
Rate of interest = 10 per cent
Principal outstanding = Rs 39,77,919
Tenure = 14 (168 months)
New EMI = Rs 44,083
(increase = Rs 5,857)
Hedging through IRFs
Twenty lots of IRFs = Rs 40 lakh
Margin money (5 per cent) = Rs 2 lakh
Sold after one year (at 1-1.5 per cent higher yield) = Rs 2.4 lakh - Rs 3.8 lakh (considering 1 per cent rise yield leads to returns of 6 per cent due to fall in price)
Prepayment of loan
(entire Rs 2.4 lakh)

New Balance = Rs 37,37,919
New EMI = Rs 41, 424
Saving = Rs 2,659 per month

If the interest rate goes up to 10 per cent next year, the outstanding principal will be Rs 39,77,919 and the fresh EMI will come to Rs 44,083 - a rise of Rs 5,857 per month.
Supposing the person was expecting the rate to go up, as is the case now where there are expectations that any rise in inflation would result in higher rates, he can sell IRFs (go short) in the futures market for the same time frame (one year) now to hedge against this risk.
The instrument will be a 10-year notional coupon bond bearing the Government of India security. Since one contract size of IRF is Rs 2 lakh, he needs to deal in 20 lots.
After one year, when home loan rates rise, benchmark yields of the notional coupon would also have increased (earlier in fact, to indicate a rising interest rate regime). Consequently, the yields of IRFs would also rise.
If one considers that yields of IRFs will rise by at least 1 per cent to 1.5 per cent to trigger a 2 per cent rise in home loan rates, the seller of IRFs is going to earn around Rs 2.4 lakh to Rs 3.8 lakh (assuming that 1 per cent rise in interest rate leads to a return of 6 per cent due to fall in prices).
If he partly pre-pays his loan using the profit, his EMI would come down by Rs 2,659. If the interest rate does not go up, he will not make any money on IRFs, but his EMIs will stay constant. On the other hand, if the interest rate goes down, he stands to lose money on IRFs, but his EMI will also come down.
However, while it is possible to hedge your loan against a rise or fall in interest rates, the correlation between IRFs and mortgage rates is not absolute.
Importantly, investors will need margin money for buying the contract and pay for transaction costs.
While the National Stock Exchange is not charging anything at present, the financial institution could charge around Re 0.02 to Re 0.03 per contract.
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DICGC settles claims worth Rs 195 cr from co-op banks

The Deposit Insurance andCredit Guarantee Corporation (DICGC) has settled depositor claims aggregating Rs 195 crore from 28 liquidated co-operative banks, mainly from Karnataka and Maharashtra, in FY2009. This is against Rs 155 crore from 22 co-operative banks in FY2008.
The Corporation’s settlement figures highlight the fact that the number of co-operative banks whose licence has been cancelled by the banking regulator is steadily increasing. The regulator, in recent times, has come down heavily on some of these banks for mismanagement of operations, connected lending, failure to meet prudential norms and so on.
In the current financial year, so far, the Corporation has settled depositor claims aggregating Rs 68 crore from eight liquidated co-operative banks — four each from Maharashtra and Gujarat.
In FY2009, the single biggest settlement effected by DICGC was from the District Co-operative Bank Ltd, Gonda, Uttar Pradesh, for Rs 45.41 crore. Some of the other big settlements effected include Shree Balasaheb Satbhai Merchant Co-operative Bank Ltd, Copergaon, Maharashtra (Rs 22.93 crore) and the Maratha Co-operative Bank Ltd, Hubli, Karnataka (Rs 17.74 crore), and Parivartan Co-operative Bank Ltd, Mumbai (Rs 16.71 crore).
When a bank’s licence is cancelled by the Reserve Bank of India, the liquidator, who is appointed by the Registrar of Co-operative Societies, prepares a list of depositors holding deposits up to Rs 1 lakh and submits the same to the DICGC for settlement of claims.
All registered insured banks (commercial banks, including branches of foreign banks in India, regional rural banks, local area banks, and co-operative banks) are required to pay to the DICGC deposit insurance premium at the rate of 10 paise a year for every deposit of Rs 100 at half-yearly intervals. Governed by the DICGC Act, 1961, the corporation insures bank deposits such as savings, fixed, current, and recurring up to Rs 1 lakh a depositor/bank. The premium paid by the insured banks to DICGC is required to be absorbed by the banks themselves; for depositors, the benefit of this service is free of cost.
“Since DICGC is charging premium on all deposits, irrespective of whether the deposit is for Rs 100 or Rs 1 crore, there is no reason why deposit insurance coverage should be limited to a deposit holding of Rs 1 lakh. Depending on the gradation of a bank, the Corporation could consider introducing variable premium so that deposit insurance coverage could be upped substantially,” said Dr Vinayak Tarale, Secretary, Maharashtra State Co-operative Banks’ Association.
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Bankers wary of collateral-free education loan scheme

When a bank extends an education loan it takes a call on the course and the prospect of the student-borrower getting a job on completion of the course.—
Collateral-free education loans given by banks under the ‘model education loan scheme for students to pursue higher studies’ has bankers a bit worried.
Their concern stems from two counts. While on the one hand they do not have any tangible security to fall back on should an education loan of up to Rs 4 lakh turn sour, on the other, in the current scenario of a slowing economy whereby either jobs are hard to come by or even if a student lands one, he/she is not in a position to service the loan due to low pay. Hence, they are cautious of potential irregularities in the servicing of these loans.
Underscoring the bankers’ predicament vis-À-vis collateral-free education loans, a public sector bank official pointed to the case of a daily wage earner’s daughter who took an education loan for enrolling into a four-year B.Sc (Nursing) degree in a private college in Kerala at an exorbitant fee of around Rs 80,000 per annum.
On completion of the degree, the student-borrower got a job in a private hospital in Chennai at a monthly salary of Rs 2,000, which is barely enough to eke out a living, let alone pay the bank loan. Given their economic condition, the bank could not initiate recovery proceedings against the parents, who were the co-borrowers.
Under the model education loan scheme, which is in operation across all banks, according to a directive issued by the Reserve Bank of India in 2001, banks can neither charge margin nor take security when a student-borrower takes education loan of up to Rs 4 lakh. The bank, however, can rope in the parents of students as co-borrowers.
Privately-run professional colleges are making the most of the collateral-free education loan scheme. “Knowing very well that banks are giving collateral-free education loans to students, private colleges have hiked the fees of professional courses. These institutions are making profits at the students’ expense,” said a bank official.
High interest
As banks do not take any collateral for education loans up to Rs 4 lakh, they charge higher interest on such loans. For example, State Bank of India charges 11.50 per cent interest on education loans up to Rs 4 lakh.
For education loans above Rs 4 lakh and up to Rs 7.5 lakh and over Rs 7.5 lakh, the bank charges 11.25 per cent and 11 per cent interest respectively.
“When a bank extends an education loan it is taking a call on the course and the prospect of the student-borrower getting a job on completion of the course. In this regard, our comfort will increase if the model education loan scheme could be suitably modified, whereby banks are allowed to create a lien on security if the borrower is in a position to offer one. Then, we could consider bringing down interest rates on education loans up to Rs 4 lakh,” said a senior official with a public sector bank.
In the case of education loans above Rs 4 lakh, banks charge a margin of 5 per cent for studies in India and 15 per cent for studies overseas.
Collateral security
For education loans above Rs 4 lakh and up to Rs 7.5 lakh, besides roping in parents as co-borrowers, the banks also seek collateral security in the form of a third party guarantee. For loans over Rs 7.5 lakh, banks seek co-obligation of parents together with tangible collateral security of suitable value along with the assignment of future income of the student for payment of instalments.
Outstanding loan portfolio
According to various estimates, the outstanding education loan portfolio of all banks put together is in the region of Rs 30,000 crore as on March 31, 2009.
“Due to the economic slowdown and the consequent slump in the job market, the bank has seen some cases of students not reporting to the bank at the end of the one-year moratorium period after the completion of their course, following which they are supposed to start repayment. We don’t think it will become a serious NPA situation. As of now it is just overdue,” said a senior Andhra Bank official.
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Wednesday, September 2, 2009

Indian banks pass stress test

MTM risks to the Indian banking sector are limited and manageable.
The Indian banking system is resilient to the shocks that may arise due to higher non-performing assets (NPAs) and the global economic crisis, the Reserve Bank of India’s (RBI’s) stress test has shown.
RBI’s Annual Report-2008-09 said the test was done to assess the capital adequacy of the banks to sustain losses from deteriorating asset quality, primarily due to falling external demand in the wake of the global recession a subsequent slowing of domestic private demand.
A similar test was done to assess the risks associated with the mark-to-market (MTM) losses on the banks’ overseas exposure. MTM means stating losses based on the current market value of the currency. The assessment, done in 2008, suggested that the MTM risks to the Indian banking sector appeared limited and manageable.
The exercise tested the banks’ exposure to seven sectors whose prospects have dampened due to the slowdown in external demand.
The sectors were chemicals/dyes/paints, leather and leather products, gems and jewellery, construction , automobiles, iron and steel, and textiles. These account for 15.4 per cent of total advances and 12.2 per cent of gross NPAs of Indian banks. The test assumed 300 per cent and 400 per cent simultaneous rise in NPAs in these sectors and adjusted the additional provisioning requirements from existing capital and risk-weighted assets. Barring two banks, which accounted for 3 per cent of the total assets of the banking system, others were found to have the strength to withstand such a risk.
In September 2007, following the financial crisis in the US, RBI started a monthly reporting system to capture the banks’ overseas exposure to off-balance sheet items (primarily credit derivatives and investments such as asset-backed commercial papers and mortgage-backed securities). An analysis of such information so far has revealed that the banks’ exposure to such instruments has gradually come down from June 2008. The MTM losses, however, gradually increased up to March 2009, reflecting the impact of the sustained fall in value of the assets
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Chit funds can't take public deposits, says RBI

The Reserve Bank of India (RBI) today prohibited chit funds from accepting deposits, a move that could make banks the sole public deposit-taking institutions in the country.
The apex bank said these funds could accept deposits only from their shareholders. Chit funds are dually regulated by state government and the RBI. They are registered with the registrar of chit funds under state governments and are regulated by RBI if they accept public deposits.
RBI regulates them through the Miscellaneous Non-Banking Companies (Reserve Bank) Directions Act. Now, the Act has been amended to ban them from accepting public deposits.
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Free ATM withdrawals face caps from Oct 15

From October 15, customers will not be able to enjoy limitless use of third-party ATMs free of charge.
The Indian Banks’ Association (IBA) today decided to limit the number of free third-party ATM transactions to five per month. In addition, the maximum amount that a customer can withdraw from another bank’s ATM has been capped at Rs 10,000 per transaction. Banks have also been allowed to charge for withdrawals from current accounts at third-party ATMs.
The decision to bring the rule into force from October 15 was taken at a meeting of the IBA in Mumbai today. IBA Chairman M V Nair confirmed the date on which the rule would come into effect. Customers will have to be intimated at least a month before the rule is implemented.
Since April 1, customers have been allowed use of other banks’ ATMs free of charge, in line with a Reserve Bank of India (RBI) directive. However, faced with a surge in the number of transactions and a rise in interchange expenses, banks urged RBI to impose caps on use of third-party ATMs. Every time a customer uses another bank’s ATM, his bank has to pay an interchange fee of Rs 20 to the other bank. Before April 1 this year, this charge was borne by the user.
However, banks will have to implement various technical changes to their ATM networks before the rule can be implemented. Bankers said they would need at least two-three months to prepare for the modifications.
“Banks will have to make modifications in their ATM operations so that every time a user exceeds his quota of five transactions, he gets an alert. For subsequent transactions, the interchange fee will be debited from his account. Banks are not yet ready for these modifications,” said a senior executive of a bank.
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RBI group suggests survey on consumer confidence

Data pertaining to areas such as consumer confidence, business outlook for services and employment may soon be available. The Reserve Bank of India’s Working Group on Surveys has recommended these as some of the topics on which the RBI should bring out surveys.
Explaining the need for a consumer confidence survey, the group, in its report, said that changes in household confidence, personal financial situation, savings and investment intention have an impact on real activities and are, therefore, of particular relevance for policy purpose.
Similarly, a regular survey of the credit market conditions would help the RBI analyse trends and developments in credit growth. Such a survey can cover the large lenders from among the commercial banks, the report, said.
Currently, the quarterly Industrial Outlook Survey covers only the manufacturing. The group has suggested that a business outlook survey for the services sector should be conducted, initially with a focus on trading, as it would provide useful information on the demand for manufactured goods and also the overall employment situation as trading is considered to significantly contribute to employment.
In India, there is a major data gap with regard to employment.
The group has recommended that to get a perception of trends in employment opportunities, the RBI should consider conducting quick employment surveys of fresh graduates from technical institutions.
It also recommended the speeding up of the compilation of the Housing Start Index as it is an important lead indicator of economic activity. While the asset price monitoring system will present the price data on housing, the Housing Start Index will provide data on the quantity of housing, the report said.
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MAT changes will hit NBFCs

The Direct Taxes Code (DTC) is slowly being put to deeper scrutiny. As is always the case, some of the changes may be ushered in with good intention, but inept drafting leaves the door open for needless litigation.
The newly crafted Minimum Alternate Tax (MAT) is a case in point. Ever since Rajiv Gandhi unleashed the book profits tax on India Inc. in 1987, it has generated controversies galore and kept all the courts busy interpreting the intention and scope of the provision.
At present, MAT is applicable to corporates at 15 per cent on published profits. The nominal tax rate for the corporate sector is 33.99 per cent and the effective rate after all deductions/concessions stands at around 22.22 per cent.
Mat computation
MAT, despite the controversy surrounding its existence, has lived by the year for now 22 years and promises to open a new chapter from April 1, 2011.
The mechanics, as per the DTC, is simple. MAT will now be 2 per cent of the value of gross assets as against 15 per cent on profits. For this purpose the value of gross assets would be computed as shown in the Table.
It may be noted that even business assets such as sundry debtors, loans and advances will now form part of the computation of gross assets for the purpose of the levy.
Further, while in the vertical form of the balance sheet the current assets are disclosed net of current liabilities, the proposed MAT computation mechanism does not envisage a reduction of current liabilities from current assets. This also leads to an anomalous situation where a company has to pay MAT on the amount of deferred tax asset, if it appears in the balance sheet of a company. The rate of MAT is proposed to be 0.25 per cent in the case of banking companies and 2 per cent in the case of all other companies, including foreign companies.
This is clearly a hardship for Non-Banking Financial Companies (NBFCs) where 70-75 per cent of the assets in the balance-sheet constitute loans and advances, stock on hire and business receivables. There does not appear to be any justification in levying 2 per cent MAT on business assets, which in any case yield income on monthly basis liable to corporate tax at 33.99 per cent (proposed to be reduced to 25 per cent by the DTC). In the case of several large NBFCs, 2 per cent MAT on gross assets would be far greater than 25 per cent on taxable income.
To make matters worse, MAT will now represent a final tax and will not be allowed to be carried forward for claiming tax credit in subsequent years. Not only this, certain companies, will receive an additional blow — for example, those in gestation period; having negative net worth because of huge accumulated losses; having book losses in the current year; having low asset-turnover ratio low net profit ratio; and those earning mainly exempt income.
Change in concept
The justification for re-jigging MAT is that several countries have adopted a tax based on a percentage of assets. The concept of MAT when it first originated in 1987 was completely different from what is proposed in the DTC.
The economic rationale of “assets-based tax” is that it serves as an incentive for efficiency. If that be so then the normal tax itself should serve the purpose.
Any sort of tax that departs from the mainstream route of linkage with income/profits is bound to be litigious. Added to that is the discrimination between banking companies and other companies on the rate of tax. Some serious rethinking is required on the proposed MAT in the DTC.
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RBI surplus jumps 66.6 per cent

The Reserve Bank of India’s (RBI’s) transferable surplus to the Government of India for 2008-09 jumped 66.6 per cent to Rs 25,009 crore from Rs 15,011 crore in the previous year.
According to the RBI Annual Report, the surplus has come primarily due to increased earnings from domestic investments.
The income from domestic sources in 2008-09 at Rs 9,935.77 crore was higher compared with the last year’s level of Rs 5,867.52 crore, primarily on account of an increase in ‘Interest on Domestic Securities and LAF operations,’ which increased from Rs 4,533.87 crore in 2007-08 to Rs 8,683.11 crore in 2008-09 and ‘Interest on Loans and Advances,’ which increased from Rs 325.60 crore in 2007-08 to Rs 1,254.80 crore in 2008-09. The investment in Government of India securities increased by Rs 1,26,086.86 crore, from Rs 72,540.33 crore as on June 30, 2008, to Rs 1,98,627.19 crore as on June 30, 2009, on account of purchase of special securities from the oil marketing companies (ie oil bonds) under the special market operations and increase in the open market operations.
The surplus thus included Rs 1,436.00 crore towards the interest differential on special securities converted into marketable securities for compensating the government for the difference in interest expenditure, which the government had to bear consequent on conversion of such special securities.
The report further stated that unlike the significant expansion in balance sheets of the central banks of several advanced economies that resulted from their policy responses to the crisis, the behaviour of the Reserve Bank’s balance sheet was distinctly different. This is because specific measures, such as reduction in CRR and unwinding of the government’s MSS balances implied corresponding contraction in the central bank’s liabilities, even as both measures were the key channels for injecting large liquidity into the financial system. Thus, through contraction in the balance sheet size, the Reserve Bank could expand the availability of liquidity in the system. On the asset side of the balance sheet too, the contraction was driven by a decline in foreign assets.
During the year, gross income and expenditure of the Reserve Bank were at Rs 60,731.98 crore and Rs 8,217.88 crore, respectively, after meeting the allocation needs for both contingency reserve (CR) and asset development reserve (ADR).
Earnings from foreign and domestic sources were at Rs 50,796.21 crore and Rs 9,935.77 crore, respectively.
The Reserve Bank’s earnings from the deployment of foreign currency assets and gold decreased by Rs 1,087.06 crore (down 2.10 per cent), from Rs 51,883.27 crore in 2007-08 to Rs 50,796.21 crore in 2008-09. This was mainly on account of the fall in interest rates in the international markets. Before accounting for mark-to-market depreciation on securities, the rate of earnings on foreign currency assets and gold was 4.24 per cent in 2008-09 as against 5.09 per cent in 2007-08. The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82 per cent in 2007-08 to 4.16 per cent in 2008-09.
The foreign currency assets comprise foreign securities held in the issue department, balances held abroad and investments in foreign securities held in the banking department. These assets declined by Rs 81,010.25 crore, from Rs 12,98,552.05 crore as on June 30, 2008, to Rs 12,17,541.80 crore as on June 30, 2009. The decrease in the level of foreign currency assets was mainly on account of net sales of US dollars in the domestic foreign exchange market.
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Sharp rise in State Govts’ borrowing costs

The State Governments’ borrowing costs have seen a sharp escalation despite the liquidity overhang in the financial markets.
The sharp increase in costs was evident from the last auctions for the State development loans held on August 25. The loans were placed at an average yield of 8.22 per cent or a little over 100 basis points over the sovereign ten-year yield bonds. State development loans are normally placed for tenures of 10 years. The spreads have progressively increased since the beginning of this financial year. At the April auctions, the spreads were barely 75 basis points.
Increase in demand
The Chief Economist of rating agency Credit Analysis & Research Ltd, Dr Soumendra K. Dash, said, “The hardening is partly on account of an increase in the State Governments’ liquidity demands this year.” The liquidity demand, in turn, has pushed the State Governments to increase the frequency of their market entry, he added. States have raised close to Rs 4,900 crore through SDLs since the beginning of this financial year.
Traders said that the firming of yields was also on account of market aversion to long dated securities, partly on account of the high incremental investment deposit ratios (IDR) of the banks. Incremental IDR this year so far is about 87 per cent. The nominal ratio is about 33 per cent, well over the prescribed Statutory Liquidity Ratio of 24 per cent.
Short dated securities
Besides, banks which are the largest investors in Government securities have shifted their preference to short dated securities largely on account of the rising liquidity concerns in the markets. The liquidity concerns stemmed from fears that the Government was likely to push for an increase in farm credit in view of the severe drought that has hit large parts of the country.
In addition, bank officials said that the preference for shorter dated securities were also on account of depreciation concerns. Almost all banks have at least 25 per cent of their demand and time liabilities in the Held to Maturity (HTM) category. Consequently, all the incremental holdings are in the marked to market category – Available for sale or in the Held for Trading category.
Bank officials said that most of them picked up the SDLs under the Held for Trading category, with the idea of selling the same to the Life Insurance Corporation of India and other life insurers. Under the existing regulations, banks are permitted to hold securities in the HFT portfolios only up to a maximum of 90 days.
Switch operations
The officials also said that the increase in the yields, were therefore partly on account of the Life Insurance Corporation’s purchases from the banks, through switch operations. Switch operations involve exchange of securities. LIC and other large life insurance companies constantly switch their respective short dated securities for long dated ones. This was in view of the longer tenure liabilities that LIC has in its policy holders’ funds. However, in the switch operations, LIC tended to drive hard bargains, pricing its purchases at high yields and at the same selling its shorter dated securities at lower yields.
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RBI to ensure regular supply of fresh bank notes

Besides examining options to enhance the life of bank notes, the Reserve Bank of India has initiated a multi pronged approach involving regular supply of fresh bank notes, speedier disposal of soiled bank notes and extended mechanisation of cash processing activity to ensure that good quality bank notes are in circulation in the system.
The Bank has in its Annual Report stated that during 2008-09, the value of bank notes increased by 17.1 per cent and by 10.7 per cent in volume terms.
The total supply of bank notes by the Bharatiya Reserve Bank Note Mudran (P) Ltd during 2008-09 (July-June) was 8,501 million pieces as compared with 8,488 million pieces during 2007-08.
The Government-owned Security Printing and Minting Corporation of India supplied 5,160 million pieces of notes in 2008-09 compared with 5,442 million pieces in 2007-08.
“The challenges to managing currency have increased over time given the expansion of the economy and the growing needs for bank notes, the task of currency management has become increasingly complex,” the report notes. The report also took note of the decline in the share of currency in broad money in 2008-09 from 39.7 per cent as at end-March 1971 to 16 per cent in 2001 and gradually thereafter to 14 per cent as at March 2009, reflecting financial deepening, increased use of credit and debit cards and liquid financial markets.
Notwithstanding the decline in the share of currency in broad money, detection of counterfeit bank notes was observed to be on the rise. A total of 3,98,111 counterfeit bank notes were detected at the Reserve Bank’s offices and bank branches during 2008-09 compared with 1,95,811 in the previous year.
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Forex reserves rise by $932 million

After declining for two consecutive weeks, the country’s foreign exchange reserves increased by $932 million to touch $271.957 billion for the week ended August 21, according to the Reserve Bank of India’s Weekly Statistical Supplement.
In the earlier week, foreign exchange reserves fell by $214 million to $271.025 billion.
The increase in reserves was on account of currency revaluation, as the dollar appreciated against major currencies during the week, said a dealer with a public sector bank.
The foreign currency assets increased by $928 million to touch $260.938 billion. Foreign currency assets expressed in US dollar terms include the effect of appreciation/depreciation of non-US currencies (such as Euro, Sterling, Yen) held in reserves.
Gold was unchanged at $9.671 billion. The reserve position in the IMF increased by $4 million to touch $1.348 billion.
Next week, the rupee will track the movement of the equity market and could see resistance at 49.50, said a forex dealer.
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Rupee gains tracking equities

The rupee gained on Friday against the dollar tracking the surprise gains made by the domestic equity markets, said forex dealers. The rupee opened higher at 48.83 and closed at 48.65, which was also the day’s high. On Thursday, the rupee had closed at 48.91/92 and had also crossed 49 briefly. There was regular dollar inflow during the day as foreign banks were seen selling dollars on behalf of their foreign institutional investor clients, said a forex dealer with a public sector bank. FIIs were net buyers in the equity markets. “In the whole month, the rupee weakened only due to month-end demand. The rupee is now tracking the equity markets which are stronger compared with other Asian markets,” the dealer said. In the overseas market, other currencies like the euro and pound also rallied against the dollar as the UK GDP data was positive. The data showed that the contraction in GDP has come down. The rupee’s movement will depend on the equities and it may see resistance at levels of 49.5 next week, the dealer added.
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