RBI to issue Rs 1,000 notes with inset letter ‘R’

The Reserve Bank of India will shortly issue banknotes of Rs 10 denomination with inset letter ‘R’ in the Mahatma Gandhi Series.

“The RBI will shortly issue Rs 1,000 denomination banknotes with inset letter ‘R’ in the Mahatma Gandhi series bearing the signature of D. Subbarao, Governor, RBI, and the year of printing on the reverse of the banknote,” the central bank said in a statement.

The design of these notes to be issued now would be similar in all respects to the banknotes in the Mahatma Gandhi Series 2005 issued earlier.

All the banknotes of Rs 1,000 denomination issued by RBI earlier will continue to be legal tender, it added.

RBI panel for raising priority sector lending target for foreign banks to 40%

Given the inability of many banks to achieve the direct lending target in the agriculture segment, a Reserve Bank of India committee has recommended doing away with the ‘direct and indirect' lending distinction. Instead, it has suggested a composite target for agriculture and allied activities.

However, the committee, headed by Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, kept the priority sector lending target at 40 per cent of adjusted net bank credit (ANBC) unchanged.

The committee has suggested revising the priority sector lending target for foreign banks to 40 per cent from 32 per cent at present. This will bring them on a par with all domestic banks. In revising the target for foreign banks, the principle of reciprocity under the World Trade Organisation regime has been adopted, Mr Nair said.

The RBI released the committee's report on Wednesday and has sought stakeholders' feedback by March 31.

According to the report, the target for lending to agriculture and allied activities will be 18 per cent of ANBC. Currently, this target is broken up into 13.5 per cent direct lending and 4.5 per cent indirect lending.

Agriculture and allied activities will cover the entire value chain from farm gate to food plate.

The distinction between direct and indirect lending was creating confusion with regard to classification and reporting, said Mr Nair. The aim is to ensure that formal credit reaches more sections of society, he said.

“…concepts of ‘Direct' and ‘Indirect' lending to agriculture may be integrated in order to have an all encompassing approach towards agriculture sector,'' the report said.

Within agriculture and allied activities, the committee has recommended a sub target of 9 per cent of ANBC for marginal and small farmers, to be achieved by 2015-16.

Within the micro and small enterprises (MSE) sector, a sub-target of 7 per cent of ANBC for micro enterprises is to be achieved by 2013-14.

Housing, education loans

The quantum of education loans to be counted as priority sector has been increased to Rs 15 lakh for studies in India, from Rs 10 lakh and to Rs 25 lakh for studies abroad, from Rs 20 lakh.

Currently, housing loans up to Rs 25 lakh, per property per family, are included under priority sector.

This has now been revised to consider one property per individual, instead of per family.

RBI wants banks to hold more liquid assets

The Reserve Bank of India said on Tuesday that banks need to maintain additional liquid assets as part of Basel III guidelines, over and above previously mandated levels.

Banks will need to adhere to these norms from the month or quarter ending June 2012, the RBI said in its draft guidelines on "Liquidity Risk Management and Basel III Framework on Liquidity Standards."

Indian banks currently need to meet RBI-set requirements of cash reserve ratio (CRR), and statutory liquidity ratio (SLR).

The CRR, or the share of deposits that banks must set aside in cash with the RBI, is 5.5 percent, and SLR, or the minimum amount of investments that banks need to make mostly in government securities, is 24 percent.

As part of the guidelines, banks are expected to maintain "high-quality" liquid assets, which includes cash and government bonds, which can be converted into cash to meet liquidity needs for a 30-day period under a stress situation.

To qualify as high-quality, the cash reserves and government bond holdings need to be in excess of the mandated levels of CRR as well as SLR, the RBI said.

"Banks are expected to meet this requirement continuously and hold a stock of unencumbered, high-quality liquid assets as a defence against the potential onset of severe liquidity stress," the RBI said.

These holdings will constitute the liquidity coverage ratio, which can help banks tide over potential short-term liquidity disruptions.

The RBI Governor Duvvuri Subbarao has earlier mentioned that existing liquidity ratios, like CRR and SLR, have been a cushion for banks following the Lehman Brothers' collapse in September 2008, and have held in good stead for the banking system as a whole.

Source: EconomicTimes

RBI buys bonds worth Rs 9,857.42 cr through OMO

As part of its programme to infuse liquidity, the Reserve Bank has bought bonds worth Rs 9,857.42 crore through open market operations (OMO) against a target of Rs 10,000 crore.

Four securities were on offer for OMO conducted yesterday and RBI subscribed to all of them, the central bank said in a statement.

While government securities (G—Sec) maturing in 2017 with a coupon rate of 8.07 per cent garnered Rs 1,525 crore, the 9.15 per cent G—Secs maturing in 2024 garnered Rs over 3,951.35 crore.

Furthermore, 8.28 per cent G—Secs maturing in 2027 mopped up Rs 2,897.55 crore and 8.97 per cent G—Secs maturing in 2030 garnered 1,483.51 crore.

With this, the central bank has infused nearly Rs 92,000 crore into the financial system in ten tranches in the last two months.

RBI hikes bank rate to 9.5%

After a gap of nearly nine years, the Reserve Bank of India has increased the bank rate by 3.5 percentage points to 9.5 per cent with immediate effect.

“This (the increase) should be viewed and understood as one-time technical adjustment to align the bank rate with the marginal standing facility (MSF) rate rather than a change in the monetary policy stance,” RBI said in a notification, adding the new rate will be with effect from February 13.

The bank rate has lost its significance as a monetary policy tool as the central bank signals stance through changes in repo, the rate at which banks borrow short-term funds from RBI.

Penal rate

The bank rate, which is the standard rate at which the RBI buys or re-discount bills of exchange or other commercial paper, is now used as a penal rate which the banks have to pay for their failure to meet the mandatory cash reserve ratio (CRR) and statutory liquidity ratio (SLR).

The bank rate, which has been increased by 350 basis points or 9.50 per cent was kept unchanged since April 2003.

According to RBI, it should technically be higher than the repo rate, which is the policy rate. The repo rate currently stands at 8.5 per cent, while the reverse repo rate is 7.5 per cent.

Liquidity Adjustment Facility

It was kept unchanged, “mainly for the reason that monetary policy signalling was done through modulations in the reverse repo rate and the repo rate under the Liquidity Adjustment Facility (till May 3, 2011) and the policy repo rate under the revised operating procedure of monetary policy (from May 3, 2011 onwards)”, the RBI said.

Marginal Standing Facility

Moreover, it added: “Under the revised operating procedure, MSF, instituted at 100 basis points above the policy repo rate, has been in operation, which in many ways serves the purpose of the bank rate.”

While the policy repo rate and the MSF rate have become operational, the bank rate continued to remain at 6 per cent. The bank rate is also used by several other organisations as a reference rate for indexation purposes.

The RBI said that it has consulted various stakeholders relying on the bank rate as a reference rate before arriving at the decision to revise it.

“Based on the feedback received, it is determined that the bank rate should normally stay aligned to the MSF rate,” it said.

Manappuram Fin ‘will ensure' compliance with RBI norms

Manappuram Finance will take immediate steps to completely ring-fence its operations and ensure there is no overlapping of business, assets, branches or personnel with other entities owned by the promoters or their family members. The Board of Directors of the company met at Thrissur to review the operations and performance in the context of the recent communication received from the RBI. The Board also directed the company to take all measures to fully address the concerns raised by the central bank.

To enhance governance and better manage growth to the next level, the Board also decided to constitute an independent committee under the chairmanship of Mr Jagdish Capoor (former Deputy Governor of RBI and former Chairman of HDFC Bank). This committee will review relevant aspects of operations, systems, controls and organisational structure, including Board composition and effectiveness.

Review exercise

The committee was free to appoint leading independent legal counsel and other advisors as was deemed appropriate to assist with the review. Further, the company proposed to retain a leading accounting firm to supplement the in-house internal audit team. A leading law firm, Amarchand Mangaldas, and the internationally reputed accounting firm, KPMG, will assist the committee in this independent review exercise.

At the outset, the Board noted that the company has not accepted any deposits from the public since March 22, 2011, in compliance with its status as a non-deposit-accepting non-banking finance company.

Mr V.P. Nandakumar, Executive Chairman, Manappuram Finance, assured the Board members of his fullest support and cooperation. He pointed out that he had issued public notices in newspapers undertaking to honour all obligations to the depositors of his proprietary concern Manappuram Agro Farms, without causing any inconvenience to them. The Manappuram Finance scrip closed lower at Rs 46, a fall of 2.44 per cent over the previous close.

cj@thehindu.co.in

RBI asks banks to refund unclaimed deposits of Rs 1,700 cr

In a development which may bring cheer to some, RBI on Tuesday asked banks to locate and refund unclaimed deposits estimated at over Rs 1,700 crore.

“Keeping in view public interest, it has been decided that banks should...play a more pro-active role in finding the whereabouts of the account holders of unclaimed deposits/ inoperative accounts.

“Banks are, therefore, advised that they should display the list of unclaimed deposits/inoperative accounts which are inactive/inoperative for ten years or more on their respective websites,” the Reserve Bank said in an instruction to banks.

A whopping Rs 1,723.24 crore in 1.03 crore non-operational accounts in different banks were lying unclaimed as on December, 2010.

“Banks should also give on the same website, the information on the process of claiming the unclaimed deposit/activating the inoperative account and the necessary forms and documents for claiming the same,” RBI added.

Banks have been asked to complete the exercise by June 30 and keep their websites updated at regular intervals

Expressing concern over the “increase in the amount of the unclaimed deposits with banks year after year and the inherent risk associated with such deposits”, RBI said the lists to be displayed on websites should contain only the names of the account holder(s) and his or her address.

“The account number, its type and the name of the branch are not to be disclosed on the concerned bank’s website,” it added.

It also directed banks to give “information on the process of claiming the unclaimed deposit/activating the inoperative account and the necessary forms and documents for claiming the same”.

Rs 1,000 denomination banknotes to be issued non-sequentially: RBI

The Reserve Bank today said it will soon start issuing banknotes of Rs 1,000 denomination in non-sequential numbering.

The packets of banknotes in non-sequential number will have hundred notes, the apex bank said in a statement.

In June last year, RBI had started issuing Rs 500 denomination notes in non-sequential numbering.

"It has now been decided to issue banknotes of Rs 1000 denomination also on similar lines," the statement said.

The bands of the packets containing the banknotes in non-sequential number will be superscribed with the words 'the packet contains 100 notes not numbered sequentially'.

Source: Financial Express

Banking licences: Ministry, RBI step up shadow-boxing

The central bank seems to be in an unusually generous mood on new banking licences. In a sharp departure from its earlier cautious stance, the Reserve Bank of India (RBI) is now in favour of giving banking licences to all the applicants that meet the eligibility criteria mentioned in the guidelines issued for this purpose.

But, the finance ministry is not in sync with RBI’s generosity on the ground that it would be difficult to regulate and supervise a large number of banks. This new round of difference of opinion would extend the long wait for the banking hopefuls.

LICENSING NORMS IN THE WORKS

1993: First guidelines since the financial sector reforms of the early 1990s released for new banks

2001: Revised norms released, two banks given permission in 2003-04

Feb 2009: Finance Minister says in Budget speech RBI to consider giving licences to new entities

Aug 2010: Discussion paper on new bank licences released

Aug 2011: Draft guidelines on new bank licences out

RBI’s approach so far has been to restrict licences to only a few entities. According to central bank sources, the banking regulator has written to the finance ministry that banking licences should be given to all those entities that meet the ‘fit and proper criteria’ mentioned in the guidelines.

More importantly, the view in Mint Road is some of these banks can be allowed to fail. This is significant, as no banks have been allowed to fail in the country since the guidelines of 1993. “If some banks are allowed to fail, others will be more cautious and prudent in their operations,” said a person close to the developments.

RBI has always followed an ultra-cautious approach on private bank licences. Since the financial sector reform in the early 1990s, the first set of guidelines was issued in 1993 and then revised in 2001. The 2001 guidelines were cautious and large industrial houses were not permitted to set up banks. Ten new banks were set up in the private sector after the 1993 guidelines and two after the 2001 guidelines.

Sources said the ghost of the 2G scam played a big role in the central bank’s decision, as RBI wanted to minimise the role of subjectivity. The central bank is now open to the idea to allowing large business houses in banking. Almost all the big industrial houses, including the Tata Group, the Aditya Birla and RADAG groups, are keen to set up banks.

Nearly 18 months after the government announced RBI would consider issuing fresh banking licences, in August last year, draft norms were issued.

Among the criteria suggested in the draft norms was diversified ownership of promoters with a minimum 10 years of experience in business and a minimum Rs 500-crore capital. It was also said firms having 10 per cent of their income from real estate and broking activity would not be considered.

RBI has also made a case to the government to amend the Banking Laws (Amendment) Bill, introduced in Parliament in March last year, which will give more power to it before fresh banking licences are issued. At present, RBI does not have certain powers, such as supersession of bank boards.

Source: Business Standard

CRR cut on expected lines: YES Bank official

Dr Shubhada M. Rao, President and Chief Economist of YES Bank Ltd, said that the CRR cut of 50 basis points in the third quarter review of monetary policy 2011-12 by the Reserve Bank of India is in line with expectation.

Speaking to Business Line over phone, Dr Rao said: “I think our call has come right in terms of being in line with expectation. We did see structural kind of factors creeping into the liquidity deficit. We had anticipated CRR cut of 50 basis points. Quite clearly this is what has got effected.”

Stating that growth, particularly investment-led growth, is the larger concern today, she said that is what the RBI has begun to address. Stressing the need to spur and provide impetus to investments, she said this obviously cannot be done in isolation. This needs to be very comprehensively backed by the policies at the Government level, because monetary policy alone cannot bear the burden.

Dr Rao said that it has to be complemented with Government measures. “To spur investments, we need a combination. If the Government shows its indication through the Budget, that is the time we believe there is the complementarity in effort. Then the RBI can back it up with a cut in repo by 50 basis points.

Stating that there are still upside risks in inflation, she said the trajectory of inflation is in line with what the RBI has in mind. “There are no nasty surprises on inflation yet. But with upside risks, they have not therefore hurried on rate call on repo rate,” she said.

If the inflation does indeed pan out the way it has been anticipated by March going well below 7 per cent, then we will see a chance of the RBI cutting the repo rate in March, she added.

vinayakaj@thehindu.co.in

RBI cuts CRR by 50 bps, keeps repo rate unchanged

The RBI Governor, Dr D. Subbarao, chose to continue in ‘pause’ mode on the rate front, retaining the key repo rate at 8.5 per cent.

But he decided to give markets something to cheer about by cutting the cash reserve ratio (CRR) by 50 basis points and release Rs 32,000 crore into the system. The CRR will now be at 5.5 per cent.

The policy document said that these steps will ease liquidity conditions, mitigate downside risks to growth and continue to anchor medium-term inflation expectations on the basis of a credible commitment to low and stable inflation.

The cut in CRR was done to ease the tight liquidity situation. Banks were borrowing nearly 1.2 lakh crore every day at the Liquidity Adjustment Facility (LAF) window of the Reserve Bank of India over the past month. There was also a resort to the additional borrowing at the Marginal Standing Facility (which is one percentage point higher than repo) at 9.5 per cent on a couple of occasions.

Cuts GDP growth outlook

The RBI has revised downwards its forecast for Gross Domestic Product (GDP) growth in keeping with the slowing economic indicators. It now expects GDP growth to be at 7 per cent for this fiscal from the 7.6 per cent estimate it made in the half yearly review in October 2012. At the beginning of the fiscal, GDP growth was expected to be 8 per cent.

Inflation to decelerate further

The Reserve Bank has said that consistent with its earlier projections, inflation is likely to decelerate further to 7 per cent by March. It, however, cautions that there is a large element of suppressed inflation. It points to coal and petroleum products as examples of products that have not seen price revision that reflect underlying market conditions. When revised, this will add to inflationary pressures, the RBI said. It advises that "It will be prudent to fully deregulate diesel prices to contain both aggregate demand and trade deficit."

The RBI also took pains to highlight the fact that in reducing CRR it was not shedding its anti-inflation gear or changing its stance. It said that it was premature to begin reducing policy rate in the light of the current inflation trajectory and the element of suppressed inflation. The RBI chose to say, "The reduction (in CRR) can also be viewed as a reinforcement of the guidance that future rate actions will be towards lowering them."

The RBI drew attention to the sharp drop in non-food credit to 15.7 per cent in end-December compared to the indicated projection of 18 per cent given earlier. It noted that the deceleration was particularly sharp for public sector banks and was particularly sharp in agriculture, real estate, infrastructure, engineering, cement and cement products.

RBI wants banking services to reach remote villages

The Reserve Bank of India wants benefits of banking to reach remote villages in the country.

Accordingly, in Andhra Pradesh, it has set a target to reach 6,640 uncovered villages before March 31, according to Mr A. Sambasiva Rao, Regional Director, RBI.

Addressing a meeting in connection with his visit to Financial Literacy and Credit Counselling centre here, Mr Rao said that about 89 per cent of villages were covered so far.

While commercial banks were in the forefront in achieving the targets, some regional rural banks and private banks needed to pull up their socks.

Poverty reduction

Explaining that the benefits of economic growth were not being distributed equitably among all sections, he said poverty reduction did not just mean improving the income of the poor but other basic needs of the families like education of the children and health should be met.

Mr Rao urged banks to catch the next generation of citizens, now in junior colleges and introduce them to all banking products and enrol them as account holders. Even remote villages and tribal hamlets should produce doctors, engineers and technocrats on par with urban areas.

This would happen only when the banks expanded their operations and liberally funded education activities.

Once banks operated in remote villages, they would be able to afford support to farmers, especially those in distress and also the self-help groups.

Mr Ramsankar Naik, District Collector, and Mr R.N. Dash, General Manager, RBI, among others, participated in the meeting.

PNB waiting for IRDA nod on Metlife stake

Awaiting regulatory approval for its proposed acquisition of a 30 per cent stake in insurance company Metlife, Punjab National Bank (PNB) has said it will not disclose the rationale behind the move or the financial details until IRDA gives its nod.

“We are waiting regulatory approval from the Insurance Regulatory and Development Authority (IRDA) for the deal and unless that comes through, we will not disclose the details and strategy,” said Mr K R Kamath, Chairman and Managing Director, PNB on the sidelines of the 100-year celebrations of the bank’s operations in the eastern region.

Mr Kamath said PNB does not foresee any hurdles in the way of the deal, which was announced five months ago, and would unveil the transaction details after approvals were in place.

If the proposed deal goes through, PNB would become the largest shareholder in the insurance company.

Speaking about overseas expansion, Mr Kamath said the bank is awaiting approval from the Canadian authorities for setting up a subsidiary in that country, besides the regulator’s nod in Oslo, Norway.

“We have applied with Reserve Bank of India for Maldives and after receiving positive feedback from a survey, we will soon move to our regulator to foray into Bangladesh,” he said.

RBI, banks in talks for recast of power sector loans, says SBI

NEW DELHI: Country's largest lender State Bank of India has said that banks are in talks with the Reserve Bank of India on possible restructuring of loans to the power sector projects that are facing problems in implementation.

"We are working with the RBI on how this can be done without the banks being required to make any provisioning," said SBI's Chairman Pratip Chaudhuri.

He, however, clarified that the State Bank of India, which has over Rs 32,000 crore exposure in the power sector, has not yet received any "special request" from the power sector for restructuring of loans. "They are saying that they would be in position to service their debts," said Chaudhuri after having pre-Budget consultation with Finance Minister Pranab Mukherjee. "We are giving loans to all big companies...It's not right for us to equate all the companies," he added.

Chaudhuri said that the risk in power sector is micro not macro and in some cases they (power companies) have said that the implementation of projects have got delayed due to reasons beyond their control.

A recent study by rating agency CRISIL has pointed out that banks' overall exposure of around Rs 56,000-crore to the power sector could be under stress because of losses of distribution companies, who have seen their losses getting doubled to Rs 40,000 crore in 2010-11 from 2008-09.

The finance ministry had asked state-run banks to give company-wise exposure to loans in four stress sectors-aviation, telecom, commercial, real estate and power utilities- which have raised worries that it could spike the bad loans and could derail their lending plans.

The gross non-performing assets, or NPAs, of commercial banks have risen over 25,000 crore in the first six months of the current fiscal. State-run banks wrote off nearly Rs 17,300 crore in 2010-11 against Rs 11,000 in the year before.

As per the latest figures, as on November 30, state-run banks have request for restructuring of 344 loan accounts with an outstanding of Rs 1.65 lakh crore.

Public sector banks had exposure worth over Rs 2.97 lakh crore to the power sector at the end of second quarter of the current fiscal, with maximum credit doled out by SBI.

Source: EconomicTimes

Bank borrowings test RBI's CRR resolve

MUMBAI: Bank borrowings from the Reserve Bank of India has doubled in two weeks, testing the Reserve Bank of India's resolve not to signal a shift in monetary stance of fighting inflation by easing the cash reserve requirement.

The maturity of forward contracts where the central bank had sold US dollars to prevent the rupee slide last month, and higher demand for funds from companies that no more want to borrow overseas due to higher rates, could push up interest in the domestic market in the short term, traders say.

"The selling by RBI for intervention was partly extended by receiving the forward sales," said Ashish Vaidya, executive director, trading, UBS AG. "So, the impact of that on systemic liquidity will be felt on the day the forward sale matures."

Banks borrowed 1.56 lakh crore from the central bank, double of what it was two weeks ago, setting off speculation that the RBI may have to take some measures to ease the pressure, which may be even cutting the cash reserve ratio from 6%.

They also borrowed 200 crore by paying penal rate that is 1 percentage point more than the 8.5% repo rate in the so called marginal standing facility. The borrowing under this window is done when a bank pledges securities by breaching the minimum 24% limit of mandated government bond holdings.

The rupee has already appreciated by almost 6.2% this year, partly due to the impact of the RBI measures to curb speculative trading.

The call, or overnight rates, touched a high of 9.55%, reflecting the tight cash position in the market. Loans demand could also be leading to tight liquidity, some say. "There is a shift in credit demand from foreign currency to rupee-denominated loans, since it will now be more expensive to take the dollar route," said Moses Harding of IndusInd Bank.

Source: EconomicTimes

RBI to issue Rs 100 note with rupee symbol

MUMBAI: The Reserve Bank will shortly issue Rs 100 notes which will have the rupee symbol. The design of the notes to be issued is similar in all respects to the existing Rs 100 in Mahatma Gandhi Series-2005 issued earlier, except for the rupee symbol.

RBI had announced last month that it will soon introduce notes of Rs 1,000, Rs 500 and Rs 10 denomination featuring the rupee symbol.

The Rs 100 notes will be of the Mahatma Gandhi-2005 Series bearing the signature of Reserve Bank of India (RBI) Governor D Subbarao and with the year of printing mentioned on the back of the banknote, the apex bank said in a statement.

All the banknotes in the denomination of Rs 100 issued by the RBI in the past will continue to be legal tender, it said.

The Indian rupee got an unique symbol -- a blend of the Devanagri 'Ra' and Roman 'R', last year, joining currencies like the US dollar, euro, British pound and Japanese yen in having a distinct identity.

The new symbol, designed by Bombay IIT post-graduate D Udaya Kumar, was approved in July 2010.

Source: EconomicTimes

RBI imposes Rs 5 lakh fine on Ghandhidham Cooperative Bank

MUMBAI: The Reserve Bank of India (RBI) has imposed a penalty of Rs 5 lakh on Kutch-based cooperative sector lender Ghandhidham Cooperative Bank for violation of customer identification norms.

"The Reserve Bank has imposed a monetary penalty of Rs 5 lakh on the Ghandhidham Cooperative Bank Ltd, Adipur, Dist Kutch (Gujarat)... for violation of RBI's instructions relating to Know Your Customers (KYC) norms," the apex bank said in a statement.

The RBI had earlier issued a show cause notice to the bank, in response to which Ghandhidham Cooperative Bank had submitted a written reply.

"After considering the facts of the case and the bank's reply in the matter, the RBI came to the conclusion that the violation was substantiated and warranted imposition of the penalty," the statement said.

Source: EconomicTimes

Maharashtra seeks more time for co-op banks to get RBI licence

The Maharashtra government has written to the Union Finance Ministry seeking an extension of the March 31 deadline set by the Reserve Bank of India for 11 District Central Co-operative Banks and the State Co-operative Bank to obtain banking licence.

In an interaction with media persons at a State credit seminar organised by the National Bank for Agriculture and Rural Development (Nabard), the Chief Minister, Mr Prithviraj Chavan, said the deadline for obtaining banking licence should be extended by a few months.

The Rakesh Mohan Committee recommendations, which have been accepted by the Union Finance Ministry makes it mandatory for all the cooperative banks to get a licence before the March deadline.

Across the country, there are 134 banks which have not received the licences from RBI. If the banks are unable to get a licence, then they have to either become a cooperative credit society or merge with another bank.

In the State, the Maharashtra State Co-operative (MSC) Bank and 11 district central cooperative banks are functioning without banking licences. These banks either have a negative net worth or their Capital to Risk Assets Ratio (CRAR), is lower than four per cent.

Mr Pramod Karnad, Managing Director of MSC Bank, said that the bank could have a CRAR of more than 4 per cent by March 31 but it would require more time, so that it gets reflected in the balance sheet. It already has an adequate Cash Reserve Ratio and Statutory Liquidity Ratio, which are pre-conditions for getting the licence, he said.

He said that the bank has also started the process of selling assets of 18 sick sugar co-operatives, which have defaulted on loan repayments. From the sale of their assets about Rs 300 to 400 crore would be recovered. The bank has also raised a fresh demand of Rs 275 crore from Maharashtra government, so that the CRAR level reaches four per cent.

Private, foreign banks cannot pay 'excessive' salary to CEOs: RBI

MUMBAI: The Reserve Bank today said CEOs and staff of private and foreign banks cannot draw "excessive" salary, but it did not impose any cap on their remuneration.

Issuing guidelines on compensation of CEOs and staff of private and foreign banks, RBI said all private and foreign lender will have to obtain prior approval from it for renumeration of CEOs and whole time directors as per the Banking Regulation Act, 1949 which prohibits excessive renumeration.

However, the guideline did not specify what would constitute excessive renumeration. Banks are required to ensure that the fixed portion of compensation is reasonable, taking into account all relevant factors, including the industry practice, it said.

While designing the compensation arrangements it should be ensured that there is a proper balance between fixed pay and variable pay, it said. Variable pay, however, should not exceed 70 per cent of the fixed pay in a year.

The guidelines would be implemented from 2012-13. "As hitherto, private sector and foreign banks operating in India would be required to obtain regulatory approval for grant of remuneration to whole time directors or chief executive officers in terms of Section 35B of the Banking Regulation Act, 1949," RBI said in a notification.

"The approval process will involve an assessment whether the compensation policies and practices are in accordance with the Financial Stability Board (FSB) Principles," it said.

The principles are intended to reduce incentives towards excessive risk taking that may arise from the structure of compensation schemes. The principles call for effective governance of compensation, alignment of compensation with prudent risk taking, effective supervisory oversight and stakeholder engagement, it said.

The principles have been endorsed by the G-20 countries and the Basel Committee on Banking Supervision and are under implementation across jurisdictions, it added.

Source: EconomicTimes

RBI cracks the whip on overseas banks

The regulator said these transactions are partly responsible for sharp depreciation in the rupee against the dollar.

The Reserve Bank of India (RBI) has cracked the whip on some of the large foreign banks in the country for encouraging companies to participate in speculative trades in the foreign exchange market.

The banking regulator in a meeting with senior representatives of foreign lenders have cautioned them for taking part in these trades, as it felt these transactions were partly responsible for sharp depreciation in the rupee against the dollar, three people familiar with the development said. Foreign banks were acting as arrangers for the companies in these transactions.

“RBI was aware that many foreign banks were encouraging speculation in the market. But it could not take any action as most of these trades were done offshore outside its regulatory purview. There was a meeting last month where RBI issued oral warning to some of these banks,” said a source privy to the discussions with the regulator.

According to industry players, most of these speculative trades were done taking advantage of the difference in forward premium rates in India and non-deliverable forward (NDF) contract market abroad.

According to bankers, the difference in forward premium rate in India and NDF market, which widened sharply in the second half of 2011, offered a perfect opportunity for banks and corporates to benefit from the rupee’s depreciation.

Industry sources said between August and December many large corporate houses were approached by banks to take part in foreign exchange trades in India and NDF market through subsidiaries and associates.

They will enter into a contract to buy dollar in India, while their subsidiaries will take another forward sale contract in the NDF market with a view that rupee will depreciate further. The difference in forward premium rates in the two markets allowed the corporates to benefit from these simultaneous trades.

“Banks were getting a hefty fee for arranging these transactions,” said another person aware of these deals. Adding: Often the lenders were getting as much as one-third of the windfall.

These trades were believed to be one of the reasons for volatility in the Indian rupee movement in the latter part of 2011. The Indian currency depreciated by almost 18 per cent in less than six months between August 5 and December 15 with the volatility as measured by annualised standard deviation of daily percentage changes doubling from five per cent to 12 per cent.

“Primarily, to discourage these trades RBI came out with the new guidelines. The opportunity to gain from arbitrage is hardly there anymore as the difference in forward premium rates in India and NDF market has narrowed,” said an independent foreign exchange analyst.

On December 15, RBI restricted rebooking of cancelled forward contracts and reduced the net overnight open position limit or trading limits for banks in the foreign exchange market.

Source: Business Standard