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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