Indian Banks

The Reserve Bank of India (RBI) is looking at “shadow banking” activities closely and will tighten regulations if needed.

“Next on the agenda is increasing the surveillance on shadow banking,” Anand Sinha, deputy governor of RBI, said on Monday while addressing a meet organised by the Associated Chambers of Commerce and Industry of India. Shadow banking refers to financial sector services beyond the active regulatory purview of central banks.

According to RBI, the unprecedented increase in shadow banking was a reason for the global financial crisis of 2008. Sinha added the central bank might tighten regulations if required.

Strengthening regulations on such businesses are being addressed in the Basel-III norms, proposed to become applicable from 2017-18.

Lately, non-banking finance companies (NBFCs) have attracted the central bank’s attention for various reasons. Sinha said, “We are pro-NBFC, but it being essentially a part of the shadow banking system, it has to be tightened under Basel-III norms.”

On capital adequacy under Basel-III, the deputy governor said while tough requirements were substantial, the incremental capital needed was not unusually large for Indian banks. RBI had released draft guidelines on Basel-III norms for Indian banks on December 30, 2011. The final norms are expected shortly, Sinha said on Monday.

According to the draft, banks would get time up to March 2017 to meet capital adequacy norms. He said, “Basel implementation has been made longer to ensure least disruption, as banks’ earnings are likely to come under pressure due to the higher capital requirements.” Banks would need to raise productivity to protect return on equity, he noted.

The deputy governor said the asset quality of banks was expected to improve, as the rise in non-performing assets may have peaked. Banks should allow restructuring of loans only after due consideration and analysis, he said.

On the recent change in several Indian banks’ rating outlook by Standard and Poor’s, he said: “They have cautioned us; we were aware of these factors.”

RBI has set up a committee to look into ways of developing a fixed rate loans model in the current interest rate environment.

Sinha said, “A variety of fixed interest rate loan products are imperative, considering that currently banks offer fixed rates on deposits and mostly floating rates on home loans, which expose borrowers to uncertain rate movements.”

Source:http://www.business-standard.com/india/news/rbi-may-tighten-shadow-banking-rules/473053/

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Any further hike in policy rates by the Reserve Bank of India(RBI) is expected to dampen the demand for the residential real estate segment due to the rising cost of home loans.

RBI recently hiked the repo and reverse repo rates by 25 basis points to check the spiraling inflation in the country. Any further rate hike is also expected as the RBI has hinted to do so in order to suck excess liquidity from the market.

However, the only silver lining for the real estate players is that banks are yet to raise home loan rates despite the hike in policy rates.

“In the post-hike scenario, we don’t see any kind of impact on demand for residential houses as banks are yet to raise rates. However, any further hike in policy rates is expected to put pressure on demand as banks will follow suit,” J C Sharma, managing director of Shobha Developers said.

He also said that as long as home loan rates stayed within single digit, the present demand would persist.

Presently, home loan rates are hovering in the range of 8-9 per cent with schemes of teaser loans floated by some banks.

“There is a clear indication by RBI of tightening rates and rolling back of stimulus package. However, it is yet to be seen how the policy rate hike is transformed into a rise in home loan rates,” H S Upendra Kamath, executive director, Canara Bank said.

He also said that though there would be some kind of a hike in housing loan rates, that would not be abrupt to destabilise the demand scenario.

In addition to home loan rates, policy rate hike will fuel higher lending rate by banks. So, real estate players with higher cost of funds are expected to pass this cost to the consumers, which in turn may see price rise in this segment.

As per a CRISIL report, residential market is expected to turn positive this year owing to improvement in affordability, steady economic growth and greater liquidity.

A research report of Fitch also notes that fundamentals of Indian real estate sector is improving as seen by better liquidity and improved demand in the residential segment. However, concerns of moderately adverse policies still remain as economic conditions become more stabilised, the report says.

“Demand from residential segment remains robust as of now and any rate hike will work as a deterrent for this sector. However, demand will not be substantially impacted,” Shailesh Kanani, an analyst of Angel Broking said.

He also said that real estate players had again started raising prices in residential segment, which could negatively impact demand scenario with further rate hike.

(BS)

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The Reserve Bank of India (RBI), which has kicked off its programme on financial education among school and college students in Karnataka on a pilot basis, is keen on extending the programme to Orissa.

RBI wants to introduce this programme in Orissa in collaboration with the state government. RBI Governor D Subbarao had offered to roll out the programme during his meeting with the state chief minister Naveen Patnaik in December 2009.

“We are awaiting the response of the state government to start the programme”, said Kaza Sudhakar, regional director of RBI-Bhubaneswar.

RBI, which is observing its Platinum Jubilee this year, is on a drive for inclusion of financial education in the course curriculum of schools and colleges.

Financial literacy is needed among all sections of the society including the school children as RBI aims at 100 per cent financial inclusion in the country, stated Sudhakar.

The apex bank has decided to develop 200 model villages across the country including nine in Orissa.

Besides 100 per cent financial inclusion in the model villages, all the villagers in these villages need to have awareness on banking activities like the deposits, advances, credit facilities and other schemes of the banks, he said. Stating that the some activities on RBI’s financial education programme have already been launched in eight villages of the state, Sudhakar said, the next such programme would be taken up at Niali village in Jagatsinghpur district on March 15.

(BS)

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The Reserve Bank of India’s (RBI’s) no-frills savings accounts initiative is likely to handle around Rs 1 lakh crore once all state governments route their social sector payments through this system.

As social security programme payments were made through the no-frills accounts, it was estimated that around Rs 1 lakh crore would come under the banking system, said KR Ananda, regional director, RBI.

He said Andhra Pradesh, Karnataka and Gujarat were the few states that routed social payments through the system, for which the state governments pay 2 per cent commission to banks.

RBI Executive Director Deepak Mohanty said, “Some state governments are showing reluctance in routing social payments through banks, but eventually it will happen.” He said this was due to “uneven financial inclusion”. The central bank has asked the banking industry to work out a plan, including use of information technology, to address this issue. He was speaking on the sidelines of a seminar here.

RBI had earlier said that it was targeting social sector payments, including those related to the rural job scheme, pension, fertiliser subsidy and state government salaries, to increase penetration of banking services.

“This will also arrest leakages and address fake currency issues,” said Mohanty.

He said RBI’s management, including governor and deputy governors, is visiting select areas, along with district administrations and banks representatives, to see the ground reality.

“Banks are opening the accounts, after which it is operational or not is the key, which RBI wants to ensure,” said Mohanty.

He said capacity was the biggest challenge for banks to execute the no-frills initiative. “Our target is to take banking facilities to 6,000 villages with a population of 2,000 people by 2011 through the business correspondent (BC) model through use of smart cards and other technologies.”

To address this issue, the banking regulator has asked banks to work out a plan which will take banking services to the doorsteps of customers, including use of ICT technology and local representatives. According to Mohanty, collateral-free loans up to Rs 50,000 can be obtained by a no-frills account holder, another incentive to make the accounts active.

According to the RBI 2009 report, only 30,000 population centres out of 600,000 have commercial bank branches; less than 50 per cent of the population has bank accounts and only 10 per cent have life insurance. This is where the opportunity lies, says RBI.

Indian banks, especially those in the public sector, have made substantial efforts to tap the country’s rural population. But expanding through branches has been a costly endeavour. Out of 50 public sector and private sector banks, 26 appointed BCs, through which eight million no-frills accounts were opened till March 31, 2009. Using BCs is gaining popularity, with the RBI recently adding six more types of correspondents, including shop owners and public call centre operators.

Brazil has added over 15 million rural accounts through this model.

(BS)

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The Reserve Bank of India (RBI) has imposed an Rs 25-lakh fine on Jaipur-based private sector lender Bank of Rajasthan (BoR) for violating regulations on five counts.

The central bank has faulted the bank on various grounds, including violating RBI directions on acquisition of immovable property, deletion of records in the bank’s IT system, non-adherence to know-your-customer (KYC) and anti-money laundering (AML) norms, irregularities in the conduct of accounts for certain corporate groups and the bank’s failure to provide certain documents to RBI and misrepresenting that these documents were not available.

The central bank had issued a show-cause notice to the bank. After reviewing replies, it came to the conclusion that the violations were substantial which warranted an imposition of penalty.

G Padmanabhan, the RBI-appointed chief executive of BoR, said the issues pertained to corporate governance concerns for the period 2004-07.

In view of these concerns, the central bank appointed a chief executive, placed two RBI officers along with two independent directors (as RBI nominee) on the bank’s board.

The bank has reviewed the business model of the bank and has decided to put special emphasis on the retail segment instead of the earlier emphasis on large-ticket loans.

The bank had a network of 466 branches which was not being leveraged, Padmanabhan said. After making amends to the business practices, the bank’s exposure to the real estate segment is now within norms.

On the recent Icra downgrade of its Tier-II bonds, he explained that it was partly due to not making provisions for wage revisions, as was the case with most other banks. “Now our liability has crystalised and we have to make provision for wage revision,” he said.

The rating agency has downgraded the bank’s Rs 220-crore Lower Tier-II Bonds from LA- to LBBB+. It also downgraded the LBBB+ rating assigned to the Rs 62-crore Upper Tier-II bonds to LBBB. The long-term ratings continue with a negative outlook.

The rating downgrades reflect deterioration in the quality of the lender’s advances portfolio, which reported a higher-than-expected restructuring, its relatively higher exposure to sensitive sector such as real estate and textile and low net profitability over the last few quarters.

With a provision of Rs 38 crore for non-performing assets, the private bank reported a net loss before tax of Rs 67 crore in the third quarter as against a profit of Rs 74 crore in the previous comparable quarter.

(BS)

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The Reserve Bank of India (RBI) today prescribed enhanced security features and standardised fields for bank cheques to help straight-through-processing using optical technology.

The central bank said the rollout timetable for revised benchmark prescriptions, or Cheque Truncation System (CTS)-2010 standard, would be announced later. The Indian Bank’s Association (IBA) and National Payments Corporation of India (NPCI) will co-ordinate and advise banks on these additional security features.

The new features would include use of quality paper, watermark and printing of bank logos in invisible ink, standard size, clutter-free background, and use of ultra violet images. “Homogeneity of security features is expected to act as a deterrent against cheque frauds,” RBI said.

While maintaining status quo on existing paper specification, the central bank said paper should be image-friendly and have protection against alterations by having chemical sensitivity to acids, alkalis, bleaches and solvents, giving a visible result after a fraudulent attack. The paper should not glow under ultraviolet (UV) lightso that the feel of cheques is uniform across banks.

Referring to use of watermark, it said that at the manufacturing stage, cheques should carry a standardised watermark with the words “CTS-INDIA” that can be seen when held against any light source. This will make it difficult to photocopy or print an instrument, since this paper will be available only to printers. The watermark should be oval in shape and the diameter could be 2.6-3 cm. Each cheque must hold at least one full watermark.

Banks’ logos shall be printed in UV ink. The logos will be captured by and visible under UV-enabled scanners and lamps.

(BS)

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With large parts of the country still out of banking facilities,the Reserve Bank of India is taking the message of financial inclusion to the masses by asking them to open bank accounts and avail the facility of ATMs.The campaign is also aimed at spreading awareness about fake currency.
As part of its Platinum Jubilee celebrations RBI has taken up initiative to explain the masses the role and functions of the apex bank,the importance of the central bank in the day-today life of a common man.
Ranikhera was chosen for the outreach activity as there is no bank in the village and inauguration of an ATM would cater to the needs of around 80,000 villagers,living in and around the village.

(Times of India)

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The Reserve Bank of India (RBI) today reduced the ceiling rate on export credit in foreign currency by banks to Libor plus 200 basis points from Libor plus 350 basis points.

According to the apex bank, the revision would be applicable only to fresh advances. Except for recovery towards out of pocket expenses, RBI has asked banks not to levy any other charges like service charge and management charge. The central bank also reduced the ceiling interest rate on the lines of credit with overseas banks from six months Libor plus 150 bps to six months Libor plus 100 bps. The apex bank’s move has surprised bankers as interest rate environment is expected to harden going forward. “At this time, the measure is slightly counter intuitive because interest rates are expected to go up,” said an executive at a private sector bank.

Yesterday, the US Federal Reserve also increased the discount rate, the rate at which it charges banks for emergency loans, to 0.75 per cent from 0.5 per cent. The move was aimed at encouraging banks to borrow from the private market.

(BS)

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