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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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