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    Samachar lehar jan2013 Samachar lehar jan2013 Document Transcript

    • Canara Bank Samachar Lehar January 2013 Samacher Lehar- January 2013 IssueSl. No Topic/Sub-Topic Page No.1. Our Bank in News 032. KHAS BAAT 063. Agriculture & Other Priority 134. BASE 155. Bonds & Money MarkeT 176. Credit Growth 177. Cards 188. DepositS 209. Economy 2110. Financial Inclusion & MFI 2211. Minsitry of Finance 2312. Economy 2413. Forex Inflows 2414. Housing Worries 2515. Human Resources 2616. Infrastructure 2817. Liquidity 2818. Mutual Funds & Capital Market 2919. NPA 3020. Other Banking News 3321. Overseas Aspirations 3522. RBI Directives & Guidelines 3523. ` Movement 3724. Technology 3825. Perspectives on Indias Balance of Payments 3926. Unearned and Unshared Prosperity are Unsustainable 47 Transit Path for Indian Economy: Six Steps for Transforming the Elephant27. 49 into a Tiger128. FAQs on Speed Clearing 5729. Technology Enabled Transformation in the Financial Sector 5930. Money Market and Monetary Operations in India 6631. Mid-Quarter Monetary Policy Review : December 2012 7732. RBI releases Financial Stability Report : December 2012 79 RBI re-aligns Implementation Date for Basel III Capital Regulations33. 80 with Financial Year - Shifts from January 1, 2013 to April 1, 201334. In-line with Global models, stricter disclosure norms may be adopted : SEBI 8135. Speedy payment to all including Tribal and Far Flung areas 8236. Jail term if cheque bounces due to mismatch of signa 8337. SEBI to put one-time leverage for Domestic hedge funds 8338. Govt. suggests merger an option for capital infusion 8439. CCI to look into saving account interest rate 8540. IMF endorses reversed capital control measures 8641. Information sharing mechanism to be improvised for better : Sebi 8742. Govt. to shower more powers on banks for road projects 8743. More info on borrowers through common window 88 Recruit as per own policy and requirements : FinMin to PSBs44. 8845. New Basel-III capital norms likely to trouble banks : RBI 8946. Alternative mechanism for cheque dishonor cases : FinMin 89 147. Take new initiatives for faster recovery of the NPAs : FinMin 90 Page48. Govt. to use electoral rolls for opening Aadhar accounts 91 Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Furnish list of RGESS-complaint securities, ETFs &49. 91 MF schemes on website : Sebi to Exchanges50. Comments on Bank exposure norms at examination stage : RBI 9251. Oversight mechanism for brokers to get stricter 9252. Depository system under review : Sebi 9353. Recovery of bad loans get easier for banks 9454. RDA rules out hiking investment limit for insurers 9555. Govt. should pay interest on CRR : Deputy Governor 9656. RBI simplifies account opening norms 9757. RBI Plans for cost-effective Credit to Exporters 97 Non-payment of dues under Derivatives58. 98 Contract would Qualify as wilful default : Supreme Court59. RBI likely to tighten capital, provisioning norms for NBFC 9960. FIIs may get to trade in currency futures 10061. Govt. advices banks to assess remittance charges 10162. Land Acquisition Bill & Setting up of NIB, passed by cabinet 10163. Set up an Ombudsman for insurance-related matters : Bombay HC to IRDA 10264. FIU to review KYC, reporting of suspicious transactions by custodians 10365. RBI norms on foreign banks entry soon 10366. New law after 56 years, aims at improving corporate governance 10467. LS clears Banking Bill as govt withdraws future trading clause 10568. RBI to speed up process for issuing new banking licences 106 Banking licenses must be obtained by Co-operative credit societies from69. 106 RBI70. Ceiling for FDI in ARCs raised to 74% from 49% 10771. PSBs can alter the authorised share capital upon their discretion : FinMin 10872. IRDA and FinMin have different views on online sale of insurance policies 10873. Stick to core banking activities : FinMin to PSBs 10974. Kisan Credit Card scheme should be easily accessible by Farmers : FinMin 11075. New norms to double the CSR contribution by PSUs 11176. New Bank licence : Final norms likely in January 11277. Transaction cost for direct cash transfer is likely to be paid by Govt 11278. Basel III norms to be implemented from April 1, 2013 11379. KEY BANKING INDICATORS 114 2 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 OUR BANK IN NEWSSocial action:In commemoration of the International Day of the Disabled, Social Banking Cell jointly withWomen and Child Development Department, Government of Karnataka organised for a Dance,Drama and Singing Competition for the children of the challenged section of the society at BalaBhavan, Bangalore on 30.11.2012.International T 20 World Cup for the blind is being played for the first time in India and SocialBanking Cell is one of the cosponsors of the event. In the first match between India andAustralia, India won and the Man of the Match award was given to Sri Prakash of the Indianteam by Sri K Premnath, Manager, Social Banking Cell on behalf of our bank. (Social Banking Cell,PC&FI Wing, HO)Workshop:the current year. As a part of the ongoing Vigilance awareness endeavor launched by the Bankunder the aegis of Vigilance Wing, HO, a two day workshop on Preventive Vigilance in PublicProcurement was inaugurated by our Executive Director, Shri A K Gupta, today at STC,Bangalore. Chief Vigilance Officer and General Manager Smt. Bhanu Raman welcomed the ChiefGuest and Programme Facilitator Shri R Radhakrishnan, Retd. GM, RBI and Ex CVO & CGM, SBI.The programme is being graced by GMs, DGMs and other executives/Vigilance Officers ofSouthern Circles. The ED, in his inaugural address lauded the efforts of Vigilance Wing andparticularly the CVO in organizing such preventive vigilance and other training programmes. (STCBangalore)Opening of new branches:In an eventful function organized at Kammasandra in Kolar District, our bank declared open 6branches in Kolar and Chickballapur Districts. These branches viz. Kammasandra, Pulgurkote, D NDoddi, Kurudumale, Madanahalli Cross and Y.Hunasenahalli were inagurated by the Honble ShriK H Muniyappa, Union Minister of State (Independent Charge) for MSME in the august presenceof Sri Sambashivamurthy Swamiji of Sri Kotilingeshwara Temple. Top officials from the Bank,other dignitaries, VVIPs, well wishers and customers of the Bank attended the programme. Withthe opening of these 6 branches, Canara Banks branch net work in Karnataka touches the milestone 700 and for the Bank, the number of branches increases to 3680. Bank also launchedCanara Grameena Vikas Vahini - a mobile vehicle for easy access of the rural people. (CC&PRSection, CC&BP Wing, HO)Direct Cash Transfer Scheme:Executive Director Ms Archna S Bhargava chaired the sub-committee meeting of SLBC atTrivandrum on 11.12.2012. She requested the bankers to gear up the efforts to ensure theOommen Chandy and briefed him about the progress made by the banks under the scheme.After that she made a visit to Pathnamthitta district and reviewed the progress of theimplementation of the "One Family, One Account" campaign. She also addressed a largegathering of customers of Canara Bank and South Malabar Grameen Bank. (CC&PR Section,CC&BP Wing, HO)Study Visit:24 International Delegates representing Ministries, Central Banks, Development Banks and 3Government Departments of 13 Countries who are on international training at National Institute Pagefor MSME, Hyderabad, (Ministry of MSME) visited our Head Office on 14th December 2012 under Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013the guidance of Prof. T Veinitiatives towards MSME Sector and the CSR initiatives of the bank especially related to MSMESector were highlighted. Sri K S Chandramouli, GM, MSME Wing, HO and Sri G Rajendran, DGM,MSME Wing, HO were present on the occasion. (SME Business Unit, MSME Wing, HO)Stress Management Programme:A Stress Management Programme for Top Level HO Executives (GMs and DGMs) was organizedat HO Auditorium today. The sessions included yoga, meditation and tips to de-stress oneself atfunctional and personal levels. Shri Ravi Eswaran from M/s Sivananda Vedanta Centre,Trivandrum handled the sessions. The programme will continue tomorrow also. (HR&OD Section,HR Wing, HO)Canbank VC invests in Scotts Garments:Canbank Venture Capital Fund Limited (CVCFL), a subsidiary of Canara Bank, has picked up 6.11per cent stake in Bangalore-based Scotts Garments Limited for Rs 20 crore. The CVCFL has madethe investment through its Emerging India Growth Fund, a Rs 500 crore fund. (BS dt. 22.12.2012p.8)Rural Self Employment Training Institute:Bank Rural Self employment Training Institute, in the state of Punjab at Tapa Mandi, BarnalaDistrict on 16.12.12. He also inaugurated the first batch of 30 days training on Multi PhoneServicing. Shri Ashok Kumar Gupta, ED welcomed the dignitaries and the audience. Hehighlighted the initiatives of our bank in the arena of Rural Development in general and in thethe chief guest. Directors of our bank Shri Sunil Gupta, Shri Khalid Luqman Bilgrami, Shri G VManimaran, were the guests of Honour. Shri S S Bhat, GM, PC&FI Wing HO, Shri R Madhusudan,GM, CO Chandigarh, senior executives, large number of staff and public participated in theprogramme. Sri Mohammad Sadique MLA, Badour, Shri Kumar Rahul, DC Barnala, B K Gupta,General Manager, Northern Railways graced the function. (CC&PR Section, CC&BP Wing, HO)Vigilance Study Circle:A talk on "Ethics & Values" by Prof. (Dr) R Venkata Rao, Vice Chancellor of National Law School ofIndia University, Bangalore, an eminent scholar and orator was organized by the Vigilance StudyCircle Bangalore on Wednesday, 26th December 2012 at Canara Bank Auditorium, HO, Bangalore.Sri A K Gupta, ED presided over the function. In his presidential address he requested to re-dedicate ourselves to uphold the declining ethics & values. Sri M N Krishnamurty, CVO, BEL wasthe Chairperson. Ms. Aparna, GM welcomed the Chief Guest. Other Senior Executives were alsopresent on the occasion. (Vigilance Wing, HO)Social Action:On the eve of Christman, Social Banking Cell, HO sponsored a Solar Charger to UPS to M/s SaiShankar Loving Lights Trust who provides free shelter, value added education, food, clothing etcto poor children. At a function on 24.12.2012, the Solar Charger was formally handed over to theTrust by Smt K Susheela, AGM, PC&FI Wing, HO. (Social Banking Cell, PC&FI Wing, HO)Canara HSBC Oriental Bank of Commerce Life Insurance has launched a Key InformationDocument, a single-page document that summarises the key benefits of a product and provides asnapshot to customers in simple language and format. It also highlights the importance of 4disclosures by customers. The document is introduced as part of the sales process and will help Pagecustomers understand the most important features and conditions of the finalized insurance Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013effort iOfficer, Canara HSBC Oriental Bank of Commerce Life Insurance. (FE dt. 28.12.2012 p.13)Vigilance Study Circle:Vigilance Study Circle (Bangalore) Vigilance Wing,by Prof. Dr R Venkata Rao, Vice Chancellor, National Law School of India University, Bangalore on26.12.2012 at 03.15 p.m. at HO Auditorium. ED Sri A K Gupta will deliver the presidentialaddress. All are requested to attend the programme & get benefit of the talk. (Vigilance WingSCRT, HO)State-run banks in a rush to open rural branches:far-flung corners of the cotransfer cash to beneficiaries of welfare schemes. At this point it seems 51 districts are unlikely tobe covered in the first phase but sensing that the scheme could be expanded to cover the countryby 2014, ahead of the next general election, account-opening exercise has picked up in earnest.in the process and villagers are told to opePrabhakar, C&MD, Andhra Bank . (Mint dt. 24.12.2012 p.7)Vigilance Study Circle:Vigilance Study Circle (Bangalore)Prof. Dr R Venkata Rao, Vice Chancellor, National Law School of India University, Bangalore on26.12.2012 at 03.15 p.m. at HO Auditorium. All are requested to attend the programme & getbenefit of the talk. (Vigilance Wing SCRT, HO)Award:Karavali Samskritika Prathistana (R)., Kasargod (A Kannada Linguistic Minority Cultural & Literarycontribution towards Kannada Language-Culture development. The award shall be conferred on30.12.2012 during the Kerala State 5th Kannada Sammelana-2012 and Kerala-Karnataka Festivalto be held at Lalita Kala Sadan, Kasargod. (Canara Bank Kannada Sangha)S Raman appointed SEBI whole-time member:The Finance Ministry has appointed Mr S. Raman as Whole-time Member of the Securities andExchange Board of India (SEBI). Prior to this appointment, Mr Raman, who had recentlysuperannuated, was C&MD of Canara Bank. Mr Raman will hold the post of SEBI whole-timemember for a period of five years from the day he assumes charge or up to 65 years of age oruntil further orders, whichever is earlier, said a Finance Ministry notification. (BL dt. 29.12.2012p.9) 5 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 KHAS BAAT…..Check your cheque:Beginning January 1, 2013, you will no longer be able to use bank cheques that do not conform tothe Cheque Truncation System (CTS) 2010 standards. The new cheques have additional securityfeatures, making it difficult to counterfeit. "Old cheque leaves will not start bouncing afterJanuary 1, 2013. This is an indicative deadline for banks not to issue old cheques and to askcustomers to replace the old cheques. The RBI has not indicated to banks not to honour oldcheques," said Mr A P Hota, MD and CEO NPCI. (BS dt. 03.12.2012 Supplement p.2)HSBC Gives up Plan to Buy RBS India Ops:Hong Kong and Shanghai Banking Corporation (HSBC) on Friday abandoned its purchase of RoyalBank of Scotlands India business after a two-year ordeal as regulator stood its ground on transferof branch licences,two people familiar with the matter said. RBS, the UK bank partly owned bythe British government, will wind up its 31-branch India operations by selling loans. The bank willcontinue to operate its global banking and markets business, but it may be the end of road forabout 600 of its staff involved in local business. This decision is also likely to hit HSBCs attempt toexpand in India. HSBC, which aims to cut costs by as much as $3.5 billion this year globally, couldhave used the failure to get branches transferred to itself as the right excuse to not pursue thepurchase, said those people who did not want to be identified. (ET dt. 01.12.2012 p.5)Supervisory college for SBI, ICICI Bank:largest domestic banks that have a worldwide presence. The objective is to keep these lendersabreast of the latest worldwide regulatory rules and evaluate their worthiness for globaloperations. As part of this process, the Reserve Bank of India (RBI) met State Bank of India (SBI)officials along with regulators from the UK, the US, Europe and a few other countries on Monday,said two persons familiar with the development. They declined to be named as RBI is yet toformally announce this exercise. The members of the college will meet ICICI Bank Ltdsecond largest lender by assets, on Tuesday. (Mint dt. 04.12.2012 p.3)Crackdown on availing multiple loans against same property:To prevent incidents of fraud by availing multiple loans against the same property, the CentralRegistry of Securitization Asset Reconstruction & Security Interest of India (CERSAI) and CreditInformation Bureau (India), abbreviated as Cibil, have decided to create a link between theirencumbrance status of the property offered as collateral. Nearly 300 banks, financial institutionsand housing finance companies have registered themselves with CERSAI and are filling thedetails of the mortgages accepted by them, depositing title needs. (FE dt. 04.12.2012 p.3)which had lowered its outlook on Indian lenders to negative from stable in November 2011, saidon Tuesday that its view for the next 12-factors to lead to a further deterioration in asset quality, an increase in provisioning costs, and a (Mint dt. 05.12.2012 p.8)Concern in LS over ATMs dispensing fake notes: 6Concern was expressed over growing instances of counterfeit notes being dispensed by ATMs, Pagewith a member demanding that those running these outlets should be held responsible. Raising Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013the matter during Zero Hour, RSP member Mr Prashanta K Majumdar said circulation of fakecurrency in the country had grown to such an extent that counterfeit notes were convenientlyfinding way to banks and re-circulated through ATMs. He alleged that banks could be in collusionand those running the ATMs could also be involved. "The source needs to be checked. When ATMsdispense fake notes, those running them should be held responsible," he said demandingadequate steps by the Finance Ministry to stop the menace. (FE dt. 05.12.2012 p.8)Advance tax at 926 bank branches:To avoid long queues in front of central bank counters, arrangements have been made at theReserve Bank of India and 926 branches of public and private sector banks in Mumbai and NaviMumbai to receive advance tax for the December quarter. (BS dt. 05.12.2012 p.4)Reform push continues with bank Bill:sought to ride on the momentum generated by winning the vote on allowing foreign investmentin retail stores, and keep its economic reforms agenda alive. However, Parliament was adjournedwithout passing the Banking Laws (Amendment) Bill, 2011, after the opposition protestedagainst some new provisions added in the Bill that had been studied by the standing committeeon finance. Finance Minister Mr P. Chidambaram said later that a new clause sought to allowbanks to enter into forward trading and that there was nothing wrong in including additionalprovisions. (Mint dt. 11.12.2012 p.1)Laws dont allow interest on CRR, says Chakrabarty:The Reserve Bank of India (RBI) can pay interest to banks on their cash reserve ratio deposits if the r the -five yearstold. If the cash reserve ratio is a cost on banksadded. (BS dt. 11.12.2012 p.5)LIQSteps to ease liquidity issue will continue- Gokarn: The Reserve Bank of India will continue totake steps to address the deficit in the banking system liquidity, Deputy Governor Dr SubirThat is based on the assessment of current liquidity situation. The issue of government balance isalso being taken into account. We are seeing some strtold. (BS dt. 08.12.2012 p.3)PSU banks detect frauds worth Rs. 5,200 cr in April-Sept:More than 1,700 fraud cases involving over Rs 5,200 crore were detected in the state-ownedbanks during the first six months of this fiscal, government said. Union Bank of India reportedfraud amounting to Rs 656.26 crore, followed by Punjab National Bank (Rs 619.86 crore), Bank ofIndia (Rs 473.45 crore), State Bank of Hyderabad (Rs 429.31 crore), and State Bank of India (Rs376.97 crore). In all, 28 banks reported these frauds. In 2011-12, state owned banks had reported3,392 frauds involving Rs 4,025.3 crore. Mr Meena further said that 12,252 employees of publicsector banks have been probed in fraud cases since 2009-10 till September 30, 2012. (FE dt.15.12.2012 p.8)HSBC to pay record $1.9 bn to US penalty:HSBC holdings Plc plans top acknowledge that for years it ignored possible money laundering,part of a record $1.9 billion settlement with US authorities that caps th 7into the US market. The UK-based banking company is expected to forfeit nearly $1.3 billion as Pagepart of a deferred prosecution agreement, the largest-ever US forfeiture for a bank, according to Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013people briefed on the agreement between HSBC and multiple US agencies. The deal includes acivil fine of more than $650 million, according to these people. As part of the agreement, thebank will admit to violating the Bank Secrecy Act, the Trading with the Enemy Act and other USlaws intended to prohibit money laundering, a government official said. (Mint dt. 12.12.2012p.24)Post-reform, bankers eye quicker loan recoveries:With parliament having passed the Bill to amend the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act), bankers arerecovery procedures due to these amendments. This will help in improving the recoveries in thelongEarlier banks were allowed to convert debt into equity only if the company were to enter thecorporate debt restructuring cell and approach the banks with the offer. (FE dt.12.12.2012 p.8)A Supreme Court ruling on Tuesday, to the effect that non-payment of dues against a foreignexchange derivatives contract by a company will qualify as wilful default, will arm banks withgreater powers to deal with such cases. In 2008, several companies posted losses on derivativescontracts and dragged banks to court claiming these had been mis-sold to them. Companies hadargued that since a derivatives contract was not a loan, the hat a wilful default is not just on a loan but also on a derivativesGovt hopes Banking Bill will be passed this session:The Government hopes to get the banking Bill passed in the winter session of Parliament.Meanwhile, this Bill has been listed for passage on Thursday. When asked if there was apossibility of the Banking Bill being sent back to the House panel, the Finance Minister P. on ofStanding Committee on Food and Consumer Affairs. I have used Rule 80 (of Parliament (BL dt. 13.12.2012 p.1) to negative from stable for threepublic sector banks (PSBs), saying their worsening asset quality was exerting pressure onprofitability and capital. These three, Punjab National Bank, Bank of Baroda and Canara Bank,have witnessed a rise in both gross non-performing assets (NPAs) and the restructured loanenvironment, characterised by high inflation and high interest rates. (BS dt. 14.12.2012 p.4)RBI rate cut not likely on Dec 18, says Rangarajan:The Prime Ministers Economic Advisor Dr C Rangarajan said he doesnt expect the RBI to cutinterest rates at its next policy meeting on December 18. Asias third largest economy is headedfor the weakest full-year growth in a decade, at about 6 percent, far below the near double-digitpace before the global economic downturn. (FE dt. 15.12.2012 p.8)RBI extends CTS cheque deadline by 3 months:Bank customers do not need to discard their non-CTS 2010 standard cheque books in a hurry to 8get their multi-city CTS-2010 standard cheque leafs. They will get another three months time for Pagesuch upgradation. RBI has just extended the deadline for doing the switchover for another three Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013months to March 31 next year, following representation from various quarters. (ET dt. 15.12.2012p.5)PSBs should learn to say no- Chakrabarty:RBI Deputy Governor Dr K C Chakrabarty said that the risk assessment capability of public sectorbanks (PSBs) is lower than that of private sector banks and asked PSBs to develop the habit ofsmall borrowers. A (FE dt. 17.12.2012 p.1)No-action policy ahead of rate cut:It is fairly certain that the Reserve Bank of India (RBI) will leave key interest rates unchanged in itsmonetary policy review on Tuesday. In fact, in the October policy statement, the central bankmade it clear that rates may be eased only in the fourth quarter of the fiscal, beginning January.Since the next policy meeting after the 18 December review is in January, RBI is expected to cutand the government, despite political resistance, is serious about pushing economic reformstwo necessary preconditions for cutting rates. (Mint dt. 17.12.2012 p.1)RBI keeps rates unchanged; focus shifts to growth:The RBI on Tuesday kept its key lending rate and CRR unchanged, while signaling clearly that itsfocmonetary policy has to increasingly shift focus and respond to the threats to growth from this managed with a view tosupporting growth as stated in the SQR (second-quarter review, unveiled in October), therebyportion of deposits banks need to park with RBI, remains at 4.25%. The repo rate, at which RBIlends overnight funds to banks, stays at 8%. (e-Mint dt 18.12.2012)Bank borrowings at 9-mth high: -month high to nearlyRs 1.5 lakh crore owing to large withdrawals by companies towards advance tax payments. Banksborrowed Rs 1,46,300 crore from the repo auction, an amount not seen since March. In March,repo borrowings had hit an all-time high of around Rs 2 lakh crore owing to large loan disbursalsduring year-end and advance tax payments. (FE dt. 18.12.2012 p.8)Come new year, RBI may shut down counters for exchange of notes, coins:From New Year, individuals and traders may not be able to get coins and exchange of currencynotes from offices of RBI. The apex bank is all set to shut down its counters or currency chestoffices for distribution of coins/currency notes, according to a decision taken in its monetarypolicy statement in 2012-13. There are a few hundred counters offering this public service in thebranches of the RBI across the country. The move would imply that the general public, includingtraders, will have access to supply of coins/ exchange notes only through the branches ofcommercial banks. (BL dt. 18.12.2012 p.6)Banking Bill paves way for new banks, foreign investment:The government cleared the decks for the RBI to initiate the process to issue new bankinglicences and widened the window for infusion of capital into the banking sector. Most provisionsin the Bill are to strengthen RBI. In Parliamentary democracy, give and take was required and rest 9of the Bill was important as Reserve Bank of India was awaiting more powers, the Finance PageMinister said. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013The effects of new Banking Bill are:RBI gets more powers, can supersede bank boardVoting rights of shareholders in banks go upBanks not allowed to trade in commodity futuresRBI to be banking regulator, CCI to regulate M&As(BS dt. 19.12.2012 p.1)Exporters unhappy as RBI holds rates: tance may impact the MSME export sector further, given the weakdemand in the western economies, said the Federation of Indian Export Organisation (FIEO),while the Apparel Export Promotion Council (AEPC) has expressed its disappointment over theapex banks mid quarter monetary policy review. FIEO President Mr Rafeeq Ahmed, whilecommenting on the status quo on policy rates, said that while inflation (both core and WPI) hasmoderated and there was an upsurge in IIP data and core sector industries, RBI has been firm on (FE dt. 19.12.2012 p.3)Consolidation must involve only large banks-Tanksale:The consolidation in the banking industry should involve mergers or amalgamations of only largebanks, Mr M. V. Tabout his views on consolidation moves in banking industry. Mr Tanksale pointed out that Indianmergers of large banks and not look at weaker banks getting taken over by larger banks to create (BL dt. 22.12.2012 p.5)Banking Bill to expedite new licences :The passing of the Banking Laws (Amendment) Bill 2011 by Parliament on Tuesday has put newtake a call on giving licences toAnalysts, however, said the passing of the Bill leaves no room for doubt that NBFCs such as L&TFinance Holdings Ltd, Mahindra and Mahindra Financial Services Ltd, Bajaj FinServ Ltd andShriram Transport Ltd would be up for licences. The process of granting new licences is widelyexpected to take at least another year if not longer. (Mint dt. 20.12.2012 p.3)PSUs must start investing-Bankers: -rich public sector companies to lead the way and kick-start investments. Speaking at the Business Standard Banking Round Table in Mumbai onTuesday, SBI Chairman Mr Pratip Chaudhuri said growth had to come from power, fertiliser, steeland metals firms - the sectors thatcompanies are sitting on cash but not investing. They have to go out and invest. That is howmany low-underlying factCEO Ms Chanda Kochhar. (BS dt. 19.12.2012 p.1)Banking, debt recovery Bills passed in Rajya Sabha:The Banking Laws (Amendment) Bill, 2011, and the Enforcement of Security Interest and Recoveryof Debts Laws (Amendment) Bill, 2011, got parliamentary approval with the Rajya Sabha passingboth on the last day of the winter session. The Lok Sabha has already passed the Bills. They willhelp prepare the ground for the Reserve Bank of India (RBI) to issue new banking licences andmake it easier for banks to recover bad loans. The Bills need presidential approval to become law. 10formulate guid (Mint dt. 21.12.2012 p.7) Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013No cartelization by, state-owned banks:Fair trade regulator Competition Commission of India (CCI) has found no evidence of cartelizationamong public sector banks in deciding their savings interest rates, Parliament was informed. Theissue of common 4% interest rate offered by all public sector banks on savings account depositsof sufficient inadded. (Mint dt. 21.12.2012 p.21)YES Banks fast growth poses operational, credit risks: Moodys: rational and creditup from 400 in September 2012. It will take time to fully stabilise a larger business franchise andstart reaping economies of scale benefitsfactors in strong financial performance and a high level of loan growth. The agency, however,warned that high credit growth carries risks, which would become apparent over time duringadverse economic conditions. (BS dt. 24.12.2012 p.10)HC directs Indian Bank, PNB, UBI to deposit Rs 400 cr to secure BCCIs claim:The Bombay High Court has asked three public sector banks Punjab National Bank (PNB), IndianBank and Union Bank of India (UBI) to collectively deposit around Rs 400 crore in the court tosecure the claim of cricket governing body Board for Control of Cricket in India (BCCI). However,the PSBs have decided to challenge the order of the single bench court. Punjab National Bank andIndian Bank have been asked to deposit Rs 150 crore each while Union Bank of India has beenasked to fork out Rs 100 crore. (ET dt. 25.12.2012 p.7)Govt announces more sops to lift exports, extends interest subsidy:Worried by dwindling exports and the rising trade account deficit, the Government onWednesday announced a number of measures to boost exports. This is the second round ofincentives in less than six months. The sops include extension of 2 per cent interest subsidy fordifficult to meet export targets and want to stop and reverse the fall in exports. Year 2012 hasbeen particularly difficult and the Government will continue to monitor the situation. We willand Industry Minister Mr Anand Sharma told. (BL dt.27.12.2012 p.1)Old generation lender Karur Vysya Bank (KVB) is open to acquiring a bank if an opportunity comesits way, said a top bank official. Mr K. Venkataraman, MD & CEO, KVB, gave this reply to a specificquestion on whether his bank would throw its hat into the ring to acquire one of the twodistressed South-based old generation PSBs (one headquartered in Tamil Nadu and the other inKerala).He, however, said the 96-year old Karur (Tamil Nadu) headquartered bank is not activelypursuing an acquisition at this point in time. (BL dt.27.12.2012 p.8)RBI may release final guidelines in January:Year 2013 could ring in some good news for bank aspirants. The Reserve Bank of India (RBI),currently giving final touches to the proposed bank licence norms, is likely to release the finalnorms in January, according to RBI sources. However, the process of inviting the applicationsmight not start immediately, sources added. After the final norms are issued, the central bank is 11expected to set up an external committee, to screen applications. After the panel is set up, RBIwill start accepting applications. It could take some time for fresh applications to come in, Pagesources said. (BS dt. 28.12.2012 p.6) Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Cannot mandate banks to check creditworthiness of buyers: ECGC:Despite the government auditor insisting Export Credit Guarantee Corp of India Ltd (ECGC)mandate banks to check the creditworthiness of foreign buyers of Indian goods, the latter says itis not in a position to do so due to the structure of the credit insurance products it sells. In arecent report tabled in Parliament, the Comptroller and Auditor General of India (CAG) had saidECGC, which provides credit insurance support to exporters and banks, should insist on obtainingfrom banks a certificate that due diligence had been carried out on the creditworthiness of thethe cover is only when an account becomes a non-performing loan account. So, if one particular (BS dt.28.12.2012 p.6)If 2 large borrower banks go under, 9 other banks would fail:Simultaneous failure of two large borrower banks would trigger the failure of nine other banksand result in a loss of over 18 per cent of the tier-1 capital of the system, a financial stabilityreport published by the Reserve Bank of India says. According to the study, these two largeborrower banks have remained in the inner core of the banking system consistently over the pastindicates that the failure of the large lenders in the system could have a significant downstreamimpact on the availability of liquidity in the system and could also cause a few other banks to be, (BL dt. 29.12.2012 p.8)Bancassurance norms may expose banks to reputational risks:The Reserve Bank of India on Friday said the draft guidelines on bancassurance, which werereleased by insurance regulator Insurance Regulatory and Development Authority (IRDA), may draft in October, banks can sellinsurance products by playing either a corporate agent or a broker to insurance firms. Corporateproducts. Those opting to be a broker will have to first withdraw from their existingbancassurance partnership. (BS dt. 29.12.2012 p.3) 12 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Agriculture & Other Priority…..Exim Bank to refinance $500 mn SME loans :Exim Bank today said it would refinance USD 500 million in loans given by commercial banks fortheir technology upgrade to boost lending to export- oriented small businesses. "We have takenan approval to launch the scheme about a month back and will make it operational before theend of the fiscal," Exim Bank C&MD Mr TCA Ranganathan said. He said banks can aggregate theirportfolios devoted to technology upgrade by export-oriented SMEs in the manufacturing sectorand get it refinanced from the Exim Bank. (FE dt. 13.12.2012 p .8)ICICI Bank opens 101 rural branches:The largest private sector lender, ICICI Bank, said it has launched 101 gramin branches in six ruralstates, as it looks to increase its presence in areas where banking facilities are not available. Eachof the gramin branch will have at least three employees and will initially not have ATMs attachedto the branch. ICICI Bank now has about 400 rural branches, with 5,000 customer service pointscovering 10,000 villages in the country. The branches have been opened in 19 remote districtsacross Maharashtra, Rajasthan, Andhra Pradesh, Gujarat, Madhya Pradesh and Tamil Nadu . (FEdt. 14.12.2012 p.8)Govt to increase women SHG members to 70 mn in 5 yrs:The Centre is planning to increase the number of members in women self-help groups (SHGs) to70 million in the next five years from the present 30 million, effectively bringing one membereach from all the families of below poverty line into the fold of the National Rural LivelihoodMission (NRLM). The ministry was working through NRLM to replicate the SHG movement intoNorth India and also eastern parts of the country, Mr Jairam Ramesh, Rural Development Ministersaid. At present, the movement was mostly confined to South Indian states with 80 per cent ofbank loans under the SHG-bank linkage going into just four states of Andhra Pradesh, Karnataka,Tamil Nadu and Kerala. (BS dt. 17.12.2012 p.4)Bank credit to MSMEs up 9% in 2011-12:Credit flow to MSMEs by public and private sector banks increased by nine per cent in 2011-12.According to Minister of State for Finance Mr Namo Narain Meena, banks disbursed Rs 7.12 lakhcrore in 2011-12, as compared to Rs 6.53 lakh crore in 2010-11.The allocation of 60 per cent ofadvances to micro and small enterprises (MSEs) to micro enterprises is taking place in threestages 50 per cent in 2010-11, 55 per cent in 2011-12 and 60 per cent in 2012-13, said theminister. (BS dt. 18.12.2012 p.12)RBI firm, talks tough on Nabard warehousing refinance:The RBI has asked the Nabard to come clean on its controversial warehousing refinance scheme.In a communication last week, the RBI has talked tough, asking Nabard to comply with regulatorydirections in this regard. Nabard was censured for (i) charging higher interest rate thanprescribed; and (ii) converting RIDF-XVII into a refinancing scheme for warehousinginfrastructure lending. Nabard had charged an interest rate of 8 per cent, against the prescribed6.5 per cent for 2011-12. (BL dt. 28.12.2012 p.8)Give farmers easy access to Kisan Credit Card scheme-Finmin:The Finance Ministry has asked banks to provide farmers easier access to the Kisan Credit Cardscheme, a move that comes after a decline in farm loans disbursed by the state-run banks. The 13Ministry has, among other measures, advised the banks against charging any processing fee for acard limit of Rs 3 lakh and asking for a separate margin on crop loans. Farmers will also be Pageexempt from submitting documents related to the land title at the time of annual renewal of the Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013card, even if the land is already hypothecated to the bank due to a charge against a previous loan,because there is no risk of change in the land ownership. The measures follow a decline in loandisbursals to the sector in the first half of the current fiscal by a few banks, including CentralBank of India(-78.60%), IDBI Bank (-41.71%) and Canara Bank (-3.75%), compared with the year-ago period. (ET dt. 28.12.2012 p.11)SIDBI, IOB ink pact to launch risk sharing facilitySmall Industries Development Bank of India signed a memorandum of understanding withIndian Overseas Bank to launch the scheme of risk sharing facility-II for guaranteeing collateral-free credit facilities to MSEs. Under the scheme, collateral free and /or third party guarantee freecredit facilities over Rs 100 lakh and up to Rs 200 lakh sanctioned to eligible MSEs are proposed tobe guaranteed through select member lending institutions of Credit Guarantee Fund Trust forMicro and Small Enterprises. (BL dt. 22.12.2012 p.5)2 RRBs in Karnataka amalgamated:According to the directions of the Unithe Chikmagalur Kodagu Gramin Bank, a regional rural bank (RRB), sponsored by CorporationBank, was amalgamated with Cauvery Kalpataru Grameena Bank, sponsored by State Bank ofMysore. In a release to exchanges, Corporation Bank said the amalgamation comes into effectfrom November 1 vide notification. (BL dt. 29.12.2012 p.8)Priority sector lending targets:Banks may struggle to meet their priority sector lending targets this financial year despiteimprovement in farm credit disbursements, feel analysts. In October, 2012 credit growthremained weak with slowdown particularly pronounced in the industrial and services sectors.While growth in personal loans segment was stable, agri credit witnessed sharp increase. (BSdt. 04.12.2012 p4)Andhra Bank cuts rates on educational loans:Andhra Bank has announced reduction in interest rates for fresh education loans. For educationalloans between Rs 4 lakh and Rs 7.5 lakh, the interest rate has been reduced from 14.25 per centto 13.25 per cent. Loans over Rs 7.5 lakh will carry a lower rate of 12 per cent, down from the13.25 per cent, the bank said in a statement. For girl students, a further concession of 0.50 percent has been decided. Also, to encourage meritorious students, an interest concession of 0.50per cent has been introduced on education loans - this is for students securing 90 per cent orabove. In respect of loans for pursuing PG courses, a similar interest rebate of 0.50 per cent isallowed to students who secured 80 per cent or above at degree/graduation level examination,the statement added. (BL dt.06.12.2012 p.6) 14 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 BASEL…..SBI expecting Rs 4,000 cr from govt this fiscal:State Bank of India said it is expecting around Rs 4,000 crore infusion from government this fiscalthat will ramp up its capital base to over 13 per cent. "I think the government will give us capitaland it should be around Rs 4,000 crore. What mode it will be, is a matter that is beingdiscussed," Managing Director and Chief Financial Officer Mr Diwakar Gupta said."We have givenvarious options and it is the call of the government to decide how they would like to infuse theequity," he said. The Rs 4,000-crore capital infusion is adequate for us as that can keep the capitalbase above 13 per cent, Mr Gupta added. At the end of the September quarter, SBIs capitaladequacy ratio, a key indicator of a banks financial strength expressed as a ratio of capital torisk-weighted assets, stood at 12.63 per cent, from 11.4 per cent in the year-ago quarter. (FEdt.06.12.2012 p.8)IndusInd Bank board clears QIB allot ment:IndusInd Bank on Wednesday said its board has approved allotment of 52.1 million equity shares t of the issue of equity shares of ace value of Rs10 each of the company to qualified institutional buyers. The Finance Committee of the Board ofThe equity shares at a price of Rs 384 per share, including a premium of Rs 374 per share,aggregates to Rs 2,000.63 crore to QIBs, it said. (Mint dt. 6.12.2012 p. 11)ICICI Bank raises 100-mn Swiss francs:ICICI Bank has raised foreign exchange resources worth Swiss francs 100 million (over $100million) through seven year bond. The bond is priced at a coupon and re-offer yield of 2.75 percent. This was the first offering by ICICI Bank in Swiss currency. Deutsche Bank was the solebanker to the issue. Mr David Greenbaum, Head, Debt Capital Markets, Deutsche Bank (SouthAsia), said a combination of stable market conditions, lack of recent emerging markets issues inSwiss francs, and reverse inquiries from several key investors supported this opportunistic issue.(BS dt. 12.12.2012 p.5)Deutsche Bank infuses funds:Deutsche Bank AG on Thursday said it infused Rs.1,054 crore into its Indian operations to fundRsaid in a statement. This is the second capital infusion in 2012 after the German lender investedRs.455 crore to strengthen Indian operations in March. (Mint dt. 14.12.2012 p. 10)Indian Overseas Bank is hopeful that the Centre would soon infuse some capital in the publicsector lender, Mr M. Narendra, C&MD, has said. This public sector lender had sought capitalsupport of Rs 1,500 crore from the central government for the current financial year. IOBcurrently has Tier-I capital of 7.63 per cent and the expectations are that the capital support fromthe Centre would help lift the Tier- ting for the right marketconditions. A decision on the timing of perpetual bonds issuance will have to be taken by the end (BL dt. 17.12.2012 p.5)Axis Bank Lines Up 6,000cr Share Sale: 15Axis Bank is looking to sell as many as 4.58 crore new shares to boost its capital before the Basel-III norms kick in, which at current prices may help it fetch more than 6,000 crore. The lender, Pageheaded by Ms Shikha Sharma, will be the second private sector bank to raise funds this year after Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013IndusInd Bank. City Union Banks rights share sale is underway while YES Bank and DevelopmentCredit Bank are also in the process of raising equity. ICICI Bank and HDFC Bank may also reach outto investors in the coming months for funds as the market for equity issuances opens up and theneed to raise funds increases to meet capital norms. (ET dt. 18.12.2012 p.1)Chidambaram promises more funds to public sector banksThe Centre is committed to infusing more capital into public sector banks (PSBs), FinanceMinister Mr P.Chidambaram said. Replying to the discussions on the Banking Bill in Lok Sabha, MrChidambaram said that another Rs 15,000 crore capital will be infused in PSBs before end-March.He said that the Bill would pave the way for PSBs to raise capital through every accepted modeincluding rights issue, bonus shares without diluting their public sector character. (BL dt.20.12.2012 p.5)Disinvestment funds may be used for bank recapitalisation from FY14:In a bid to fast-track recapitalisation of the public sector banks and insurance companies, theMinistry of Finance has proposed to set up an empowered group of ministers headed by FinanceMinister Mr P Chidambaram to use the disinvestment proceeds for this purpose from the nextfiscal year. The proposproductive use of funds from PSU stake sales which were earlier used to finance capital needs ofsocial sector schemes. The proposal mooted by department of disinvestment has garneredsupport from the other departments of Finance Ministry. (FE dt. 21.12.2012 p.9)Union Bank to raise Rs.1500 cr via bonds:State-owned Union Bank of India said it would raise up to Rs 1,500 crore from bonds over thenext three months. The decision to raise funds was taken at the Board meeting held onDecember 22 , UBI said in a BSE filing. The Board approved raising of additional capital funds notexceeding Rs 1,500 crore during the year 2012-13 by way of issue of Tier-I and Tier-II capitalbonds as per eligibility, it said. Meanwhile, another public sector lender Bank of Maharashtra(BoM) has cleared raising up to Rs 1,350 crore from various bonds. BoM plans to raise up to Rs350 crore from Tier-I unsecured, non convertible, subordinated, perpetual bonds (InnovativePerpetual Debt Instruments), the bank said. (FE dt. 25.12.2012 p.8)SBI needs to infuse over Rs 12k cr in 2 years-MD:State Bank of India will need to raise around Rs 12,000-17,000 crore of capital over the next twoyers to meet its business requirements, said SBI MD and CFO Mr Diwakar Gupta. Mr Gupta saidthis number was arrived at after taking into account the Basel III norms. He said in short term, the At the endof the September quarter, the bank had a capital adequacy ratio of 12.63% with tier I capitalstanding at 8.97%. (FE dt. 28.12.2012 p.13)Govt bank can alter share capital:Sate-owned banks can now increase capital while issuing preference shares, right issues or bonusshares without being limited by the earlier ceiling of Rs 3,000 crore, the Finance Ministry said. (BSdt 22.12.2012 p.3)Basel III norms in India from April:The Reserve Bank has rescheduled the start date for implementing Basel III norms to April 1, 2013from January 1. The central bank said it would closely monitor the progress on implementation inother countries, particularly major ones who are the members of the Basel committee. (FE 16dt.29.12.2012 p.1) Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Bonds… Money Market….UBI to raise Rs 300 cr from bonds:United Bank of India said it proposes to raise Rs 300 crore from bonds to fund its businessgrowth. The bank has finalised the issue of unsecured, non-convertible, perpetual debtinstrument of Rs 1 lakh each at par for an amount of Rs 200 crore with a green shoe option ofanother Rs 100 crore on private placement basis, United Bank of India said. (BS dt. 04.12.2012p.4)Bonds remain mixed:Government Securities (G-Sec) ended mixed, on alternate bouts of buying and selling. The 8.33per cent G-Sec maturing in 2026 firmed up to Rs 100.54 from Rs 100.38 yesterday, while its yieldmoved down to 8.26 per cent from 8.28 per cent. (BS dt. 05.12.2012 p.4) Credit Growth…..Festive season: Cheer for banks in retail credit:The reduction in interest rates by banks in home loans has finally helped them garner a highermonth-on-month growth this festive season. The growth in home loan dues in absolute termswas Rs 7,200 crore on a month-on-month basis in October, compared with a growth of Rs 3,046retail loans for banks. (BS dt. 01.12.2012 p3)As retail falters, banks set eyes on unsecured loans:The slowdown in growth of bank loans is spreading to the last bastion - retail - forcing lenders toraise their portfolio of unsecured loans after a gap of four years when rising defaults during the tegy to follow for banks like us with a large - -oriented strategies followed by some in (ET dt. 03.12.2012 p.1)Yes Bank to expand retail portfolio: o boost its retail portfolio, buoyed by its success inraising low-cost deposits. On Wednesday, Yes Bank will announce a tie-up to distribute creditcards from American Express Co. for a fee after having teamed up with Dewan Housing FinanceCorp. Ltd (DHFLsuite. We will be predominantly an originator for these cards with an aim to gain expertise,experience and increase our product depth when retail becomes our number one business inLoan growth picks up on retail demand:as demand from home loan and retail borrowers picked up. Bank loans grew 3.1% to Rs 49.6trillion during October-November from 2.2% in the April-September period, according to the RBI (Mint dt. 13.12.2012 p.11) 17last few months, Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Banks unlikely to cut lending rates:Bankers would like to wait for a signal from the RBI before taking a call on lending rate cuts. WithRBI deciding to keep key interest rates unchanged on Tuesday, top lenders led by SBI, ICICI Bankand HDFC Bank said they would leave loan rates unchanged. SBI Chairman Mr Pratip Chaudhuriquo. Mr M Narendra, C&MD of IOB, said base rate cuts will be difficult to implement till March (FE dt. 19.12.2012 p.8)RBI begins check on collateral adequacy for corporate loans:With a rise in corporate loan dReserve Bank of India has sought information on adequacy of collateral and securities oncorporate loans. The central bank, which had already begun work to assess the challenge fromnon-performing assets, has expanded the exercise to check the readiness to face further pressuremove, a top executive with a small private bank said the purpose was to ensure banks hadadequate collateral for loans when they went for recoveries. (BS dt. 21.12.2012 p.1)Bank credit growth expected at 15.6% by end of FY13:Deposit growth at 13.3% for the fortnight ended 14 December has increased marginally. Creditgrowth, however, has decreased marginally to 16.3% this fortnight. Credit deposit ratio furtherincreased 10 basis points over the previous fortnight to 77.1%. Deposit growth still near seven-year low. Deposit growth marginally recovered to 13.3%, compared with 12.8%, which is thelowest since April 2005, during the previous fortnight, led by a better time-deposits growth,which at 13.8%, was marginally better than 13.2% in the previous fortnight. Credit growth, at16.3% was lower than 17% the previous fortnight. (Mint dt. 28.12.2012 p.17)Slowdown to impact demand for bank credit in 2013: ReportSlackening demand for credit and pressure on asset quality are some of the challenges that theIndian banking sector is facing in 2013. This could, in turn, because banks to increase their focuson fee income to maintain their margins intact, said a report on the banking sector by Dun &Bradstreet India. According to the Reserve Bank of Indias second quarter review of monetaryforecast earlier to 5.8 per cent. Any further slowdown in the Indian economic growth is likely toimpact the demand for bank credit, according to the Indian Banking Sector Outlook for 2013. (BSdt.25.12.2012 p.5) Cards…..RBI prescribes rules for co-branded debit cards:The RBI prescribed guidelines for banks to issue co-branded debit cards and pre-paid instruments igencein respect of the non-banking entity with which they intend to enter into tie-up for issue of suchcards to protect themselves against the reputation risk they are exposed to in such anarrangement, the RBI said. (FE dt. 13.12.2012 p.8)Issue only online debit cards, RBI tells banks:In a bid to hasten the process of penetration of pre-paid instruments, the Reserve Bank of India 18said that banks may issue debit cards, including co-branded debit cards, without seeking priorapproval from it. The RBI also prohibited banks from issuing offline-debit cards henceforth. Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 In amove that will put and end to the practise of banks pestering customers with their credit cardoffers, the central bank ordered that banks should not dispatch a card to a customer, unlesssolicited. (BL dt. 14.12.2012 p.6)Govt on credit card complaint:The Reserve Bank has received a large number of complaints relating to credit cards againstlenders such as SBI, ICICI Bank and HDFC Bank for reasons like penal and late payment chargesduring the last fiscal, Parliament was informed. These were, however, lower than those receivedin 2010-11. During 2011-12, Reserve Bank of India (RBI) has received 5,198 complaints againstState Bank of India (SBI), followed by ICICI Bank (1,211) and HDFC Bank (1,153), Finance MinisterMr P Chidambaram said in a written reply to the Lok Sabha. (BS dt. 15.12.2012 p.3) 19 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Deposits…...Corporation Bank launches two new term deposits:Corporation Bank has launched two new term deposit products - - with effect from December 4. A bank release said that Corp Super Gain isoffered for 222 days with an interest rate of 9 per cent. Corp Super Gain Plus is offered for 444days with an nterest rate of 9.25 per cent. For both the new schemes the minimum amount ofdeposit is Rs 10,000 and the maximum is Rs 5 crore. The release said that there is no penalty forpremature closure.(BL dt. 04.12.2012 p.6)Deposit growth at nine-year low:The banking sector could soon see a worsening liquidity situation that could crimp credit offtakeif the -yearlow in the fortnight ended November 30 where it grew 12.76%, RBI data showed. The last timedeposit growth dipped below 13% was in December 2003. Outstanding deposits of banks stoodat Rs 64, 42,835 crore as on November 30, a growth of just 5.4% for the financial year. (FE dt.14.12.2012 p. 8)SBI: Reduce fixed deposit minimum tenure to 3 days:The SBI has requested the RBI to reduce the minimum tenure for fixed deposits to three daysfacilities, the experience and so on. In fact, I am requesting RBI, time and again, that the tenure ofsaid. (BS dt. 21.12.2012 p.6)Federal Bank, Dena Bank raise deposit rates by 25-30 bps:Despite the interest rates having a softer bias, with the central bank indicating rate cuts duringthe fourth quarter of the financial year, some banks have increased deposit rates by 25-35 basispoints on Monday in select maturities.Federal Bank raised the deposit rate by 25 basis points in 1-3 year domestic term deposits to nine per cent and Dena Bank increased it in the one year andabove one year to less than two years bucket by 35 basis points to 9.1 per cent. (BS dt.25.12.2012p.4)BoI hikes rates on bulk deposits:Public sector lender Bank of India raised interest rates on select bulk deposits, to retain its depositbase even as the government wants all public sector banks to cut their bulk deposit portion to15% of total deposits by March end. BoI raised interest rates on deposits worth Rs 10 crore andabove by 25 bps to 9%. In a notification to the stock exchange, the bank said it has raised rates onbulk deposits which fall in the maturity period ranging from one year and above to less than twoyears. (FE dt.28.12.2012 p.10)RBI order on special deposit scheme:The Reserve Bank of India has asked all banks to promptly pay the interest on the special depositscheme to customers on January 1. The interest rate payable will be 8.6% from January-Marchand 8.8% from April-December 2012. Banks can pay customers the interest through variouspayment options such as electronic transfer or account payee cheques. (FE dt. 25.12.2012 p.8) 20 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Economy…..BS poll - Street divided on RBI action in Dec policy review:A Business Standard poll conducted among prominent fund managers and economists, showsthat the Reserve Bank of India is likely to keep interest rates unchanged in its mid-quarter reviewof the monetary policy, scheduled for December 18. However, the street seems to be divided onwhether the central bank would opt for another round of cut in the cash reserve ratio. In 2012 sofar, Reserve Bank of India has reduced cash reserve ratio by 175 basis points to ensure that thecredit flow to productive sectors is not affected. It had reduced interest rate by 50 basis points inApril the first time in three years but it has put the brakes on it since.(BS dt. 05.12.2012 p.1)Current account deficit not sustainable- t is not sustainable and needs to be curbed to a moresustainable level of 2.5% of gross domestic product, said a top official of the Reserve Bank of Indiamedium-term to accelerate efforts towards structural reforms that help boosting ourMr Deepak Mohanty, Executive Director. (FE dt. 08.12.2012 p.8) 21 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Financial Inclusion & MFI…..KVG Bank plans to open ultra-small branches:The Karnataka Vikas Grameena Bank (KVG Bank), a Dharwad-based Regional Rural Banksponsored by Syndicate Bank, has chalked out a strategy to speed up financial inclusion roll-outby opening ultra-Sambasiva Reddy, Chairman of the bank, told. (BL dt. 12.12.2012 p.17)Gear up for Direct Cash Transfer:Finance Minister Mr P Chidambaram asked banks to gear up for implementation of the ambitiouscash transfer scheme, which seeks to transfer money directly into beneficiary accounts in 51districts from January 1. "There is lot of work to be done from January 1. There are huge burden,huge responsibility going to fall on your shoulders. It is banks that have to make cash transferscheme successful. I know you can do it," Mr P Chidambaram said. (ET dt. 22.12.2012 p.4)Cash transfers: Govt seeks adequate banking facilities:To ensure adequate banking coverage even in less populated states in the run-up to the rollout ofthe direct cash transfer scheme, the Finance Ministry has asked banks to ensure that there is atleast one bank branch or business agent in every village council area. In a 20 December circular,the Ministry directed banks to use a mix of business correspondents and common service centresto ensure banking is available to the beneficiary. The Finance Ministry has also asked banks to usecommon service centres in places where there are no banking agents or where their performanceis not satisfactory, especially for opening accounts. As per data available with the Reserve Bank ofIndia, villages covered through business correspondents constituted almost 80% of the total inthe financial inclusion plan. (Mint dt.27.12.2012 p.4)FM terms direct cash transfer a pure magic:Describing the proposed direct cash transfer scheme a pure magic that calls for a bigresponsibility on banks for its implementation, Finance Minister Mr P Chidambaram said thebankers need to work with the government for the scheme to be successful. The Finance Ministerresponsibility that rests on bankers. I appeal to all banks to work with the government to make (BS dt. 23.12.2012 p.3)Govt to pay banks for direct cash transfers:In a bid to incentivise banks for facilitating direct cash transfers to Aadhaar-enabled accounts -which may not bring any business to the banks - the government is considering paying them atransaction fee. A business model is being worked out to help banks recoup their transactioncosts. Although the transaction costs would vary depending on the frequency of withdrawals anddeposits from a bank account, the government is considering paying a transaction fee for all last-mile payments to the banks at the rate of 3.14 per cent of the amount of transaction with a capof Rs 20 a transaction. (BS dt. 29.12.2012 p.4) 22 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Minsitry of FinanceDecision on fund infusion this week:The government said it will decide about Rs 15,000 crore capital infusion in the public sectorbanks to store up their ca o (Mint dt. 04.12.2012 p.21)Mittal at disinvestment dept:Secretary in the Department of Financial Services Mr D K Mittal has been given additional chargeof the disinvestment department, current Secretary in the disinvestment department MrMohannad Haleem Khan retired on November 30. Mr Mittal, a 1977 batch IAS officer of the UttarPradesh cadre, was appointed the Secretary in the Department of Financial Services in Augustlast year. (BS dt. 04.12.2012 p.5)Everyone has right to banking, says FM:Ahead of the rollout of Aadhaar-enabled direct benefits transfer scheme on January 1, 2013,Finance Minister P Chidambaram said like education, work, food and speech, banking services are vour by providing services such as educationalloans and loans to self-help groups, but are only doing their duty. People have a right to getdeposits from individuals and institutions and lending to big companies, but it means reaching er said. (FEdt. 22.12.2012 p.8)Banks need Rs 1 lakh crore in 5-10 years-FM:Finance Minister Mr P Chidambaram said the public sector banks would need around Rs 1 lakhcrore capital over the next 5-10 years. The Minister said the government intended to capitalizethe banks so they could meet especially Basel norms. By March-end the government will infuse RsMinister also urged the banks to look to consolidation -20 (BS dt. 23.12.2012 p.3)Exit non-core biz to help conserve capital, FinMin tells banks:The need to conserve capital has prompted the Finance Minister to ask PSB chiefs to stick to theknitting (banking) and come out of all non-core activities. Referring to the fact that the globalcrisis had revealed that banks should adhere to their core activities, the Minister, at a meetinglast month, underlined the need for PSBs to come out of all related activities. Finance Minister MrP. Chidambaram told the PSB chiefs that banks should concentrate on core banking functions toimprove their capital base. (BL dt. 24.12.2012 p.5) 23 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Interest rate cut needed to boost growth, says Montek:Planning Commission pitched for lowering of interest rate to boost economic growth which isbeginning to look up after moderating to 5.4 per cent in the first half of the current fiscal. "Over alonger period of time, steps are needed to bring down the interest rate. RBI looks at these thingsindependently and we should give them freedom to decide (about interest rates)", Plan panelDeputy Chairman Mr Montek Singh Ahluwalia said while commenting on Reserve Banks mid-quarter review. (FE dt. 19.12.2012 p.8) Forex Inflows…..ended November 23, the Reserve Bank of India (RBI) data show. The reserves had gone down by$32.7 million to $293.52 billion in the previous week. The Forex had declined by $781.5 million to$293.55 billion for the week ended Nov 9. The foreign currency assets (FCA) - the biggestcomponent of the Forex reserves - increased by 1.44 billion at $260.13 billion, according to theweekly statistical supplement released by the RBI. (BL dt. 01.12.2012 p.8)Forex reserves raise $1.63 billion:Foreign Exchange reserves rose $1.63 billion to $296.63 billion on the back of increase in foreigncurrency assets. Foreign currency assets rose $1.61 billion to $262.11 billion. Gold reservesremained unchanged to $27.8 billion while SDRs from IMF increased $15.4 million to $4.43 billion. The reserve position with IMF also rose $7.8 million to $2.27 billion. (BS dt. 22.12.2012 p.3) 24 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Housing Worries…..Union Bank cuts home loan rates by 25 bps:Union Bank of India (UBI) said it has cut interest rates on home loans above Rs 30 lakh by 25 bps.While loans up to Rs 75 lakh are being approved on the base rate of 10.5%, loans between Rs 75lakh and Rs 5 crore are offered at 10.75% with effect from Thursday. The move which is expected UBI also cutrates on education loan by 150-200 bps, while giving additional 50 bps concession to girlstudents. Education loan up to Rs 7.5 lakh are now offered at 12.75%, while loans above that limitare offered at 12.5% starting Thursday. The bank had already waived processing fees on all homeand auto loans under a special festival season scheme. (FE dt. 01.12.2012 p.8)Indian Bank may merge finance arm:Indian Bank was planning to merge its housing finance arm, Ind Bank Housing Ltd, with itself byMarch 31, and was looking for a consultant to advise it on the same, a senior bank official said.(BS dt. 08.12.2012 p.3)You can soon apply and get SBI home loan sanctioned online:State Bank of India intends to turn up the heat on its competitors in the retail loans segment. -based customer acquisition solution thatwill allow prospective customers to not only apply for home loans but also generate in-principleloan sanction letter online. The move to have an online customer acquisition solution could savethe net-the formalities associated with getting a home loan. (BL dt. 17.12.2012 p.5)Central Bank of India planning new scheme for low-cost homes:Central Bank of India is targeting a business of Rs 10,000 crore from the home loan segment inthe current financial year while planning to launch a new scheme for affordable housing. Of thetarget, the Bank has touched Rs 7,900 crore and expects to cover the remaining portion beforeMarch-end, according to Mr Ram Sangapuri, General Manager-Retail, Central Bank of India.Central Bank is also planning to announce a new scheme to provide affordable housing forsocially and economically backward. Under the new scheme, loans of up to Rs 5 lakh will be givento people without any guarantee or surety along with several other flexible terms, the bankofficial said. He said the bank was conducting a series of property expos across the country. (BLdt. 16.12.2012 p.3)State Bank waives guarantor for shifting home loans:According to a senior SBI official, the bank will allow existing borrowers to shift their home loanby waiving the third-party guarantor clause. This is an added attraction, beside the lower interest,10% for loans up to Rs 30 lakh and 10.15% for loans above Rs 30 lakh, that SBI is charging.According to the SBI official, this clause was proving a hindrance for many borrowers. However,this clause is waived only for loans that have been serviced for two years. (BS dt. 18.12.2012 p.4) 25 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Human Resources…..Citigroup to cut 11,000 jobs, take $1 billion in charges:Citigroup Inc will eliminate 11,000 jobs worldwide, about 4 percent of its total staff, in a move tosave as much as $1.1 billion a year in expenses, the company said. The move will initially result inpre-tax charges of $1 billion to fourth-quarter earnings, the company said in a statement. Themove is the first major action to restructure the company since directors named Mr MichaelCorbat Chief Executive Officer in October after becoming impatient with former CEO Mr VikramPandit. "We have identified areas and products where our scale does not provide for meaningfulreturns," Mr Corbat said in a statement. (BS dt.06.12.2012 p.10)Marginal rise in complaints against PSBs, says FM:The government on Friday said there has been a marginal increase in the number of customer l increase in theMr P Chidambaram said in a written reply to the Lok Sabha. The total number of complaintsagainst the PSBs stood at 48,180 during 2011-12, higher than 42,724 during 2010-11 and 41,924during 2009-10, he said. (FE dt. 08.12.2012 p.8)INFLATIONInflation remains primary concern for RBI-Gokarn:RBI Deputy Governor Dr Subir Gokarn said inflation continues to the primary concern for thecentral bank. His comments come amid growth in the second quarter falling to 5.3% in July-September period, triggering demands for a rate cut by the RBI to boost the economy. RBI shouldnot do anything that provides some short-term stimulus to growth but also raises the risk ofFew candidates line for post of executive directors at state-run banks:The appointment committee is scheduled to interview candidates, who are general managers, forthe post of executive directors in state-run banks. But a number of banks will not have theircandidates appearing for the interview this time since they fall short of the mandated two yearsof service experience as general managers and a residual service of three years. Banks such asPunjab National Bank, Punjab & Sind Bank, Indian Bank and Indian Overseas bank are notsending any candidates. Interestingly, Allahabad Bank and Dena bank are sending five candidateseach, while Canara Bank, Andhra Bank and Corporation Bank will have three of its officialspitching for the job. (ET dt. 12.12.2012 p.13)Bank employees push for 5-day week, write to govt:Even as banks extend their working hours for business expansion, employees are clamouring fora cut in the number of working days from six to five. Renewing their long-pending demand for a5-day working week, the staff unions said a rejuvenated work force will fetch better business. Inthe changed global scenario and taking cue from other offices, the unions are now aggressivelypitching for a 5-day week charter. Spearheading the cause, the National Union of Bank Employeeshas decided to create awareness among bank employees on this demand. The union hassubmitted a memorandum on the introduction of a 5-day week in banks to the Finance Ministryand IBA. (FE dt. 13.12.2012 p.8) 26In a first, SBI takes its officers body to court:For the first time in its 200-year history, Pagecourt for resorting to a work-to-rule agitation and demonstrations in September that hit the Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013December 3 restrained the association from holding demonstrations, hunger strikes and relay plan to introduceseven-day banking to meet the challenges of growing competition. (BS dt. 17.12.2012 p.1)Members of 4 bank unions go on strike:A section of public sector banks employees went on nation-wide strike on Thursday to protest theBanking Laws (Amendment) Bill, partially affecting normal banking operation in some banks.Employees of four bank unions participating in strike are from All India Bank Employees nd NationalUnion of Bank Employees. Operation were affected in those banks where these unions have astrong presence. (BS dt. 21.12.2012 p. 8)Corporation Bank to hire 2,433 this fiscal:Corporation Bank plans to recruit 2,433 personnel during 2012-13, according to its Chairman andManaging Director Mr Ajai Kumar. Of these, nearly 1,100 will be in the officer cadre and the restin clerical cadre, Mr Ajai Kumar told. The bank is in the process of building a talent pool,particularly in specialised areas such as risk management, forex, IT, credit, including agriculture,etc. The recruitment process is in progress and is expected to be completed by the end of themonth, he said. (BL dt. 20.12.2012 p.5)Karnataka Bank share frenzy under SEBI lens:The recent frenzy surrounding the Karnataka Bank stock has come under a regulatory glare. TheSecurities and Exchange Board of India (SEBI) is investigating the share price movement in recent ate-sector player. SEBIis said to have sent letters to some traders and investors with sizeable positions, seeking anexplanation about the nature of their transactions. Karnataka Bank shares, which closed at Rs h of Rs 195.50 on December 10, after rising almost140 per cent in three months. The jump was fuelled by speculation that the Mangalore-lender. Both firms had vehemently denied this. Sources said the stock could have come under (BS dt. 20.12.2012 p.1)Ashwani Kumar is CMD of Dena Bank:Ashwani Kumar has been appointed as Chairman & Managing Director, Dena Bank, for a periodof five years from the date of taking over charge of the post on or after January 1, 2013, videnotification dated November 6, 2012. According to the Government notification, Ashwani Kumar,who is the Executive Director of Corporation Bank, will function as Executive Director at DenaBank on attachment basis with effect from December 17, 2012, till December 31, 2012, or untilfurther orders. (FE dt. 25.12.2012 p.5)Federal Bank offers stock options to staff:Kerala-based private sector lender Federal Bank Ltd has offered 2.4 million employee stockoptions (ESOPS) worth Rs114 crore to 7,851 employees of the bank. An ESOP is a call optiongranted by a company to its shareholders as part of the remuneration package. These options canbe converted into shares at a later stage. This is the second time Federal Bank is offering theoptions to employees since 2011. (Mint dt. 29.12.2012 p.10) 27 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Infrastructure…..IDBI Bank might come to the rescue of IDFC consortium:The Union government is working on a plan to get IDBI Bank into the controversial Delhi-GurgaonExpressway project, to save the lenders involved from trouble in case of cancellation of thecontract. The government plans to put in place a mechanism to bail out the IDFC-led consortium,which had invested Rs 1,600 crore as debt in the project. IDFC, Bank of India, Punjab NationalBank, Oriental Bank of Commerce and State Bank of Bikaner and Jaipur have exposure of Rs 1,600crore to the project. Mr R M Malla, Chairman of IDBI Bank, did not deny that the bank was in (BS dt. 15.12.2012 p.1)Banks tap finmin over worries of power NPAs:Cautioning that loans of around Rs 2.3 lakh crore to private-sector power companies are on theverge of turning bad, public sector banks including the SBI, PNB and Oriental Bank of Commerceof help. PNB C&MD Mr K of fuel linkage.Many power stations are not able to generate power, sell it and get returns on their investments. (FE dt. 24.12.2012 p.1) Liquidity….. RBI may ease norms for FII inflows:The Reserve Bank of India may ease norms for foreign investors, including permitting them totrade in currency futures and allow repurchase facility in commercial papers (CPs) and certificateof deposits (CDs), to boost the stagnant bonds market. "We are thinking if foreign institutionalinvestors can be allowed to trade in currency futures," said Mr H R Khan, Deputy Governor,Reserve Bank of India. "We are now flexible on residual maturity and lock-in period," he saidreferring to restrictive norms for foreign funds in holding domestic bonds. (ET dt. 13.12.2012p.10)Banks borrow Rs 1.7 lakh cr from RBI, highest in FY13:Borrowing by banks under the RBI daily Liquidity Adjustment Facility (LAF) touched a record highfor the financial year, at Rs 170,140 crore. It was Rs 164,615 crore yesterday. The system generallysees such high borrowing in March, when liquidity is invariably tight. On March 30, banks hadborrowed Rs 197,510 crore under the LAF. (BS dt. 21.12.2012 p.6)RBI buys Rs 7,912 cr of G-Secs:As part of its programme to infuse liquidity, the RBI bought Rs 7,912 crore of G-Seces throughOMOs against a target of Rs 8,000 crore. Three securities were on offer for the OMOs conducted.The central bank bought the 8.33% bonds maturing in 2026 at Rs 100.72, yielding 8.24%. On the8.19% bonds maturing in 2020, the RBI set a cut-off price of Rs 100.04, yielding 8.18%. (BL dt. 2822.12.2012 p.5) Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Mutual Funds & Capital Market…..I-bank alliances to tap cross-border deals on the rise:An increasing number of Indian investment banks (I-banks) are forging alliances with overseas I-banks with a strong regional presence for handling cross-border deals. Axis Capital Markets(India) Ltd and IDFC Capital Ltd have entered into such arrangements recently; Kotak MahindraCapital Co. Ltd has just got into a new tie-up on top of two it already had; Ambit CorporateFinance Pte Ltd and ICICI Securities Ltd (I-Sec) are scouting for partners. I-Sec already has two suchalliances. With the majority of India-specific cross-border deals being clinched by foreign banks,these alliances are a low-cost solution for Indian I-banks seeking to compete with global banks,said I-bankers. (Mint dt. 21.12.2012 p.8)SEBI chief hits out at merchant bankers:Securities and Exchange Board of India (SEBI) chairman Mr U K Sinha said the credibility of theinvestment banking community had taken a hit as retail investors were now wary of investing inpublic offers. The regulator lashed out at the investment banking fraternity for not acting in theinterests of retail investors, pointing out that the bulk of the public offers are currently tradingprimary market. This is a question of credibility for all of us and we have to take serious steps to (FE dt. 20.12.2012 p.1)Bank of Baroda to issue shares to govtState-owned Bank of Baroda (BoB) on Wednesday said it would raise Rs. 1550 crore by issuingpreference shares to the government. The board at its meeting held on 24 December 2012, hasapproved issuance of shares of face value Rs. 10 each, for an amount up to Rs. 1550 crore, onpreferential basis in favour of the Government of India, BoB said in a filing to the BSE. The pricesof the shares would be decided as per the SEBI norms, it said. Preference shares are given higherranking over common shares but subordinate to bonds in terms of claims. (Mint dt. 27.12.2012p.9)Axis Bank is top debt arranger this year too:Axis Bank has retained its leadership position in arranging bond sales this year, with the numberof debt issues rising 24% amid a scramble by companies to cut funding cost. And HDFC Bank,which is building out investment banking, sneaked into the top 5. In an increasingly competitivemarket, Axis Bank raised its market share to 18.8%, from 15.6% a year earlier, according toBloomberg data. The private bank managed 257 issues, while ICICI Bank, at second position, sawits market share falling to 10.3%, from 12.8%. The bank managed 190 issues. (ET dt. 29.12.2012p.5) 29 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 NPA….Deccan Chronicle lenders violated norms, says Finance Ministry panel:A Finance Ministry-appointed panel probing alleged irregularities in loans to cash-starved mediahouse Deccan Chronicle Holdings (DCHL) has found violations by some lenders and has especiallyrecommended a tightening of the lending norms by state-run lenders. A person familiar with thesituation said that the two-member panel comprising former Andhra Bank Executive Director MrAnil Girotra and Mr S K Sharma, General Manager (recovery & law) of Oriental Bank of Commercehas already submitted its investigation report to the Finance Ministry. (ET dt. 03.12.2012 p.3)Axis sends notice to Maldives govt:Axis Bank has sent a legal notice to the Maldives government to recover its $350 million loangiven to GMR Infrastructure after the Maldives government decided to terminate a contract withthe GMR Group under which the Indian company was to operate the Male International airport.The GMR Group is also planning to file an appeal before a Singapore tribunal, challenging thedecision of the Maldives government to terminate an agreement signed in 2010 allowing it tomatter. The bank had disbursed the funds based on government guarantees. (ET dt. 03.12.2012p.5)Improvement in asset quality not one-off case Union Bank:Even as large public sector banks grapple with asset quality woes, Union Bank of India stayedoutlier in the second quarter of the financial year. It recorded a sequential dip its non-performingasset numbers, both in absolute and percentage terms. While one quarter is too short a timespan to ju - -performinglevels 10 basis points to 3.66% in the July-September quarter. Also, the addition to itsrestructured book of Rs 839 crore was the lowest in four quarters. (FE dt. 04.12.2012 p.8)State Bank of India, the leader of the consortium of banks that have lent to the groundedKingfisher Airlines, on Wednesday said the banks are trying to do everything possible to find anare a good company and we are trying to do everything so that an amicable solution to theThe Bangalore-based airline owes about Rs 7,000 crore to a consortium of 17 banks. KFA owesabout Rs 1,500 crore to SBI. The cash-strapped airline has accumulated losses of nearly Rs 10,000crore. (BL dt.06.12.2012 p.6)Banks told to speed up NPA recovery:Public sector banks have been asked to take fresh steps to speed up recovery of NPAs, Finance advised public sector banks to take anumber of net initiatives to increase the pace of recovery and manage the NPAs, which includehe said. (FE dt. 07.12.2012 p.8)Banks may get to buy assets of defaulters at reserve price:Amendments to an asset foreclosure law currently pending in Parliament could allow banks to 30defer the sale or disposal of assets seized from defaulting borrowers, allowing them to acquirethe assets at the reserve price if there are no buyers. These changes, if passed, could make bank Pagebalance sheets more opaque from the perspective of investors and regulators, and could lead to Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013an overestimation of the true value of assets seized by banks from defaulters. (ET dt.07.12.2012p.11)RBI may raise NPA provision ratio:RBI Deputy Governor Dr K C Chakrabarty has come down heavily on banks showing higher profitswithout providing adequately for bad loans, and said if need be, the central bank may hikeprovision coverage ratio (PCR) levels. "Why banks need to show profits as high as 25 per cent?They can show 5 per cent growth in their profits. If they are not doing (providing more), I willincrease it (PCR)," he told. The RBI had done away with its earlier requirement of forcing banks tomaintain the PCR, or the ratio of provision to gross NPAs at 70%. (Mint dt. 10.12.2012 p.11)Bad loans in PSBs rising:Gross NPAs of PSBs have increased from 2.28% in March 2010 to 4.01% in September 2012, LokSabha was informed on Friday. For SBI Group, the gross NPA (as a percentage of gross advances)has jumped from 2.82% in March 2010 to 5.16% in September 2012, Mr Namo Narain Meena,Minister of State for Finance, said. In the case of nationalised banks, gross NPAs have increasedfrom 2.04% in March 2010 to 3.50% in September 2012. (BL dt. 10.12.2012 p.5)Lok Sabha clears Bill to facilitate restructuring of bad loans:The Lok Sabha on Monday cleared a Bill that will facilitate easier restructuring of bad loans byallowing Asset Reconstruction Companies (ARCs), to convert debt into equity. The Enforcement ofSecurity Interest and Recovery of Debts Laws (Amendment) Bill, 2011, also seeks to empowerdebt recovery tribunals and banks to make them more effective. Under current laws, banks canundertake corporate debt restructuring and convert some of the debt into equity according toprescribed guidelines. But no such option was available for ARCs. ARCs acquire bad debts frombanks and other lenders at a discount and then try to recover them. (Mint dt. 11.12.2012 p.5)Banks are willing to offload their stressed assets to asset reconstruction companies (ARCs) atdiscounts of about 30-40% of the outstanding amount, say bankers and officials from ARCs.According to sources, IDBI Bank (Rs 900 crore), Allahabad Bank (Rs 126 crore), Federal Bank (Rs194 crore), Central Bank (Rs 300 crore), UCO Bank (Rs 25 crore) and Corporation Bank (Rs 17 crore)have sent out tenders to ARCs for auctioning these assets. Some banks like Bank of India, ICICIBank and Bank of Baroda have also bilaterally sold assets to a new ARCs. Most of the NPAs thatare considered for sale are mid-corporate accounts. (FE dt. 14.12.2012 p. 8)Bad loan classification, provisioning for NBFCs to be brought on par with banks:Non-banking finance companies may be required to follow the asset classification andprovisioning norms applicable to banks from April 1, 2015, according to the Reserve Bank ofand banks get aligned, the crucial advantage that the former enjoy when it comes to assetclassification and provisioning norms will no longer be available. At present, the period forclassifying loans as bad in the case of NBFCs is higher at 180/360 days compared with 90 days forbanks. (BL dt. 14.12.2012 p.6)High bad debts temporary-SBI:Attributing rising bad debts to economic slowdown, State Bank of India (SBI) said high Non-Performing Assets (NPAs) are temporary. "NPAs continue to be a challenge. But I dont want toput a number to it. I can only tell you that large part of the NPAs is really because of the externaleconomy and I would think that they are temporary only," SBI Managing Director Mr Diwakar 31Gupta. SBIs NPAs rose to 5.15 per cent in the second quarter ended September, from 4.19 percent over the year-ago period because of deteriorating asset quality. He said the bank has made Pageadequate provisioning norms. "We have been providing in excess of the prudential provisions. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Whatever Reserve Bank asked us to provide, we have been providing that, plus a little more." MrGupta said. (FE dt. 16.12.2012 p.12)Bankers keep kingfisher in Hangar:The Redemand for bank guarantees even though he promised to invest at least Rs 105 crore in its equityby February. Bankers have formed a group with executives from State Bank of India, Bank ofIndia, IDBI, Bank of Baroda and Punjab National Bank to work out ways to revive the companyamid assurance by Mallya to invest as much as Rs 425 crore in states, said two people familiarwith the development. They have informed us that they will restart operations on a limited basisand have assured us the promoters will infuse Rs 425 crore for the same. They have not yet set atime-Bank of India, told. (ET dt. 18.12.2012 p.1)Four independent directors resign from Deccan Chronicle Holdings:Deccan Chronicle Holdings Ltd, which is battling court petitions by creditors to liquidate itsassets, said on Monday that four of its independent directors haddirectors of the company at its meeting held on 8 December have accepted the resignations ofwinding-up petitions from creditors seeking to recover their dues. Canara Bank has initiated aforensic audit of the company. Canara Bank, ICICI Bank Ltd and Axis Bank Ltd have already -performing assets. Canara Bank has anexposure of Rs.330 crore, while ICICI and Axis Bank have Rs.500 crore and Rs.400 crore exposure,respectively, to the company. (Mint dt. 18.12.2012 p.9)Public Sector Banks seek phased provisioning norms:Chiefs of PSBs have urged the sector regulator to implement the increase in provisioning forrestructured loans in a phased manner, a step they hope will soften the impact on their bottomprovisioning requirement on restructured assets from 2% to 2.75%. Lenders are required toadhere to this norm from the December quarter itself. The brunt of higher provisioning norm willbe borne by PSBs, 6%-assets. IBA Chairman(ETdt.22.12.2012p.4)Yes Bank moves to recall Deccan loan:Cash-strapped Deccan Chronicle Holdings has received yet another jolt with Yes Bank moving theDebt Recovery Tribunal (DRT) over repayment of the loan it gave the media group in 2010. Thebank had advanced a total of Rs 194 crore, of which Rs 126 crore is said to be outstanding. (DNAdt. 19.12.2012 p.11)Bankers talk tough on CDR, promoters to fork out more:Convinced that promotersbanks have decided to ask them for higher contributions.New Stringency:Promoters contribution upped to 25% from 15%Promoters must pledge 100% of their sharesUnconditional promoter guaranteeConcessional interest rate cant be less than base rate 32Debt not to be converted into preference shares unless in exceptional circumstancesCreation of Trust and Retention account to monitor receivables and payments Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Andhra Bank plans to approach Tribunal against Deccan Chronicle:Andhra Bank is planning to approach the Debts Recovery Tribunal (DRT) against Deccan ChronicleHoldings Limited (DCHL) for defaulting on payment of Rs 200-planning to initiate legal action aA Prabhakar, C&MD of Andhra Bank, told. The legal action would be by way of approaching theDRT for the recovery of the loan through actions like attachment of properties mortgaged by themediaHyderabad-based company comes close on the heals of a similar action initiated last week byanother public sector entity Canara Bank, which also told the DRT that the company had re-mortgaged the properties to other banks besides defaulting on payment. (FE dt.27.12.2012 p.5)Deccan Chronicle promoters asked to provide Rs 347 crore securityThe Debt Recovery Tribunal in Hyderabad has ordered Deccan Chronicle and its three promotersto furnish security of about Rs 347 crore, equivalent to the dues it owes Canara Bank, beforeJanuary 21. The tribunal that if the publisher of Deccan Chronicle, Financial Chronicle, Asian Ageand the Telugu daily Andhra Bhoomi does not comply, its assets could be attached. It alsodirected the company not to transfer its properties in favour of third parties in the meantime. Thetribunal passed its interim order while hearing Canara Banks petition that sought recovery of itsmoney. All the assets shown as security by Deccan Chronicle to Canara Bank were fraudulentlyre-mortgaged to other banks, Canara Bank said. (ET dt. 25.12.2012 p.3)Bad assets biggest challenge before Indian banks-RBI report: eteriorating asset quality of banks will pose achallenge in a smooth transition towards new international capital adequacy norms that kick inwill face challenges as they migrate to Basel III, given the declining asset quality and regulatorysecond financial stability report. The first report released in June, a (Mint dt. 29.12.2012 p.5) Other Banking News…..City Union Bank to raise Rs 258 cr:Private sector lender City Union Bank is planning to raise Rs 258 crore through sale of shares toinvestors on rights basis as well as issue of equity to its employees. The bank said it would issue atotal of 12.89 crore equity shares including 10.24 crore shares under the rights basis and theremaining 2.65 crore shares would be reserved for employees. (BS dt. 05.12.2012 p.4)Dhanlaxmi Bank to raise Rs 200 crore:Dhanlaxmi Bank plans to raise up to Rs 200 crore of capital by early next month, its ChiefExecutive and Managing Director Mr P G Jayakumar said. "We have appointed ICICI Securities andMotilal Oswal Securities as our merchant bankers. They will make a presentation to the board onDecember 11. We will probably raise the money by January 5," Jayakumar said. (BS dt.04.12.2012 p.4)No processing fee on home, auto loans from Dena bank till Dec 31:Dena Bank has scrapped processing fee for housing and auto loans for a limited period till 33month-end. The fee on personal loans and gold loans have also been halved, a statement issuedsaid, adding the offer is valid till the end of the month. Apart from that, it will also be giving a 50 Pageper cent concession in processing fee for trade finance scheme for credit facilities of up to Rs 2 Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013crore, it said. Doctors availing credit facilities of up to Rs 2 crore will also get to enjoy 50 per centcut in the processing fee, the bank said. (FE dt. 05.12.2012 p.8)LVB additional directors:The Reserve Bank of India has appointed two of its senior officials on the board of private sectorLakshmi Vilas Bank, apparently to safeguard the interest of depositors. (BS dt. 05.12.2012 p.4)OBC raises FD rates on maturities:Oriental Bank of Commerce increased fixed deposit rates by up to 0.5 per cent on selectmaturities. The new rates would be effective from Wednesday, Oriental Bank of Commerce saidin a statement. Term deposits of maturity 91-179 days will earn an interest rate of eight per centfrom the existing 7.5 per cent, it said. (BS dt. 05.12.2012 p.4)Allahabad Bank cuts deposit rates:Allahabad Bank has reduced interest rates on term deposits for the period one-to-less than twoyears by 15 bps. The revised rates will be effective December 18. Interest rate on term deposit forthe period one-to-less than two years has been reduced to 9.15% to 9%, said a press statementissued by the bank. Senior citizens will, however, continue to get additional interest rate of 50bps. Interest rates of non-resident (rupee) term deposits will also undergo equivalent change inthe said tenor, the release said. (BS dt. 19.12.2012 p.6)1000th branch of SBBJ opened:State Bank of Bikaner & Jaipur (SBBJ) has opened its 1000th branch, which was inaugurated byUnion Finance Minister Mr P Chidambaram at Jaipur. Mr Chidambaram said SBBJ had earnedgoodwill of customers in every corner of Rajasthan and also in various parts of the country. SBBJ,which is celebrating its Golden Jubilee, was formed on January 1, 1963 with 124 branches andbusiness of Rs 45 crore. Now, it has 1000 branches with a business of Rs 20 lakh crore, accordingto a release. (BL dt.23.12.2012 p.3)South Indian Bank business set to touch Rs 75,000 cr:South Indian Bank is all set to achieve a business target of Rs 75,000 crore by March 2013 asenvisaged in the Vision Document 2008. SIBs five-year business plan - Vision 2013 - was drawnup in 2008 to achieve Rs 75,000 crore business, 750 branches, 750 ATMs and 7,500 employees. MrV. A. Joseph, MD and CEO, told that the bank has been able to clock Rs 67,000 crore in totalbusiness as on date.Its employee strength is at 6,800, the number of branches 740 and ATMs (BL dt.27.12.2012 p.8)SBT looks beyond Kerala:Kerala based State Bank of Travancore (SBT) is expanding aggressively in other southern statesand will sport a much younger look. The bank plans to recruit 2,500-3,000 people and around focus was on Kerala, but in the last few years we are growing out of Kerala, (FE dt.29.12.2012 p.10) 34 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Overseas Aspirations…..United Bank of India opens office in Myanmar:United Bank of India has commenced operations at its representative office at Yangon inMyanmar. United Bank is the first bank from India to open an office in Myanmar. The setting upof a representative office is likely to give a boost to the Indo-Myanmar trade, said a pressstatement issued by the bank. Though the representative office will not handle any financialtransaction, officials will maintain liaison with the Government, banks and traders will extendhelp and cooperation toward resolving all issues relating to settlement of trade-relatedtransaction between both the countries, the release said. (BL dt. 15.12.2012 p.6) RBI Directives…. & Guidelines….RBI, Bank of Japan in currency swap arrangement:The RBI and the Bank of Japan agreed on a currency swap arrangement against the dollar for upto $15 billion that will be valid for three years. This will help the central banks swap their localcurrencies for doll -termliquidity difficulties and supplementing the existing international financial arrangements, as onewebsite. (Mint dt. 05.12.2012 p.11)Tough times for banks ahead-RBI:The brass of the Reserve Bank of India ( RBI) on Wednesday said the government and theexecutives met bankers at a meeting organ Accordingto the bankers, while Governor Dr Subbarao maintained most Indian banks were adequatelycapitalised, he said meeting the new Basel-III capital norms could pose a challenge for domesticlenders. There were concerns that the central government may find it difficult to capitalisepublic sector banks. (BS dt.06.12.2012 p.1)Need to curb asset-liability mismatch of banks, says RBI working paper: -Liability Mismatch (ALMi), on the rise due to infrastructure financing, needs to becurbed to safeguard the stability of the banking system, a working paper by a RBI staff memberhas said. The paper noted that ALMi has risen not just due to infrastructure loans, but also due topersonal loans, excluding credit card outstanding. The data used for statistical analysis by theauthor are up to March 2009. The paper said personal loans accounted for 32.5% of long-termloans as of end- -term deposits and the rapid growth ininfrastructure loans has raised concerns over ALMi, the paper said. There is a need to look foralternative financing instruments for infrastructure sector and banks, too, need to raise morelong-term deposits to curb the ALMi. (FE dt. 06.12.2012 p.8)Powers to RBI for removing managers:The RBI will be given powers to remove manager-level personnel in Indian banks under the 35banking laws. The government will notify the central bank as a regulatory body that can exercise Pagepowers given under the Companies Act. Minister of State for Finance Mr Namo Narain Meena Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013companies, it issections 388 B to 388 E of the Companies Act, 1956, relating to removal of managerialRBI mulls comments on bank exposure to group cos:The RBI is examining the comments from stakeholders to firm up norms including on the issue ofconsidering the comments received from the stakeholders to finalise the norms that also includeNamo Narain Meena said. (FE dt. 08.12.2012 p.8)RBI eases KYC norms for banks:The RBI eased the mandatory KYC norms for banks so that opening a bank account will be simpleand hassle-free. In a communication to banks, RBI asked them not to insist on introduction by anexisting customer while opening a new account, as it is not mandatory under any rule of thecentral bank. If the identity proof has an address that is the same as the address on which anaccount is being opened, then there is no need for a separate address proof, said the RBI. Thebanking regulator has allowed rent agreements registered with the state government or anyother registration authority as a proof of address. (BS dt. 11.12.2012 p.5)The RBI is likely to announce a ceiling on banks exposure to commodity futures, after thegovernment allowed them to trade in this segment by amending the banking regulation law. TheRBI could also come out with relevant operational guidelines once Parliament approves theBanking Laws Amendment Bill introduced in the Lok Sabha, a senior finance ministry official said.Referring to the enabling clause in the Bill for letting banks to trade in commodity futures, theofficial said it is meant to help banks and farmers, adding the provision was also in line withglobal practices. (FE dt. 12.12.2012 p.8)Quality info on credit key to hedge risks-RBI:information removes information asymmetry, a situation in which both the provider and theseeker of debt is better informed, resulting in a win-win situation. It reduces frauds and at the (FE dt. 13.12.2012 p.8)RBI likely to tighten norms for NBFCs:The Reserve Bank of India is planning tough norms for non-banking finance companies (NBFCs)with higher Tier-I capital requirement and tighter provisioning norms. A working group headedby former Deputy Governor Ms Usha Thorat has suggested that Tier-I capital should be raised to10% for all NBFCs, including infrastructure finance companies. At present, all NBFCs are requiredto have a minimum CRAR of 15% where Tier-l capital is not less than 7.5%. For all captive NBFCs,it is proposed to raise Tier-l capital requirement to 12%. (ET dt. 13.12.2012 p.10)Entry norms for foreign banks may be relaxed soon, says Rao:The Reserve Bank is soon expected to relax norms for entry of foreign banks into the country, atop government official said. "RBI is very soon, I believe, is going to announce a very progressivepolicy for permitting opening of more foreign banks..." Commerce Secretary Mr S R Rao said. (FEdt. 18.12.2012 p.8) 36 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 ` Movement….Rupee down 51 paise on heavy dollar demand:Snapping its three-session gaining streak, the rupee on Monday lost 51 paise to end 54.77against the US dollar due to fresh heavy demand for the American currency from importers andsome banks, amid weak local equities. Forex dealers said some capital inflows and a weak dollaroverseas helped the local currency make an attempt to arrest its fall. The rupee opened a tadof 54.24 on initial rally in domestic stocks, amid sustained dollar selling by exporters. However, itturned negative after weakness in equities in late morning deals and declined further to a low of54.79 before concluding at 54.77, a fall of 51 paise, or 0.94 per cent. (FE dt. 04.12.2012 p.8)Rupee up amid hopes for nod to retail FDI:The rupee strengthened for a fourth session in five today as investor hopes for parliamentaryapproval to foreign direct investment in multi-brand retailing grew. The partially convertiblerupee closed at 54.68/69 a dollar versus its previous close of 54.77/78. (BS dt. 05.12.2012 p.4)Rupee flat as central bank holds rates:The rupee on Tuesday erased initial gains to closed flat at 54.85 against the US dollar amid RBIkeeping key rates unchanged in the mid-quarter policy review. While the rupee snapped a four-session downslide, it could not cement intra-day gains as RBI kept short-term lending (repo) andCash Reserve Ratio (CRR) unchanged, forex dealers said. At the Interbank Foreign Exchangeovernight close of 54.85. (BS dt. 19.12.2012 p.6)Re weakens as domestic stocks fall:The Rupee touched a three week low on Friday against the Dollar due to uncertainty over the US"fiscal cliff" resolution. This resulted in lack of demand for riskier assets like equities. The fall indomestic equities resulted in the Rupee closing at Rs.55.07 compared with its previous close ofRs.54.85. "Domestic stocks fell and there was also month end Dollar demand which resulted inweakening of the Rupee" said Mr Akhil Thomas, Assistant Manager (Forex), Federal Bank. (BS dt22.12.2012 p.3) 37 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Technology…..Banking transactions become more traceable:With an increasing number of methods of electronic payment, the value of transactions as aproportion of nominal GDP routed through the banking system has risen from around 4X in FY2006 to 6X in FY2012. The trend clearly indicates that the proportion of economy that was earlierIndia: Vision 2012-15 report has underlined the need to promote a less cash society and facilitategreater financial inclusion in the country. As a first step, the central bank reduced the MerchantDiscount Rate for debit cards to encourage all categories of merchants to deploy the cardacceptance infrastructure and also facilitate the acceptance of small value transactions. (FE dt.04.12.2012 p.7)E-transacations will be encouraged Chidambaram:The Government will encourage Net banking and financial transactions using debit and creditcards despite rise in number of cyber frauds, Finance Minister Mr P. Chidambaram said. He saidduring Question Hour in Rajya Sabha that frauds involving Net banking and debit/credit cards arediscourage use of Net banking and debit/credit cards. In fact, we must encourage it as such (BL dt. 14.12.2012 p. 6)Move payment gateways to IPv6:The RBI has asked banks to migrate payment gateways to Internet Protocol (IPv6) from IPv4mode. This is part of plBanks should set up a special team to complete migration at the earliest and report progress byMarch 30. (BS dt. 21.12.2012 p.6)ICICI Bank to enter money transfer serviceICICI Bank Ltd and MMP Mobi Wallet Payment Systems, a wholly-owned subsidiary of TataTeleservices Ltd, announced a strategic tie-up to launch a money transfer service. Customers can his money willthen be transferred to the bank account of the payee using currently available electronic fundtransfer mechanisms such as NEFT, IMPS and so on. MMP will act as a business correspondent ofICICI Bank for this service, which will allow customers to transfer money for a nominal feewithout opening an account. (BS dt. 20.12.2012 p.1)Yes Banks mobile payment service:Private sector lender YES Bank launched a mobile point of sale (mPOS) service allowingmerchants to use a mobile device as a payment collection mechanism. Under this service, themerchants can use a mobile phone-based internet connectivity to facilitate debit or credit cardbe inserted into any mobile phone to access the application of the bank. The merchants can buythe Dongle for Rs 2,000 and incur a rental in the range of Rs 250 to Rs 500 on any additionalintegration over and above the merchant service fees. (BL dt. 22.12.2012 p.5) 38 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Perspectives on Indias Balance of Payments Shri Deepak MohantyI thank Professor Sar for inviting me to address this young audience. In the recent years, Indiasintegration with the global economy has increased significantly. This is reflected in ourexpanding volume of external trade and financial transactions. While this process has severalbenefits arising from wider access to consumption and investment, there is attendant cost ofperiodic instability. Over the last two years, the Reserve Bank has been drawing attention to thewidening current account deficit (CAD) in our balance of payments (BoP). The risks to our BoPhave increased both in the global and domestic context : first, following the global financial crisistrade volumes have slumped and capital flows have become volatile; second, slowing domesticgrowth coupled with a large fiscal deficit alongside a high CAD poses twin deficit risks. In thiscontext, I propose to capture the evolution of Indias BoP in the historical context and trace howdid we respond to risks to external stability from time to time?Let me start from the basics. What is BoP? It is our transaction account with the rest of the world.It can be better appreciated in terms of the national income accounting identity : GDP = C+G+I+X-M. In other words, domestic output (GDP) is equal to private consumption (C), plus governmentconsumption (G), plus domestic investment (I), plus net exports (X-M). If net exports of goods andservices (X-M) are negative, the domestic economy is absorbing more than it can produce. Inother words, absorption (C+G+I) by the domestic economy is greater than domestic output (GDP).This is reflected in current account deficit (X-M) which needs to be financed by externalborrowings and / or investments. In normal times external finance may not be a problem.However, it could be challenging if both the global and domestic economic outlook are not veryfavourable. Against this background, my scheme of presentation will be as follows : identify thekey events those shaped Indias BoP since independence; examine the changes in thecomposition of capital inflows; and in conclusion highlight a few risks and make somesuggestions to reinforce Indias BoP.Indias BoP evolved reflecting both the changes in our development paradigm and exogenousshocks from time to time. In the 60 year span, 1951-52 to 2011-12, six events had a lastingimpact on our BoP : (i) the devaluation in 1966; (ii) first and second oil shocks of 1973 and 1980;(iii) external payments crisis of 1991; (iv) the East Asian crisis of 1997; (v) the Y2K event of 2000;and (vi) the global financial crisis of 2008. I will analyse the BoP trend in this sequence.The first phase can be considered from the 1950s through mid-1960s. In the early 1950s, Indiawas reasonably open. For example, in 1951-52, merchandise trade, exports plus imports,accounted for 16 per cent of GDP. Overall current receipts plus payments were nearly 19 per centof GDP. Subsequently, the share of external sector in Indias GDP gradually declined with theinward looking policy of import substitution. Moreover, Indian export basket comprised mainlytraditional items like tea, cotton textile and jute manufactures. Not only the scope of world tradeexpansion in these commodities was less but additionally India had to face competition fromnew emerging suppliers, such as Pakistan in jute manufactures and Ceylon and East Africa in tea.During this period, policy emphasis was on import saving rather than export promotion, andpriority was given to basic goods and capital goods sector. It was argued that investment in heavyindustries would bring in saving in foreign exchange, as output from such industries wouldreplace their imports in the long-run. Import-substituting strategies were expected to graduallyincrease export competitiveness through efficiency-gains achieved in the domestic economy. Butthis did not happen. Hence, exports remained modest. In fact our external sector contracted in 39relation to GDP from the level observed in the early 1950s. By 1965-66, merchandise trade wasunder 8 per cent of GDP and overall current receipts and payments were below 10 per cent of PageGDP (Table 1). Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Table 1: Trend in External Openness(Percent of GDP) Total Receipts plus Merchandise Exports plus Receipts plus Payments Payments Imports (Current Account) (Current and Capital)1951-52 15.8 18.5 19.71965-66 7.7 9.9 14.11973-74 7.8 12.1 17.81990-91 14.6 19.4 31.51999-00 20.6 31.2 46.82008-09 40.6 60.6 111.62011-12 43.8 61.5 109.6Notwithstanding the contracting size of the external sector, as imports growth outstrippedexports growth, there was persistent current account deficit (CAD). Emphasis on heavyindustrialisation in the second five year Plan led to a sharp increase in imports. On top of this, thestrains of Indo-China conflict of 1962, Indo-Pakistan war of 1965 and severe drought of 1965-66triggered a major BoP crisis. Indias international economic relations with advanced countriescame under stress during the Indo-Pak conflict. Withdrawal of foreign aid by countries like the USand conditional resumption of aid by the Aid India Consortium led to contraction in capitalinflows. Given the low level of foreign exchange reserves and burgeoning trade deficit, India hadno option other than to devalue. Rupee was devalued by 36.5 per cent in June 1966.1Though Indias export basket was limited, the sharp devaluation clearly increased thecompetitiveness of Indias exports. Concurrently, India had to undertake a number of tradeliberalising measures. Even though the net impact of devaluation was a contentious issue amongthe leading economists,2 data show that exports growth, though modest, outpaced importsgrowth (Chart 1).In fact, the current account turned into a surplus in 1973-74 as not only the exports growth was 40significant but invisible3 receipts also showed a sharp turnaround from deficit to surplus mainlyon account of official transfers which largely represented grants under the agreement of PageFebruary 1974 with the US Government on the disposition of PL 480 and other rupee funds. Since Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013surplus in current account balance (CAB) was used for repaying rupee loans under the sameagreement with the US, accretion to reserves was only marginal.Surplus in Indias CAB was, however, short-lived as the first oil shock occurred by October 1973.Sharp rise in international oil prices was evident in higher imports growth in 1973-74 and 1974-75. The share of crude oil in Indias import bill rose from 11 per cent in 1972-73 to 26 per cent by1974-75. As exports improved, particularly to oil producing Middle-East countries, BoP recoveredquickly from the first oil shock. By this time, the Indian rupee, which was linked to a multi-currency basket with pound sterling as intervention currency, depreciated against the US dollar(Chart 2).Depreciating rupee along with other policy incentives to exporters acted as a supporting factorfor Indias exports. At the same time, invisible receipts grew sharply stemming from workersremittances from the Middle East. Consequently, the current account balance turned into surplusin 1976-77 and 1977-78 (Chart 3). 41Thus, the private transfers added a new positive dimension to Indias BoP after the first oil shock.Further, with the official exchange rate nearly converging to market exchange rate, there was not Pagemuch incentive for routing remittances through unofficial exchange brokers. The rapid growth of Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013private transfers reinforced the trade account adjustment to make the current account situationmuch more comfortable (Chart 4).During the 1980s, BoP again came under stress. The second oil shock led to a rapid increase inimports in early 1980s. Oil imports increased to about two-fifths of Indias imports during 1980-83. At the same time, Indias external sector policy was changing towards greater openness.Various measures were undertaken to promote exports and liberalise imports for exportersduring this period. However, several factors weighed against external stability. First, despite anumber of export promotion measures, the subdued growth conditions in the world economyconstrained exports growth. Second, the surplus on account of invisibles also deteriorated due tomoderation in private transfers. Third, the debt servicing had increased with greater recourse todebt creating flows such as external commercial borrowings (ECBs) and non-resident Indian (NRI)deposits. Fourth, deterioration is the fiscal position stemming from rising expendituresaccentuated the twin deficit risks.Given the already emerging vulnerabilities in Indias BoP during the 1980s, the incipient signs ofstress were discernible which culminated in the BoP crisis in 1991 when the Gulf War led to asharp increase in the oil prices. On top of that, a slowdown in the world trade following therecessionary conditions in industrialised countries and the economic disruption in Eastern Europeincluding the erstwhile USSR had begun to affect Indias exports. A large number of Indianworkers employed in Kuwait had to be airlifted to India and their remittances stopped. Foreignexchange reserves had already dwindled due to significant drawdown for financing of CAD inearlier years. During 1990-91, at one point of time, the foreign currency assets had dipped belowUS$ 1.0 billion, covering barely two weeks of imports. With increasing recourse to the borrowingson commercial terms in the previous years, financing of CAD had also become more sensitive tocreditors confidence in the Indian economy.Short-term credits began to dry up and the outflow of NRI deposits was also very substantial.Downgrading of Indias credit rating below the investment grade also constrained Indias accessin the international markets for funds, especially ECBs and trade credit. Even though the stress inIndias BoP was unprecedented, the Government decided to honour all debt obligations withoutseeking any rescheduling (Reddy, 2006).4In response to the BoP crisis, a combination of standard and unorthodox policies for stabilisationand structural change was undertaken to ensure that the crisis did not translate into generalised 42financial instability. Such steps included pledging gold reserves, discouraging of non-essentialimports, accessing credit from the IMF and other multilateral and bilateral donors. While dealing Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013with the crisis through an IMF programme, a comprehensive programme of structural reformswas undertaken simultaneously with special emphasis on the external sector.The broad approach to reform in the external sector was laid out in the Report of the High LevelCommittee on Balance of Payments (Chairman : C. Rangarajan, 1993). Trade policies, exchangerate policies and industrial policies were recognised as part of an integrated policy framework soas to boost the overall productivity, competitiveness and efficiency of the economy. In addition,to contain the trade and current account deficits and enhance export competitiveness, theexchange rate of rupee was adjusted downwards in two stages on July 1 and July 3, 1991 by 9 percent and 11 per cent, respectively. A dual exchange rate system was introduced in March 1992which was unified in March 1993. Subsequently, India moved to current account convertibility inAugust 1994 by liberalising various transactions relating to merchandise trade and invisibles.The impact of policy changes was reflected in lower CAD and its comfortable financing insubsequent years. India could manage the external shocks that emanated from the East Asiancrisis in 1997 and subsequently, the rise in international oil prices and bursting of dotcom bubblein 1999-2000. Indeed, the Indian economy remained relatively insulated from the East Asian crisisowing to the reforms undertaken in previous years and proactive and timely policy measuresinitiated by the Reserve Bank to minimise the contagion effect. Monetary tightening coupledwith flexible exchange rate and steps to bolster reserves through issuance of Resurgent IndiaBonds (RIBs) helped in stabilizing the BoP.The BoP came under some stress again in the first half of 2000-01 due to a sharp rise in oil pricesand increase in interest rates in advanced countries. At the same time, Indias software exportsgot a boost following the demands to address the Y2K challenges. This also encouragedmigration of Indian software engineers to the advanced countries. As a result, the surplus in theservices exports and remittance account of the BoP increased sharply which more than offset thedeficit in the trade account. Software exports rose from 0.9 per cent of GDP in 1999-2000 to apeak of 3.8 per cent of GDP by 2008-09. Private remittances also rose from 2.7 per cent of GDP to3.8 per cent during this period. Thus, in the 2000s software exports and private remittancesemerged as two main financing items for the current account mitigating to a large extent themerchandise trade deficit (Tables 2 & 3). Owing to a combination of factors, in fact, the currentaccount recorded a surplus during 2001-04. Subsequently, as international oil prices startedrising and domestic growth picked up, deficit in current account re-emerged during 2004-05 to2007-08 albeit remained range bound.Table 2 : Trend in Net Invisibles(Per cent of GDP) 1950-80 1980-90 1990-00 2000-09 2009-121. Services (Net) 0.3 0.4 0.3 2.1 3.02. Software (Net) - - - 2.3 3.33. Other Services (Net) 0.3 0.4 0.3 -0.2 -0.34. Private Transfers (Net) 0.4 1.1 2.2 3.2 3.55. Total Invisibles (Net) 0.7 1.4 1.6 4.6 5.6Table 3 : Composition of Current Account Balance(Percent of GDP)Period 1970s 1980s 1990s 2000-09 2009-121. Oil TB -1.2 -1.7 -2.0 -3.5 -4.5 432. Non-Oil TB 0.4 -0.9 0.6 -0.8 -3.9 Page3 .Non-oil CAB 1.1 -0.1 0.8 3.3 1.3 Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 20134. CAB -0.1 -1.8 -1.3 -0.3 -3.3TB : Trade Balance,CAB : Current Account Balance,(-) : Implies deficitAfter a period of stability, Indias BoP came under stress in 2008-09 reflecting the impact of globalfinancial crisis. As capital inflows plummeted, India had to draw down its foreign currency assetsby US $ 20 billion during 2008-09. Stress since the collapse of Lehman Brothers largely emanatedfrom decline in Indias merchandise exports and deceleration in growth in services exports.Though there was some improvement during 2010-11 on the back of a strong pick-up in exportsmainly led by diversification of trade in terms of composition as well as direction, it proved to beshort-lived. BoP again came under stress during 2011-12 as slowdown in advanced economiesspilled over to emerging and developing economies (EDEs), and there was sharp increase in oiland gold imports. Let me now turn to the financing aspects of the current account.Indias openness, both in terms of trade flows and capital flows which increased in the 1990saccelerated in the 2000s (Chart 5). This was made possible due to substantial liberalisation of thecapital account and greater openness to private capital.In the first three decades after the independence, CAD was mainly financed by externalassistance and drawdown of forex reserves. Since much of Indias planning strategy wasconceived in terms of a closed economy theoretical framework, private investment inflows intothe economy were not encouraged much. Therefore, foreign resources came primarily in the formof official transfers. The private investment came mainly through technology transfer, but playeda minuscule role. During this period, the development efforts and stress on BoP from time to timeled India to tap diverse aid sources for specific projects.In the 1980s, as the traditional source of official concessional flows dried up there was a need toaccess private capital. But, this came in the form of debt creating flows though costly externalcommercial borrowings (ECBs) and NRI deposits. The limitations of financing CAD through debtcreating flows were exposed in the 1991 crisis. Subsequent reforms and opening up the capital 44account to non-debt creating flows of foreign direct investment (FDI) and portfolio equity flows Pagenot only completely transformed the sources of financing of the BoP but it also resulted insubstantial addition to reserves in the 2000s (Table 4 & Chart 6). Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Table 4 : Composition of Capital FlowsPeriod 1951-80 1980s 1990s 2000-09 2009-121. NRI Deposits 0.1 0.4 0.4 0.4 0.42. Commercial Borrowings 0.1 0.4 0.5 0.6 0.53. External Assistance 0.9 0.6 0.5 0.0 0.24. Foreign Investment 0.1 0.0 0.9 2.5 3.6 (FDI+FPI)5. Others -0.2 0.0 -0.1 -0.1 -1.16. Change in Foreign 0.0 0.2 -1.0 -3.0 -0.4 Exchange Reserves** : (-) implies increase and (+) implies decreaseConcluding RemarksWith the gradual external liberalisation of Indian economy, not only the size of BoP has increasedmanifold, but the pattern of current and capital account has changed. Even though the reformprocess has strengthened resilience of Indias external sector, at the same time vulnerabilitiesarise with greater exposure of the economy to the rest of world through liberalised trade andinvestment environment.Indias current account particularly remains vulnerable to developments in the trade account. It isevident from the size of trade deficit growing from 0.5 per cent of GDP during 1951-55 to 8.7 percent during 2007-12. In 2011-12, the current account deficit has widened to a record 4.2 per centof GDP (Chart 7). Over the years, current account derived some resilience from surplus generatedby invisibles, particularly software exports and private transfers, but trade deficit continues todictate the overall trend in the current account. Whenever trade account worsens reflectingdownswings in the global business cycle or rise in international oil prices, the current accountalso comes under stress as is evident in the present context. Going forward, since Indias linkagewith the world economy, in terms of trade and finance, is likely to grow further, it is importantthat resilience in its trade account is built up mainly by promoting productivity based export 45competitiveness and improving domestic fundamentals that are supportive of least costly non-debt creating flows, particularly foreign direct investment (FDI). In this context, I make a few Pagesuggestions. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013First, the current level of CAD is far above the level sustainable for India. As per estimates, at anominal growth rate of about 13 per cent, the sustainable current account to GDP ratio is 2.3 percent (Rangarajan, 2012)5. Reserve Banks own research shows that economy can sustain CAD ofabout 2.5 per cent of GDP under a scenario of slower growth (RBI, 2012).6 A slowing globaleconomy and protracted high levels of unemployment in advanced economies make it difficult toboost services exports in the short run. If the slowdown continues, it could also have an adverseimpact on inward remittances. Hence, there is a need to reduce imports and boost merchandiseexports to bring the CAD to sustainable levels.Second, structural policy measures are needed to reduce vulnerability emanating from high oiland gold imports. While oil has been a major component of Indias imports, the sharp increase indemand for gold has put an additional pressure. During 2008-09 to 2011-12, on average, the netgold imports stood at about 2 per cent of GDP, almost double the level recorded during 2004-05to 2007-08. Thus, during the same period, CAD-GDP ratio, excluding net gold imports, wouldseem less problematic at 1.1 per cent as compared to a surplus of 0.2 per cent. In addition to thetraditional motive of gold demand for jewellery, gold seems to have become a safe investmentasset and a hedge against inflation as is observed in other advanced economies. Itsdematerialisation like any other financial product can reduce its physical imports (Gokarn,2012).7 Furthermore, inflation indexed bonds could also be another option to offer investors theinflation linked returns and detract them from gold investments. In the case of oil, we need tobecome more energy efficient to reduce our dependence on oil imports. Stepping up ofproduction of electricity could reduce oil demand from backup generation systems. Moreover, thedomestic pricing of oil should be aligned further to the international prices to rationalise oilconsumption.Third, current policies towards further diversification of Indias export basket, both destinationand products, needs to be stepped up. Indian exporters need to accelerate efforts to move up inthe value chain at the global level.Fourth, given the global uncertainties and volatility in capital flows, the resilience of capitalaccount needs to be further enhanced by encouraging FDI inflows. 46To conclude, the Indian economy is much more open and globalised now than ever before. The Pageperiodic pressures on BoP have been addressed through policy changes. While the BoP has againcome under stress since 2011-12 as emphasised by Governor Dr Subbarao, the situation is not as Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013serious as it was in 1991.8 This is because the structure of the economy has changed in afundamental way with flexible exchange rate and greater depth in financial markets, besidesmuch larger foreign exchange reserves than those in 1991. However, there is a need to bring theCAD to sustainable levels in the short run and over the medium-term to accelerate effortstowards structural reforms that help boosting our competitiveness, raise growth potential andbring in more stable flows into the economy.--------------------------------* Speech by Deepak Mohanty, Executive Director, Reserve Bank of India at the School ofManagement, KIIT University, Bhubaneswar on 7th December 2012. The assistance provided byRajan Goyal & Rajeev Jain is acknowledged. Unearned and Unshared Prosperity are Unsustainable Shri V. K. SharmaAs is invariably the case with any major crisis, the ongoing global financial and economic crisis,including lately, of course, the eurozone crisis, have unleashed a passionate debate over thedesign of a new architecture of finance, capitalism and globalization. However, the trouble hasbeen not so much with the inter-temporally evolved architecture of finance, capitalism andglobalization as really with how it was actually worked in practice. The apocalyptic denouement,almost bordering on a veritable global financial and economic nuclear winter, happened notbecause the existing systems and best practices failed but because those responsible forimplementing, and enforcing, them failed them ! After all, of all risks to regulators and regulateesalike, human resources risk is by far the most serious as it is the source of all risks as confirmed bythe ongoing financial and economic cataclysm. Effective and credible systems are not about rightarchitecture but about right people for right people can make a wrong architecture work whilewrong people cant make even a right architecture work ! This "right people-wrong people" trade-off is substantively, and effectively, about "ethics-expediency" trade-off, with the overwhelminganecdotal evidence of expediency prevailing over ethics ! The crux of the matter is what weneed is not more, or less, regulation, but good regulation, and governance. This has been theundoing of regulators / supervisors and financial firms / banks alike. But unfortunately broad-spectrum and generic failure of an inertial regulatory and supervisory system worldwide,especially in the West, precipitated the unprecedented global financial crisis and the resultinggreat recession. This regulatory and supervisory inertia and imperviousness to the early warningsignals of unprecedented underpricing of risk, which were galore, and aplenty, pre-crisis, isgraphically epitomized by the most no-holds-barred acknowledgement of this - though it camemuch later only recently - was when Donald Kohn, former Vice Chairman of the US FederalReserve apologized by saying, "The cops were not on the beat, resulting in the worst economicrecession and loss of millions of jobs" ! At the end of the day, the problem is not not knowing theproblem, but knowing it and dithering, agonizing over choices, temporizing, procrastinating anddoing nothing credible, timely, tangible and decisive about it. In other words, in my consideredopinion, we dont really have to rethink capitalism and globalisation, for paraphrasing JohnRuskin, what finally matters is not knowing what must be done but actually doing what must bedone and doing it when it must be done !!2. The cataclysmic financial crisis has thrown into sharp relief, as never before, the critical andimportant role of asset price inflation / asset bubbles also, as opposed to that of shop floor /products / services inflation alone, as a key variable, in monetary policy response. For whathappened was unprecedented in that with monetary policy focused only on traditional CPI, 47interest rates were kept low in spite of exploding prices of assets like real estate / property, creditassets, equity and commodities. And this was all made possible because of the huge pre-crisis Pagecurrent account surpluses in China and other Emerging Market Economies (EMEs), and huge Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013private capital inflows into EMEs in excess of their current account deficits, getting recycled backas official capital flows into government bonds of reserve currency countries, especially the USA,resulting in compression of long term yields which, in turn, translated into lower long terminterest rates even for the riskier asset classes mentioned above. This chasing of yield, due toglobal savings glut, in turn, led to a veritable credit bubble, characterized by unprecedentedunderpricing of risk as reflected in the all-time-low risk premia with junk bonds spreadsbecoming indistinguishable from investment grade debt ! Such a low interest rate environmentcoupled with luxuriant supply of liquidity, created enabling environment for excessive leverageand risk taking. This financial syndrome was a classical case of "too much and too little - toomuch liquidity, too much leverage, too much complex financial engineering, too little return forrisk, too little understanding of risks". This syndrome of too much of arcane rocket science andfinancial alchemy in the financial sector, almost entirely for its own sake to almost completeexclusion of the needs of the real sector, created a massive financial sector - real sectorimbalance which, being, intrinsically unsustainable, culminated eventually into the now-all-too-familiar apocalyptic denouement.3. Significantly, the above pre-2007 story of massive and unprecedented current accountimbalances was almost replicated in the current on-going eurozone crisis with large andpersistent current account imbalances between the core, proxied by Germany, and theNetherlands, and the crisis-hit periphery, with the surpluses of the core being almost mirrorimage of the current account deficits of the periphery. Indeed, it is noteworthy that currentaccount surpluses of the core increased dramatically after the launch of the single currencybecause of significant depreciation of the real exchange rate in the core and appreciation of thereal exchange rate in the periphery. Such large, and persistent, current account imbalancesbetween the core and the periphery would not have been possible but for the explicit moralhazard of fixed and stable exchange rates created by the single currency because the respectivenational currencies of the periphery would have depreciated in real terms resulting in timelyautomatic rebalancing of the current account imbalances ! Incidentally, but significantly, thesecurrent account imbalances between the core and the periphery are, to an extent, the result ofpost-1999 fiscal convergence to fiscal divergence story in the eurozone for, unless, net privatesavings offset it, fiscal deficit typically tends to spill over into current account deficit and,therefore, post-euro launch, there ought to have been a credible, effective and functioninginstitutional enforcement mechanism to ensure ongoing compliance on Maastricht fiscalparameters. Of course, this post-1999 fiscal convergence to fiscal divergence story in theperiphery would not have mattered if, like in the case of Japan, net private savings more thanoffset the comparable net public dissaving (fiscal deficit) of -9.5% ! So the way out of the currentcrisis is unwinding these imbalances through higher productivity and competitiveness in theperiphery relative to the core. This is exactly what happened post-crisis in the case of unwindingof the imbalances between China, on the one hand, and the United States, on the other, with theUnited States current account deficit halving from almost 6% in 2007 to 3% currently and that ofChinas current account surplus shrinking steeply from 10% in 2007 to 2.6% currently ! Thus, inthe framework of "unearned - unshared prosperity", it was the case of unearned prosperity forthe deficit periphery and unshared prosperity for the surplus core ! But as in the case of Chinaand the United States, there is some good news that real wages in Germany have gone up by 3%and those in Greece have gone down by 7%. Going forward, this then holds the promise ofunwinding such imbalances by export of goods and services from the periphery and import ofgoods and services by the core.4. As I said, these large and persistent current account imbalances represented unearnedprosperity for deficit reserve currency countries and unshared prosperity for surplus countries.Such a global economic order was inherently unsustainable, and unstable, from the word go. But 48the greatest good, and the highest virtue, as it were, of sustainable globalization is that, it doesnot permit, except in the very short term, unearned and unshared prosperity but delivers Pagesustainable prosperity only if they are earned and shared prosperity ! And mind you, unearned Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013and unshared prosperity are no socialistic / egalitarian platitudinal rhetoric but prettycompelling real-politik and geo-economic imperatives given the current irreversibly globalisedand, increasingly integrated, and interdependent, world. Sustainable globalization is about macroeconomic equilibrium, balance and harmony. In fact, the whole thing can be likened to cosmicbalance / equilibrium / harmony where stars, suns, planets, all orbit within the inviolablediscipline of their elliptical orbits which do not permit deviant behavior beyond the shortest andthe longest distance from suns and stars of orbiting planets ! Any deviant behavior / conduct,inconsistent with the cosmic harmonious balance and equilibrium, will invite, and inflict,extremely retributive backlash; the more severe and prolonged the disequilibrium andimbalance, the more wrenching and excruciating will be the resulting pain as is currently beingexperienced, especially in the euro zone, where, it is no brainer to see that, in the event of thebreak-up of the euro, it is the surplus / creditor core that has far more to lose than the deficit /debtor periphery ! For if the surplus / creditor core exit the euro, value of what is left of the eurowill be worth much less in terms of national currencies of the exiting surplus / creditor countries.On the other hand, if the deficit / debtor periphery exit, they will simply default on their euro-denominated debt owed to the surplus / creditor core because of the collapse of their nationalcurrencies against the euro ! In other words, in sustainable globalization, there can be bothwinners, and losers, only in the short term, for such is the nature of sustainable globalizationthat, in the long term, there can only be all winners and no losers ! To conclude, therefore, if weearn and share, we prosper together, and if we dont, we perish together !!----------------------------1 Keynote Address delivered by Shri V.K. Sharma, Executive Director, Reserve Bank of India, on30th November, 2012, at International Leadership Symposium on "Rethinking Capitalism andGlobalization" organized by World Forum for Ethics in Business in partnership with World BankInstitute at European Parliament, Brussels, Belgium. The views expressed are those of the authorand not of the Reserve Bank of India. Transit Path for Indian Economy Six Steps for Transforming the Elephant into a Tiger Dr. K. C. ChakrabartyShri Prabhat Jain and other members of the Delhi Chapter of the Young Presidents Organisation!It is my pleasure to be here amidst some of the young captains of the Indian industry, who, Ibelieve, would continue to guide their respective enterprises for a foreseeable future and makeimmense contributions in shaping the Indian Economy going forward. I have been asked to speakto you today on "transforming the elephant into a tiger" and in this regard, I would suggest sixsteps that I think are essential for such a transformation. However, at the outset, I thank theDelhi Chapter of the Young Presidents Organisation (YPO) for inviting me to share my thoughtson this important topic. YPO has really established itself as an extra-ordinary network of youngglobal business leaders and a think tank on issues that are critical to economy, businesses andsociety. I am told the network has hosted some illustrious speakers in the past and therefore, Ihave to live up to high expectations. I believe the decades of my experience in commercial banksand in the Central Bank have provided me with insights into enterprise, governance, growth andsociety and their impact on nation-building, which, I would share with you today and hope youfind them interesting and worth emulating.Let us now focus on the topic for the evening. Transforming the elephant into a tiger can meandifferent things to different people. In reality, the state of the art in genetic engineering still 49cannot contemplate such a modification. An Ang Lee or a Steven Spielberg can, of course, usecomputer generated special effects to bring about such a transformation. But it is time to get real Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013- given that the metaphor of elephant is used to denote the Indian economy and deals with ourlives and the future of our children.In 2007, Dr. Shashi Tharoor wrote an enchanting book, The Elephant, The Tiger and TheCellphone : Reflections on India : - The Emerging 21st Century Power. The book, ingrained inhistory, culture and socio-economic change, criss-crosses the Indian life from Ajanta-Ellora andcricket to cellphones and call centres and makes a simple point of Indian growth effecting changein daily lives and imparting confidence to the Indian people. In December 2008, the Economist ofLondon published a special report that India was elephant, not a tiger. It noted that for all itschaos, bureaucracy and occasional violence, India has had a remarkably successful past few years.But, it wondered how it will cope with an economic downturn and the general elections thatwere about to follow. It added that the democracy tax was rising and stormclouds weregathering. The prognosis, however, were proven to be off beam by the events that followed. Theelections removed uncertainty and the Indian economy staged a V-shaped recovery clocking 8.4per cent growth during 2009-10 and 2010-11. Yet, we lost steam and the chinks in the tiger skinthat we tried wearing, got exposed.In July 2011, Shri Swaminathan Anklesaria Aiyar, my journalist friend and a profound observer onthe political economy of India, wrote a paper for the Cato Institute, "The Elephant that Became aTiger". In this paper he persuasively argued that 20 years of economic reforms in India hadtransformed the Indian economy into a tiger. Later the same year, the Reserve Bank Governor Dr.Subbarao, while delivering the Haksar Memorial Lecture, argued that India may be an elephant,but even elephant can dance. The elephant dance was disrupted by the zoo party in the form ofglobal financial crisis. He then suggested ten steps to get back on course by re-jigging theelephant dance.Growth in India has clearly slowed down since then to 6.5 per cent in 2011-12 and a likely 5.8 percent in 2012-13, with significant downside risks. The twin deficits - fiscal and balance ofpayments - have compounded our problems. This may set us thinking on whether we are anelephant or a tiger or a goat, about to be devoured by global forces and our domestic inaction? Soshould we at all pursue the tiger dream? If yes, what do we need to do to earn the tiger tag?The elephant and the tiger : Which one should we prefer?Before I touch upon what we need to do, the first step is to understand what these metaphorsmean. So let me upfront visit the key attributes of elephants & tigers. There are four keyattributes of an elephant - the size, the herbivores nature, its perceived moderate pace and itsanatomy that includes large ears, the trunk and the tusks. Tiger, on the other hand, is not as largeas the elephant, but is largest of the cat species. It is carnivore, and is known for its speed andagility. Its anatomy includes the stripes, the powerful jaws and razor sharp teeth, sharp claws anda flexible backbone. But, what conclusively differentiates the two is the tigers killer instinct.I think, in terms of size, the Indian economy is, of course, an elephant. It is also herbivores byhabit given its democratic structure, unlike the carnivore habits of tigers and dragons. In terms ofspeed, many people have a misconception that elephants cant run or walk fast. The fact is thatelephants can walk as fast as 25 miles per hour (mph), while tigers can run only a shade faster.Bengal tigers can run at 35 mph, but for short spurts and they cant keep this pace for long.So, in my view, it is not axiomatic that one should try transforming the elephant into a tiger. Yes,we could do with an added bit of speed but what we should really aim at is developing a tigerskiller instinct. These, together with a better use of our anatomy or resources, both human andcapital, would help us achieve what the dragons and the tigers have achieved, perhaps, with asmaller downside. For this to happen, in my view, we need to take the following six steps :1. Preserve Demographic Dividends by investing in human capitalIndias demographic dividend presents the country with a great opportunity to enhance itsgrowth and seek convergence of per capita incomes with that in the developed world. Indias 50birth rate has fallen from 45.6 per 1000 in 1951 to an estimated 21 currently, but still remainshighly driven by a slowly falling infant mortality rate that remains high at about 46 per 1000. The Pagedeath rate has fallen dramatically from 37.2 per 1000 birth in 1951 to an estimated 7 currently, Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013but has still not caused population ageing. Median age for Indias population is about 27 yearscompared with over 40 for most OECD economies. It will add significantly to its labor pool and,even as the median age bucket rises, it will still be at a relatively young 30- 34 age bracket by2026. Indias age-dependency ratio (ratio of dependents-people younger than 15 or older than64-to the working-age population) is currently about 54. This is already lower than Japan andFrance.Most developed countries would see a rapid ageing of their population over the next 2-3 decadesputting severe pressure on their social security systems with the rise in dependency ratio. Theoverall median age of these countries rose from 29.0 in 1950 to 37.3 in 2000, and is forecast torise to 45.5 by 2050.Many developing countries like China, Brazil and Thailand too face issues of ageing populationhaving passed through the demographic transition. Over the last 60 years, China has experienceddemographic change at a historic pace that had a profound impact on its population structure.Baby boom began in the mid-1960s after the period of Great Leap Forward saw famines and asharp rise in death rate and a fall in birth rate. China is now a post-transitional society, where lifeexpectancy has reached new heights, fertility has declined to below-replacement level, and rapidpopulation ageing is expected over the next few decades. Chinas population will start to shrinkafter reaching a peak of about 1.4 billion by 2025 A.D. The median age of its population couldtouch 50 years by then. Indias population would overtake that of China at that point. Itspopulation is expected to peak only at 1.7 billion by 2060 A.D.Clearly, India has a potential advantage of demographic dividend over its emerging market peers.But, this demographic dividend could be a boon or a curse depending upon how we exploit it, for,the time to reap these gains is finite. By the turn of this century, India would be facing ademographic discount rather than dividend because Indias population would have aged and thedeveloped countries population would be much younger. So what do we need to do to reap thedemographic dividend while they exist?The very first thing is to invest in the resources that are expected to give us advantage. Indiainvests much less than it should in its human capital. The combined spend of central and stategovernments in education, is just about 3.3 per cent of GDP, while that on health is another 1.3per cent of GDP. In contrast, the European Union (EU) countries spend from their generalgovernment account, 5.5 per cent of their GDP on education and 7.5 per cent of their GDP onhealth - i.e. nearly three times more of their GDP. Canadas public spending on health alone isover 11 per cent of their GDP and that on education is nearly 5 per cent. India needs to step up itspublic spending on education and health considerably over the next five years. However,spending alone does not guarantee high quality human capital. We also need to focus on thequality of this spending and think whether we can achieve better outcomes with less spending.The second step we need to take is for right skilling of our work force. There is shortage of trainedmanpower for the industry, both at the bottom of the pyramid and higher up the ladder. India isoften considered to be a source for skilled labour supply to the rest of the world, given its sheersize of manpower. It is often not recognized that over four-fifths of our rural population and overhalf of our urban population remains unskilled. Women participation rate in the labour marketremains poor. The biggest problem is the lack of focus on technical education that could absorb alarge chunk of unskilled labour, if backed by greater push to primary education. Less than 11 percent of the job-seeking population in the age group of 15-29 receives any form of vocationaltraining in India and only one of every three who do get vocational training receive it fromspecialized training institutes. Furthermore, even in the value added segment, where we have thelargest pool of skilled manpower i.e. in the area of information technology, real wages are risingat a pace that may impact our competitiveness.The biggest challenge is to ensure jobs for additional supply of labour that comes in to join the 51workforce. On a rough basis, about 10 million people would need a job every year for the next 15years. Though disguised unemployment in agriculture sector has reduced over the years, it may Pagenot be possible for the sector to provide additional jobs given the rising rural wages and the need Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013to shift to a corporate, more mechanized and capital intensive model of farming. While theservices sector has led Indias growth and employment story for some time now, Indias growthpace may not be sustained unless the manufacturing sector also becomes more competitive andcreates lot more jobs. This poses a significant challenge in employment generation and skillingour work force.2. Improve productivity and efficiencyProductivity is an important driver of growth. Productivity depends on the efficiency with whichscarce resources are allocated - be it your time, work effort, natural resources, capital or any otherinputs. A great deal of the growth for most countries can be explained by productivity growth,especially total factor productivity growth (TFPG). Factor accumulation (such as increase in labouror capital) explains a smaller part of the growth. Given this experience, if India were to become atiger, it would need to focus on technological developments to improve its rate of TFPG. Capitaldeepening may also help, but the key lies in overall productivity enhancements.In India, output per worker has increased at an impressive rate in the services sector after thereforms initiated in early 90s. In this period, TFPG growth has also been impressive for this sector,though I will eschew quoting precise numbers as the growth accounting research generally givesvaried quantitative estimates. TFPG growth has also improved for the manufacturing sector sincethe 1980s. So, progress is being made. However, the rate of this technical change, still, has beenlower than that for the East Asian economies during the period in which they earned the tag ofbeing East Asian tigers.I would rather focus on the issue of larger policy initiative that would be necessary in the quest totransform India into a tiger. In this context, I would make four suggestions. First, improvingagriculture productivity is necessary as, clearly, increase in area under cultivation is just notpractical and, therefore, increasing demand for cereals, pulses, fruits and vegetables would needto be met by improving yields. Substantial productivity enhancements are possible on the farmthrough adoption of precision farming techniques, better cultivars and optimal watermanagement. Better adoption of modern technologies in the area of biotechnology, genomictools, cost-effective and eco-friendly integrated pest management technologies, seed-supplychains and systems, regionally adapted varieties and hybrids, would help.Second, we need to focus on issues confronting our Small and Medium Enterprise (SME). SMEsector accounts for over a third of our industrial output and contributes an equal share of ourtotal merchandise exports. In the current downturn, SMEs are facing adverse business climatewith rising receivables, inadequate credit and high cost of credit. SME sector does not enjoy theeconomies of scale and scope that a large corporation enjoys. It also cannot fully reap the benefitof information technology as it has high sunk cost and a high rate of obsolescence. Thoughhaving strong links with large firms, institutional mechanisms for transfer of technology to SMEsare lacking. If SMEs are to effectively integrate with supply chains, we need to ensure that links offinance and technology with large firms work at all times.Third, as I mentioned a little earlier, Indias next growth push has to come from manufacturingsector. We had a missed century of opportunities. India cannot boast of one big home grownglobal brand while much smaller nations like South Korea, Taiwan, etc. have plenty of them. Ourabundant human capital has not been effectively channelized for supporting the manufacturinggrowth. But what I would really blame for this is a lack of R & D culture that we suffer from.Globally, India figures at near the bottom in terms of R&D intensity. It spends less than onepercentage of its GDP on R&D expenditure, Countries like Israel, Finland, Sweden, Korea, Japan,US and Germany have R&D intensities that are higher by three times or more.Fourth, a key issue related to productivity is our attitude to work. It is strange that India, thatepitomised the dignity of labour in the Early Vedic period, has imbibed a culture that does notrespect workers. We have forgotten Swami Vivekanandas contribution in equating work to 52worship. No form of work, whether manual or intellectual is less inferior to the other. As a nation,we have been steadily neglecting our respect for dignity of labour. Since the manual labour does Pagenot receive the same respect as an intellectual work in India, work efforts are lost. This results in Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013lower GDP and lower Welfare. Individuals idle away than take up a manual job. What else wouldexplain the fact that labourers from poor states like Bihar, Orissa, UP, etc. migrate and work hardin the agricultural farms in Punjab and Haryana, while refusing to do the same in their ownlocality where the land is more fertile and same amount of labour would be much moreproductive. We must emulate the western society in this regard where no form of labour isdiscriminated against. If President Cleveland could accept dignity of labour in 1894, more than acentury down the line it is time that we give respect to casual labour that operates around us - beit our maids, our drivers or the workmen in our factories - a due recognition and respect. If we doso, more women and men would join the workforce. Unemployment would be reduced andIndian industry would become more competitive globally.3. Revive infrastructure investments and harness natural resources betterMuch has been said about Indias infrastructure deficit and rightly so. India does not havesufficient roads, nor sufficient power. When I was growing up, I was taught that India is a land ofpoor, but is rich in resources. Today we have made a giant leap in lowering poverty and stillremain abundant in natural resources. Yet, we have not learnt to optimally utilise them. Take forexample coal, which accounts for Indias 55 per cent of energy needs. We have hard coal reservesof around 246 billion tonnes, of which 92 billion tonnes are proven. Yet, we are able to produceonly 530 million tonnes of coal, leaving supply shortages of over 150 million tonnes. Coalshortages are constraining our power generation and though about 55 GW of new capacity wascreated during the 11th Five Year Plan (FYP), a large part of it remains unutilised due to coalshortages. Private sector has failed to develop most of the new coal blocks that were allotted tothem. We ended up with inadequate planning and poor execution in this area. We are nowplanning to create even more thermal power capacity during the 12th FYP, but remain unsure ofcoal supplies. At the same time, banks have heavily extended themselves into lending to powersector both on generation and distribution side. On the distribution side, the State distributioncompanies (discoms) are sitting on huge losses and bank debt that is threatening to go bad. Theend result is a loss of business confidence that has brought the investment boom to a prematurehalt.What is most important in this context is to revive the confidence for investing and lending tothe infrastructure sector. The government, in recent period, has taken several steps to facilitatethis. The broad contours of the New Fuel Supply Agreements (FSAs) have been worked out,though some thorny issues such as price pooling of imported and domestic coal are still to beresolved. These pending issues must be solved quickly. Similarly, a debt restructuring package forthe discoms has been worked out. The private sector must seize the initiative and rekindle theSchumpeterian spirit at this juncture. Banks also need to perform their core banking businesswhile balancing risk assessment with the functional need to support growth.We also need to harness our natural resources much better. Take the simple example of water.We are a country blessed with water resources with a network of perennial rivers and abundantrainfall. The rainfall provides four times the water that we use annually. Yet, water is a scarceresource in India. We havent harnessed our resources enough and havent planned the storageand distribution of water efficiently. Indias per capita storage capacity is significantly lower thanthat of other countries. For example, the quantum of water that can be stored as a proportion ofaverage river runoff for India is just 50 days of average runoff with wide variations- from 220days in the Krishna to just two days in the Brahmaputra / Barak Basin. The comparable figures forthe Colorado River Basin and Australias Murray-Darling Basin are 900 days while for SouthAfricas Orange River Basin it is 350 days. Better water management could radically alter theagriculture situation in India.India also needs to utilize its mining, spectrum and air resources better. The importance of cleanair is often not recognized. We need to strike a right balance between our development needs 53and environmental commitments to ensure longrun growth sustainability. We are not amongthe worlds top polluters. It needs to be recognized that average per square kilometre carbon Pagedioxide (CO2) pollution in Japan is 7.5 times more than in India. Similarly, per capita CO 2 emission Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013by India is amongst the least globally. Nevertheless, we also need to note that air pollution hasserious health costs and India ranks fourth in the list of the largest CO 2 pollutants after China, USand Russia. As such, if we want to ensure not just fast growth but also good quality growthsustainable for a fairly long period of time, we must continue to make efforts to exploit naturalresources in an environmentally friendly way.4. Improve governance at every levelThe World Banks worldwide governance indicators 2006-11 place India below average on keyparameters of governance. It scores about 15 per cent on political stability and absence ofviolence, 40 per cent on control on corruption as well as regulatory quality, 55 per cent on rule oflaw as well as government effectiveness, while 60 per cent on vice and accountability. Clearly,there is lot of scope for improvement on these parameters. Both, our overall governance andcorporate governance needs improvement. In fact, we need better governance at every level -from hospital and schools to polity, firms, non-profit institutions, sports, banking and finance,regulation, land records and even in our daily lives.Our governance deficit, in some form, is reflected in our ranking on ease of doing business.According to the IFC-World Bank Report 2013 released this year, India ranks 132nd on the indexmeasuring ease of doing business amongst 185 economies. Singapore and Hong Kong got thetop and second spots overall. In its sub-components, India stands at an impressive 23rd on thecriteria of ease of getting credit and 49th in terms of protecting investors. However, it figures at173rd in terms of starting a business, 182nd in terms of dealing with construction permits and184th in contract enforcement.According to the same report, on an average, in India it requires 173 days to start a business, 196days for obtaining a construction permit and 67 days to get electricity. In Singapore one needsjust 3 days to start a business, 26 days for construction permit and 36 days for getting electricity.All other East Asian tigers also have a far superior record than India on these parameters.If we aspire to become a tiger we must become more business friendly, both for domestic andforeign firms, traders and tourists. We, of course, have an enviable record of a democratic system,a responsive government, an active media and an independent judiciary. However, the risk ofdealing with India must come down further. We have to reach where the East Asian tigersreached. It is for this reason that we advocated the adoption of Singapore model in the last RBIAnnual Report. In a limited way, this is being attempted in the form of National Investment Board(NIB). A well-functioning NIB can go a long way in cutting project delays. However, in our federalstructure, NIB would still have some limitations. It will not have jurisdiction over projectclearances that are required at sub-national levels. The Singapore model is a step further. Itrequires all concerned agencies to sit together in a time bound manner to clear or reject projects,failing which the clearance is deemed to be automatic. We must make doing business easy, tounleash entrepreneurship and venture capitalism in India.We also need to improve our record of corporate governance in both financial and non-financialfirms. Barriers to entry must collapse and a more competitive environment needs to begenerated. However, we must develop a framework and inculcate practices of arms lengthrelationships that do not permit connected lending and business relationships that may promote"looting" behaviour as described by Akerlof (awarded the Nobel Prize in 2001) and Romer. Theyargued that an economic underground can come to life if firms have an incentive to go broke forprofit at societys expense (to loot) instead of to go for broke (to gamble on success). Bankruptcyfor profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners anincentive to pay themselves more than their firms are worth and then default on their debtobligations. There is still a large gap arising from our nominal compliance of good corporategovernance in accordance with regulatory provisions and real compliance of practicing it in lawand spirit. We need to bridge this gap. 545. Enforce Accountability in all walks of lifeAll the other five steps that I talk of in this address, including real compliance of good governance Pagecannot be achieved unless we enforce accountability. Just as we need better governance at every Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013level, we also need to enforce accountability in all walks of life. Our accountability structures,especially in public sector, are weak. In administration, the civil servants are insufficientlyincentivized for the risks they take, are seldom rewarded for successful completion of their goalsand are, at best, merely transferred for poor implementation. Mangers in public sectorenterprises face similar problems in addition to bureaucratic interventions that delay decisions orrequire them to move away from policies which may be in the best interests of a public sectorunit. It is difficult to enforce accountability in this climate.On corporate accountability, the principal-agent relationship between the management or thosewho wrest ownership and control and the shareholders as actual owners is rather weak. We haveseen asset stripping and bankruptcies in this weak environment. This has been especially truewhere a complex web of companies within business groups prevail. There is a strong case forsimplifying these structures that are often developed to evade taxes, indulge in regulatoryarbitrage and to strip assets of the firm for personal use. In recent period, we have come acrossinstances where corporate debt restructuring is sought but ownership commitment of those whohave control is rather left weak. We must enforce accountability in such cases by forcing suchbusiness entities to bring in more of their capital. There are, sometimes, grave cases ofbusinessmen launching new firms, renaming firms or indulging in M&As to garner fresh publicmoney after they misused funds in the first instance. The concept of the modern firm based onlimited liability principle requires care to prevent such practices.Our political process ensures a fair deal of accountability through our democratic institutions.Yet, there is debate on whether a right to recall should exist. A more fragmented polity andexistence of coalitions and minority governments, sometimes, make matters worse.Accountability at the municipal levels is also lacking. This, in turn, impacts the upkeep of ourinfrastructure that gets built. Roads seldom last more than a year. Drainage systems choke.What is, therefore, necessary in this climate is to do four things. First, stakeholder engagementmust be intensified in all institutions - public or private. Furthermore, there should be a principleof inclusivity in stakeholder engagement so that any sort of regulatory capture by interest groupsis avoided. Second, individuals, rather than committees or groups, should be made accountableeven where a collegiate approach is adopted. Such accountability should not be time barred bytransfers of jobs or retirements. Third, financial accountability must be enforced for all. Forenhancing fiscal transparency, the budgetary processes should be made tighter so that slippagesare eliminated. Similarly, financial accountability needs to be promoted for firms and non-profitinstitutions. Fourth, accountability should be codified to the degree it can be done and a periodicevaluation must be done to assess achievement, failures and correctives.6. Make finance more responsive to real sector and promote inclusive growthLet me, at last, cover the role of finance in Indias transformation from elephant to tiger. I havekept this for the end because this is where finance should belong to. In recent period, finance hasbecome big and rather than responding to the real sector needs, it is leading the real sector. Too-big to fail syndrome, firms depending on other incomes to shore up their accounts, market herdbehaviour driven by noise rather than fundamentals, are all examples of finance sector becomingtoo big for its boots. Yet, the finance to support real activity is still inadequate. Firms andbusinesses still get crowded out by information asymmetry. Financial frictions and financialconstraints come in the way of investment and growth in the economy. For want of collaterals,the poor cannot access even elementary banking services, resulting not only in some potentialsaving getting lost but leaving the society more unequal and polarized with insufficient supportfor Pareto superior outcomes just because gainers cant compensate the losers.Finance must be regulated more tightly. This does not require more regulations but perhaps lessand newer regulations with greater effectiveness. At the same time, those who engage in financemust have an obligation towards promoting financial inclusion, without which inclusive growth 55cannot be achieved. Banking should have a human face for it is the households who provide thebase for all banking activities. They are the only ones with financial surpluses which can be Pageintermediated to corporate and public sectors that run financial deficits. It has been my Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013endeavour to push policies on bank lending with a view to encourage credit flows to thevulnerable section of the population that would otherwise get financially excluded.Over the years, this has been the ethos of the Reserve Bank. The branch licensing policy and thedirected lending route have been the two pillars on which the efforts for financial inclusion haverested for a long time. The bank licensing policy, mandating a certain ratio of rural bank branchesfor each license for urban branch, has often been criticised by banks as coming in the way of theirbusiness interests. However, there is strong research evidence to suggest that this social bankingexperiment in India has been successful in improving the credit flows to the rural population andeven in lowering poverty as a result. The priority sector lending (PSL) stipulation has alsoimproved the flow of credit to certain productive sectors of the economy that would otherwisehave been crowded out of the bank credit market due to information asymmetries. There arereasons to believe that with proper planning and use of technology-enabled efficient deliverychannels, banks can pursue financial inclusion in a profitable way.Our approach should not be seen as being interventionist. In practice, Reserve Bank has deftlybalanced objectives of equity and efficiency so that financial inclusion is furthered, but banksfinancial health is not impaired. In more recent period with which I have been associated, wehave redoubled our efforts at financial inclusion. For instance, the prescription for PSL in respectof foreign banks has been raised from 32 per cent to 40 per cent in case of those banks whichhave 20 or more branches. We have also imparted a more human touch to basic banking forthose who did not have bank accounts.ConclusionLet me end by talking about something we need to learn from the East Asian tigers in our questto become one. Growth acceleration in these tigers were supported by liberalization, export-ledgrowth, high investment in education, large share of educated workforce, high public and privatesavings rate and macroeconomic discipline and governance. We are pursuing some of thesepolicies and can pursue some more of them. However, these tigers also failed to maintain theirspurt because of some mistakes they committed. Some of them maintained high interest rate toattract foreign investments, others pegged currency arrangements and many of them developeda vulnerable financial system. An unanticipated shock from banking and currency side, therefore,resulted in growth collapse for them during the East Asian crisis. Corporate failures added to thefinancial sector woes in some countries (especially Chaebols in Korea). While transforming theIndian economy into a tiger, we need to calibrate policies taking into account the lessons learntduring the East Asian crisis.Thank you for your patient hearing. Downturns come and go away as business cycles run theircourse. In our present predicaments with macro-economic stabilization, we must not lose sightof our larger goals, whether we walk at an elephants pace or run like a tiger. Let me assure youthat as a society, if we can inculcate an aggressive and tenacious urge to attain a set goal- thekiller instinct of the tiger- we would definitely earn our rightful place under the sun.----------------------------1 Address delivered by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India at theinteraction with members of Delhi Chapter of the Young Presidents Organization at New Delhion December 7, 2012. Assistance provided by Dr. Mridul Saggar in preparation of this address isgratefully acknowledged. 56 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 FAQs on Speed Clearing Updated as of 10-12-2012Q.1What is Speed Clearing?A.Speed Clearing refers to collection of outstation cheques (a cheque drawn on non-local bankbranch) through the local clearing. It facilitates collection of cheques drawn on outstation core-banking-enabled branches of banks, if they have a net-worked branch locally.Q.2Why Speed Clearing?A.The collection of outstation cheques, till now, required movement of cheques from thePresentation centre (city where the cheque is presented) to Drawee centre (city where the chequeis payable) which increases the realisation time for cheques. Speed Clearing aims to reduce thetime taken for realisation of outstation cheques.Q.3What was the process followed by banks for collection of outstation cheques before theintroduction of Speed Clearing ?A.A person who has an outstation cheque with him deposits it with his bank branch. This bankbranch is called the Presenting branch. The cheque is sent for collection to the city where it ispayable / drawn called Destination centre or Drawee centre. The branch providing the collectionservice at the Destination centre is called the Collecting branch. On receipt of the cheque, theCollecting branch presents it in local clearing to the Drawee branch or the Destination branch.Once the cheque is paid the Collecting branch remits the proceeds to the Presenting branch. Onreceipt of realisation advice of the cheque from the Collecting branch, the customers account iscredited. This, in short, is the process of Collection. When a cheque is accepted on a collectionbasis by a bank, it credits the customers account only after realisation of its proceeds.Alternatively, in the absence of a collection arrangement at the Destination centre, thePresenting branch will send the cheque directly to the Destination branch for payment. Onreceiving the proceeds from Destination branch, Presenting branch credits the customersaccount.Q.4How long does it take for getting credit of an outstation cheque sent on Collectionbasis?A.Generally, it takes around a week to three weeks time depending on the drawee centre andcollection arrangements to get outstation cheques realised on a Collection basis.Q.5How does the Local Cheque Clearing work?A.In Local Cheque Clearing in 66 major centres, cheques are processed at the Clearing Houses onmechanised sorters, using Magnetic Ink Character Recognition (MICR) technology.Local Clearing handles only those cheques that are drawn on branches within the jurisdiction ofthe local Clearing House. Generally, the distance between the Clearing House and theparticipating branches is defined, taking into account the local transportation andcommunication facilities as the cheques have to physically move to and from the Clearing House.For example, for a cheque to be processed in Local Clearing in Mumbai, both the presenting anddrawee branches should be situated within the jurisdiction of the Clearing House in Mumbai.Q.6How does the Speed Clearing work? 57A.Banks have networked their branches by implementing Core Banking Solutions (CBS). In CBSenvironment, cheques can be paid at any location obviating the need for their physical Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013movement to the Drawee branch. The concept of Speed Clearing combines the advantages ofMICR clearing with that of CBS.Cheques drawn on outstation CBS branches of a Drawee bank can be processed in the LocalClearing under the Speed Clearing arrangement if the Drawee bank has a branch presence at thelocal centre.Q.7When will the beneficiary get funds under Speed Clearing?A.As on date, the local cheques are processed on T+1 working day basis and customers get thebenefit of withdrawal of funds on a T+1 or 2 basis. T denotes transaction day viz. date ofpresentation of cheque at the Clearing House. So, the outstation cheques under Speed Clearingwill also be paid on T+1 or 2 basis.Q.8Which are the centres where Speed Clearing is presently available?A.List of Speed Clearing centres is available at the linkhttp://rbidocs.rbi.org.in/rdocs/content/Docs/10002_LSCC.xls.Q.9What are the charges for cheques cleared through Speed Clearing?A.Presenting branches are currently permitted to levy charges at a rate not exceeding Rs.150 percheque (inclusive of all charges other than Service Tax) for cheques of above Rs.1 lakh presentedthrough Speed Clearing. No charges are payable for cheques of value up to Rs.1 lakh. With effectfrom April 1, 2011, no charges will be payable for cheques of value up to and including Rs.1 lakhfrom Savings a/c customers. Banks would be free to fix charges for collection of other types ofaccounts for all values and also from Savings a/c customers for cheque of value above Rs.1 lakh.Charges fixed should be reasonable and computed on a cost-plus-basis and not as an arbitrarypercentage of the value of the instrument.Q.10How is Speed Clearing an improvement over collection basis?A.Outstation cheque collection through collection basis takes around one to three weeks timedepending on the drawee centre. Under Speed Clearing, it would be realised on T+1 or 2 basis viz.within 48 hours. Further customers need not incur any service charge for collection of outstationcheques (value up to Rs.1 lakh) in Speed Clearing which they may have to incur if such cheque iscollected under collection basis.Q.11How will a customer know whether a cheque can be cleared in Speed Clearing?A.For facilitating customers to know CBS status of a branch, some of the banks stamp / print CBSon the cheque leaves. Account numbers (if length of account number is more than 10 digits)printed on the cheque leaves may give a broad indication regarding CBS status of the branch.Further customers may refer to the list of Speed Clearing-enabled bank branches hosted on thewebsite of the Reserve Bank of India under the linkhttp://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=2016.Q.12What type of cheques can be presented in Speed Clearing?A.Instruments of all transaction codes (except Government cheques) which are drawn on CBS-enabled bank branches are eligible for being presented in Speed Clearing. 58 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Technology Enabled Transformation in the Financial Sector Shri G. PadmanabhanMr Sambamurthy, Members of Faculty, CIOs and GMs of banks, ladies and gentlemen. I thank theIDRBT for inviting me to address this erudite audience. The issues that I have chosen to flag; Ihope, would generate adequate interest and be the basis for further deliberations leading tosome concrete suggestions. We, in the Reserve Bank would eagerly look forward to suchoutcomes, as these can be useful to set the road map for technology adoption in the Indianfinancial sector in the years to come.Introductory thoughts2. Information and communication technology is playing a vital role across many industriesand sectors, resulting in a positive impact on economic development cutting across thegeographical barriers. It is important to note that the financial sector and more particularlybanking industry was one of the very first to utilize information technology way back in the1960s, and has thus the record of influencing the development process through the technology.The banking sector is an example in which information technology infrastructures have hadimplications on the economic development of many nations across jurisdictions. Studies showthat information technology coupled with knowledge management hold much potential forpropelling the development process (Okpaku, 2003).3. Since the 1990s, the banking sector in India has seen greater emphasis being placed ontechnology and innovation. Banks began to use technology initially with a view to take care oftheir internal requirements pertaining to book keeping, balancing and for transactionsprocessing; the all-pervasive face of Information Technology soon enabled banks to providebetter quality of services at greater speed. Internet banking and mobile banking have made itpossible for customers to access banking services literally and virtually from anywhere andanytime. The biggest barriers, time and distance, to access banking services were crossed byleveraging technology. The sector has also moved rapidly towards universal banking andelectronic transactions, which changed the way banking is done, during the last decade or so.4. Take the case of payment systems, an area which I am familiar with and where technologyhas brought in a sea-change. Till 1990s, one could make payments in this country through twopredominant means - cash and cheque. Today, a tech-savvy customer is empowered to choose adesired service from slew of products- card payments, NEFT transfer, RTGS transfer, ECS / NECSpayments, mobile payments etc. Further, after using any of these payment methods, the firstinstrument he turns to is his mobile phone for confirmatory messages, a feature unique to India.What would you imagine as the future scenario? Consider this : "the future of payments is theelimination of POS terminals and checkout lines that require an associate in a store to scan andbag purchases item by item. The most frictionless solution is not a smart phone but a collectionof sensor networks that automatically identify the buyer, scan the items to be purchased, andprocess payments without human intervention. No lines, no taps, no swipes, no associates, nocash registers. Just wireless sensors and networks that automatically process transactions,factoring is not that far away. Youve heard of fingerprinting and retina scans. The distancebetween pupils is unique even between twins. Youll be able to walk into a store that knows howmuch you have available [if youve made that information available], what you usually spendbased on which a personalized deal is offered. Your pre-set rules and the stores pre-set rules willnegotiate, and the store will offer you a set of options." The impact of social commerce is also 59evident, so much so that one could expect to get discounts and other rewards based on yourinfluence on friends purchases"2... Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 20135. To restate the future scenario more directly, in the next few years, there will be substantialchallenges for the banking industry. Customers will become increasingly individualistic and, atthe same time, more discerning in their relationships with banks. Ubiquitous information and thepower of social media inputs will result in customers comparing offerings across the market;evaluating the service levels of different banks and also demanding transactions increasingly ontheir own terms - a mimic of the corporate sector. This may well signal the sunset phase of thehitherto traditional segmentation approaches and go-to market techniques. There would bedramatic changes in the levels of competition in the retail banking space with the predicted entryof non banks. Banks, may have to look at opportunities particularly with respect to harnessingproduct, service and process innovation to serve customers better, and to create a niche in anincreasingly crowded marketplace.6. Two main trends that may stand out here, as the most significant forces that will driveindustry change are increasing customer centric products and intensifying competition. Further,the other trends that may change the way we do banking in the future would be - managinghuman capital, regulations and technologies - and these may strongly contribute to and reinforcethe effects of intensifying competition and customer empowerment on banks strategic choices. 3Are we ready? And could these be the niche areas of focussed research for the IDRBT?7. Before moving on to the next set of issues, let me set out a few more questions. If IT is torule our lives, how do we measure whether IT has delivered? IT has certainly enabled banks toincrease its business multiple times with less of man power. But is this sufficient? What has beenthe customer experience? Do banks study the customer satisfaction levels after a new product isoffered? Are there tools or techniques available to measure the impact of IT? Can IDRBT and theexperts here suggest tangible methods of measuring the success or failure of IT deployment?Mind the gap - Issues in IT delivery in the banking sector8. Though IT is increasingly becoming an invaluable and powerful tool in drivingdevelopment, supporting growth, promoting innovation, and enhancing competitiveness in thebanking context in India, there are several potential areas where technology can deliver better.Financial inclusion9. Technology plays a major role in financial inclusion, a sustainable banking theme veryrelevant to a country like India that has a large unbanked population. For example, handhelddevices, used by bank agents to draw people living in remote areas into the banking fold, run ontechnology. Internet and mobile technologies are trying to reach out to the populace starved ofbanking services as well. Financial institutions are also joining forces with network operators inproviding access to mobile based payment services even to those who do not have bankaccounts. These product and channel innovations require robust and scalable ICT platforms.10. If we want to move the mobile financial services sector beyond payments space andcreate products that reach every level of society, we have to be creative. The industry requiresproduct innovation that focuses on customer desires, usage patterns, and needs, and thentranslate these findings into viable products. For example, in Uganda, Grameen FoundationsAppLab is partnering with MTN and CGAP to do this by launching a product incubator : AppLabMoney. This product AppLab Money reportedly uses several complementary research methods tounderstand the financial lives of the poor.In this context, are our efforts good enough? Where can we do more? Isnt it time forintrospection?Innovation11. Today, banking is becoming increasingly complex and banks which fail to use technologyto take their services to the common man and tap the potential of the rural sector will stand tolose. Ultimately, technology would be the key enabler and differentiator in accomplishing thisobjective. When we look at technology, the scope for innovation is immense - in the field of 60financial inclusion itself, right from biometric based systems to mobile based to simpleInteractive Voice Response based applications. But it cannot be a one-size-fits-all approach. This Pagehowever, does not reduce the importance of standardisation and interoperability which would Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013result in higher efficiency and more choices. Further, many initiatives using technology would beimpossible to pursue without the active participation and support of several stakeholders. Thusthe need of the hour is collaborative innovation.Do banks recognise the power of innovation to create higher customer satisfaction, loyaltyand bank productivity through their products / processes / channels?Data integrity12. The policy and decision-making processes are becoming more information intensive,therefore, it is imperative to ensure quality of data and its timely submission by banks not only tothe regulator but to the banks managements as well. This area requires more attention, giventhat data quality may have an impact on the reputation of banks besides posing other risks. Youwould appreciate that accurate data is a sine-qua non for improving the quality of MIS and aneffective Decision Support System (DSS). By adopting an automated process for submission ofreturns, the banks would be able to submit accurate and timely data without any manualintervention to the regulator. Inter alia, this process would also assist the banks in terms ofimproved timelines, enhanced data quality, improved efficiency of processes. Towards this, theReserve Bank has initiated the Automated Data Flow Project. The deadline for banks to automateall their returns is March 2013.Are the banks braced up to meet the deadline?Cost of transactions13. Technology has been helping in delivering affordable financial services with greaterefficiency without compromising on levels of safety, security and reliability. Perhaps the mostsignificant contribution of technology has been in attempting to bring down the cost of financialservices by using economies of scale. Technology has also been used in removing geographicalbarriers and reaching out to the unbanked - the poor are unreached but not unreachable. The useof electronic payment modes to disburse the governments social benefit transfers illustrates thispoint. Technology should be used in such a manner that you have a diversified product range tobridge the supply gap at the same time keeping in view the customers convenience in mind.Has IT delivered in India in terms of reducing the costs? If not why? Is the Government /Regulatory intervention the best way forward? What are the advantages or dangers to suchan approach?Channel security14. To compete successfully in todays tough market place, financial institutions need toretain the trust of their customers -a trust which relies not only on their capacity to deliver goodvalue services, but also on their ability to protect people, assets, premises and the highly sensitivedata they hold. There is always an element of hidden fear as far as IT based operations areconcerned, the fear of the unknown. Banks need to ensure that the best of controls and securitymeasures are in place. Customer education is the key to customer trust.Are there steps taken towards customer education as far as IT based service deliverychannels are concerned? Are these adequate?How to bridge the Gap?15. Having identified some of the gaps, let me now try and offer suggestions to bridge thesegaps.IT and Business alignment16. Alignment can be described as the timely and appropriate application of IT in harmonywith business objectives, strategies and requirements. Alignment occurs when the respectivestrategies are interwoven in such a way that the right things are done to deliver greater value tothe organisation. After all, a successful alignment is a two way relationship, a give and takebetween IT and business. Though IT has the capability to reduce costs, standardise processes, thebenefits of successful IT-business alignment are beyond these i.e. increased efficiency of 61implementation & integration, reduced cycle time, increased enterprise agility and the ultimatebenefit of improving the bottom line. Until recently IT played a docile role in business planning. It Pageis now time for banks to move over from being merely an implementation tool to shaping Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013business strategy. The principal difficulty is that there are few instances of business oriented ITstrategies as most are focussed on technology products of one shape or another. This makes it allthe more challenging to align the IT and business strategies.Managing Outsourcing17. IT outsourcing is a growing phenomenon in developing economies. The challenges ofoutsourcing range from selection of ideal outsourcing partner to dynamic issues of knowledgetransfer, security risks, legal concerns, vendor dependency, etc. This concern has heightened inrecent years and these issues may be dealt with in synchronization with general governanceprinciples. As we look to external IT service providers for assisting us to innovate and optimize,we must assess how mature our outsourcing capability is to utilize the right engagement modelsand align ourselves with the appropriate providers.18. Before initiating the process of outsourcing any service / application, it is necessary toexamine whether the outsourced function meets the business needs and strategic objectives.Identification of the nature of the activities undertaken by the vendor and the inherent risks ofthe activity are also important. It is recommended that due diligence in selecting, contracting,supervising and monitoring of the vendor is adopted. Diligence in vendor selection also requires areasonable inquiry into the ability and suitability of the vendor to meet the requirements for theproposed service. Well defined and enforceable Service Level Agreements (SLAs) with the vendorwill establish the performance standard and service quality expected under the agreement. Aspart of meeting principles of governance, it may be ensured that there is a documented, acceptedprocedure which governs service expectations and obligations including change management.Combating Cyber Crime19. In a networked world, there are no real safe harbours-like a ship which can be attacked bypirates anywhere, a service delivery offering on the network is generally available to everyoneelse on the network; in some cases this may well be the gateway for entry to the banks mainsystems as well. Cyber security is a collective concern that is comprehensive in scope-the Internethas no national boundaries. Whereas security is typically regulated at the government level,cyber security is national, international, public and private in character- all in the same context.Today, there are Government initiatives aimed at enhancing cyber security which iscomplemented by cyber risk management and security provided by private entities that manageand operate most ICT infrastructure. Such security cannot be adequately assured by marketforces or regulation; rather, it requires a novel mix of solutions involving a range of stakeholdersworking both in their own domains and in concert. No single strategy, set of governancearrangements, or operational practices will be right for every country. Cyber security issues nowtop the list of risks to watch. While such importance is ascribed for cyber security in general,banks, as prime targets of financial fraud and crime, need to be extra vigilant as far as cybersecurity is concerned and this needs to be ingrained in each and every offering made availableusing IT. The role of organisations such as IDRBT assume significance in this regard.20. To share some important findings :* India is seeing an increase in the number of cyber attacks, from 2,565 in 2008 to 8,266 in 2009and 10,315 in 2010 (source : CERT-In). India is one of the top three countries in the world in termsof malicious activities4. India has been responsible for sending out 16 percent of all spamaccording to the results of IBMs "X-Force 2012 Mid-Year Trend and Risk Report, ahead of the15% level of the USA. Some of the cyber security threats (malware and virus) reported by CERT-Inare DNS Changer malware, Zeus BOT, stuxnet and spyeye.* According to a report by Japanese security company Trend Micro, hackers are now increasinglytargeting Indian financial institutions with the latest variants of malware like SpyEye and Zeus tosiphon larger amounts of money from bank accounts. It has reported a whopping 187 per centrise in phishing attacks being reported on various Indian brands in May this year over the 62previous month and points out that significantly, all phishing are targeted on the banking sector 5.21. In this context, the questions that arise are : Page* How secure are we? Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013* How literate and aware are our employees about the IT governance and cyber security?* Is there an organisation culture for detecting and reporting of violations?* Is there a zero tolerance policy about breeches of policies?* Do business partners share and observe your governance and security policy?All these assume significance in view of the fact that the internal threats from employees andthird party service providers are as critical as external threats.Governance in IT22. Is IT governance all about IT? A consistent IT Governance policy provides institutions withtools which ensure that IT investment drives business to meet its goals. IT Governance dependsstrongly on corporate governance and the overall corporate strategy, which means that ITstrategy and IT processes should be in consonance with business goals. In other words, it meansthat IT Governance provides tools to manage IT structures and processes in order to appropriatelysupport business strategy.23. Implementing IT Governance in banks can be very challenging. For addressing thestructural inadequacies in the areas of IT governance -information, data, information security-there is an imperative need to have synergy among these areas. Adoption of a structured ITGovernance framework would enable banks to manage their businesses in a manner that wouldbring about benefits to their customers as also facilitate the growth of banks in this fiercelycompetitive world. Banks investments in IT are most fruitful when they match technologystrategy with business strategy, implement systems in a disciplined way, and balance valuecreation with increased IT capabilities.Human capital - development of knowledge and talent marketplace24. Though the face of banking industry has undergone a sea change in the years that havegone by, you would agree with one characteristic of the industry that has remained unchanged ispeople. The banks succeed or fail depending on the quality of their workforce talent at everylevel-the front lines, middle management and executive leadership. Banks should look atworkforce talent as the primary engine for sustained, competitive advantage and for creating aworkforce in which people at every level are capable of contributing with high levels ofperformance leveraging on technology. Its about creating a IT culture of excellence. It is the HRteams that will give banks the competitive advantage in the years to come.Analytics - to drive up customer confidence25. The power of predictive analytics is undisputable. It has made deep inroads into severalindustries and is now doing the same in banking. So, whats new? Havent banks - the producersand consumers of more data than most other industries, been mining it since ages? Yes, but datamining and analytics arent the same thing. To cut a long story short, the latest analyticssolutions have the ability to process petabytes of data into predictive insights, in near real time.This means that in theory, banks can derive key insights into the outcome of an action, even asthey execute it. In practical terms, this could mean the difference between stopping fraud in mid-transaction or raising the alarm after the deed is done. Now banks should be looking atleveraging predictive analytics to acquire and retain customers, manage campaigns and improvecross sales. They also have the opportunity to refine customer understanding to a different level,with the help of analytics, which would improve customer centricity.Concluding thoughts26. At this stage, I would like to acknowledge the contributions made by you all. As CIOs andIT managers, you have all excelled in bringing about the much needed change in the bankingsector. A decade back we could see on the sign boards "fully computerised branch" which nowcould perhaps be changed to fully automated transaction processing branch. We cannot,however, rest with this. We need to strive towards higher levels, each one of you becoming asuper CIO6- A CIO who can function as that lever and who can make a difference to the banks 63productivity. Since I am addressing a group of CIOs, I would like to leave you with some thoughtsas to how you can transform into super CIOs by using technology differently : PageUse Big data Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 201327. Banks would need to think about Big data. Collecting and analysing transactional data willgive banks more insight into their customers preferences. It can be used to create new productsand services and allow banks to remedy emerging problems in an efficient manner. Howeverthere is one word of caution, you may need skilled personnel to work on the tools to analyse thedata.Lead28. What CIOs need is independent thought, open-mindedness, flexibility and the ability tolearn continuously. Technology expects you to be a student for all your life. You also need to havethat fire in your belly to lead a team. Leadership is an art. Master IT. This may also mean thatyou may have to press pause button while engaging the top management once in a while foreffectively bridging gaps between the IT and business teams.Collaborate29. To increase efficiency and ensure regulatory compliance, banks need better methods ofgathering and reporting data from all their verticals. Most banks struggle with multiple back-office systems and silo based information. To address these issues in earnest, there will be a needfor new and improved business process management tools in the times ahead and hence a greatdeal of collaboration among all.Stay secure30. New technologies being adopted everyday are opening doors for new threats. To combatthese, we need new weapons. In the first place we need to identify information that needs to besecure and protected at all times. Further we need to put in effective security for accessing,sharing and controlling important documents across the extended and mobile enterprise on anydevice. You would appreciate that controlling sensitive or confidential documents is moredifficult than controlling records in databases. Most organisations including banks focus themajority of their security resources on the network rather than their applications. Banks wouldneed to prioritise their application security to avoid being sitting ducks for impending attacks.Theres a silver lining here. According to a report7, security in the banking vertical worldwide hasshown its dedication to security. During 2011-12, banking websites have had the highestremediation rate at 74%.Go Cloud but with caution31. The rapid emergence of cloud computing is transforming the way financial institutionsthink about how they consume their IT resources. The Cloud is here to stay. We all know it but areworried whether or not to acknowledge it. This is because we are worried about the security anddata integrity in the Cloud. Cloud computing, which in the most basic of terms, offers unlimitedcomputing resource as a service on a pay-per-use basis, is proven to directly translate to lessupfront capital expense and reduced IT overheads, offering a cost-effective, simple alternative toaccessing enterprise-level IT without the associated costs. But world over, financial sector istreading with caution in adopting this technology. Indian financial sector needs to be consciousof this reality, at least until such time, the industry evolves Indian standards for cloud computing.Source32. Outsourcing is still in. It may have taken on new names like the cloud but traditionaloutsourcing is not really extinct. CIOs need to work towards improving their relationship withtheir vendor so that banks may finally look, in the long run, towards increasing their productivity.In order to cut outsourcing costs, banks may look towards setting clear expectations from thevendor, take control of the project, and choose the vendor wisely. At times, banks may looktowards being reasonable in their negotiations, at times put the contract away, partner withthem to bring about change and be nice; of course not at the cost of expecting sub-optimalperformance!!Manage Mobile 6433. The mobile revolution has created a sort of new world order. It has the potential to changethe way banks do business. It is up to the banks to take cue. While banks are embracing the Pagemobile channel -- and continuing to support the old standby of online banking -- they are not Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013integrating the technologies used to build e-banking solutions. Also as more people conduct theirbanking on mobile devices, these devices also will become the growing focus of hackers andfraudsters, who are always on the hunt for ripe targets. Banks can work on two areas within themobile channel8 : fraud prevention and marketing to customers. In fact, world over mobilebanking already is playing a role in reducing fraud in a variety of ways -- ranging from simpletransaction and security alerts to mobile authentication for bank transfers.34. As I conclude, let me flag final set of broad issues :* Can CIOs of banks come together and identify three major challenges which requireimmediate remediation? IDRBT could take these forward as their core activity.* A major aspect to be taken care of in IT implementation pertains to technologicalobsolescence. CIOs need to be ready with alternatives before this sets in as far as their systemsare concerned. Could we see CIOs collaborating so that you drive the change rather than gettingdriven?* All of you are fully aware of the KYC requirements. Can we look at technology based KYC whichis easy to implement yet ensures secure and sure information which cannot be repudiated?* Has time come for CIOs to worry about over dependence on some IT systems (Oracle fordatabase, Windows for Operating system and so on)?* Finally what would be the best fit options for inter-operability across IT systems and moreimportantly inter-operability across banks?35. Whether its helping to better understand customer profitability, deliver products ininnovative ways or manage the spiralling data requirements as a result of new regulation,technology is emerging as both a key enabler and differentiator. As the role of technology evolvesmore into mainstream banking, banks will need to think about technology expenditure in adifferent way. Instead of being a cost to manage down, it should be seen more as an investmentto support growth and new business development, only to stay ahead of the curve in thecompetitive world. Ultimately, the proof of technology adoption is in the improvement ofservices to customers - across all economic, social and geographical sectors. And the CIOs have alarge role to play in fulfilling this objective.36. I would like to conclude with the observation of Gurucharan Das who said Whatleadership needs more than thought is action and whats more important than intelligence is willpower. CIOs, who are leaders in their own right, should work towards translating their thoughtsinto action with the will power to make IT happen.37. I wish you all successful deliberations in this Conference. Since the New Year is less than afortnight away, I would also like to wish you all a happy and prosperous New Year.-------------------------------Keynote address delivered by Shri G Padmanabhan, Executive Director, Reserve Bank of India, atIDRBT on December 17, 2012 at the GM / CIOs Conference. Assistance provided by Smt K Nikhilain the preparation of this speech and comments on the draft from S/Shri S Ganeshkumar and AMadhavan gratefully acknowledged. 65 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Money Market and Monetary Operations in India Shri Deepak MohantyI thank Mr. G. Mahalingam for the opportunity to share my thoughts in this distinguished panelon money market. This forum which brings together the Reserve Bank and practitioners in thefinancial market, is important not only from the perspective of market development but also forfostering a better understanding of monetary operations. Money market is at the heart ofmonetary operations. Over the last decade, there has been substantial development in the Indianmoney market in terms of depth, variety of instruments and efficiency. This has enabled theReserve Bank to change its monetary operations from direct quantity based instruments toindirect interest rate based instruments to enhance the efficiency of monetary transmissionconsistent with international best practice. Against this background, I will briefly capture thedevelopments in the money market and discuss the experience with the recently modifiedoperating procedure of monetary policy before concluding with some thoughts on the wayforward.Role of money marketMoney market can be defined as a market for short-term funds with maturities ranging fromovernight to one year and includes financial instruments that are considered to be closesubstitutes of money. It provides an equilibrating mechanism for demand and supply of short-term funds and in the process provides an avenue for central bank intervention in influencingboth the quantum and cost of liquidity in the financial system, consistent with the overall stanceof monetary policy. In the process, money market plays a central role in the monetary policytransmission mechanism by providing a key link in the operations of monetary policy to financialmarkets and ultimately, to the real economy. In fact, money market is the first and the mostimportant stage in the chain of monetary policy transmission.Typically, the monetary policy instrument, effectively the price of central bank liquidity, is directlyset by the central bank. In view of limited control over long-term interest rates, central banksadopt a strategy to exert direct influence on short-term interest rates. Changes in the short-termpolicy rate provide signals to financial markets, whereby different segments of the financialsystem respond by adjusting their rates of return on various instruments, depending on theirsensitivity and the efficacy of the transmission mechanism. How quickly and effectively themonetary policy actions influence the spectrum of market interest rates depends upon the levelof development of various segments of financial markets, particularly the money market. Cross-country studies suggest that as domestic financial markets grow, transmission of monetarypolicy through various channels becomes better.As a crucial initial link in the chain through which monetary policy aims at achieving ultimategoals relating to inflation and growth, money market developments are closely monitored andinfluenced by central banks. Besides expecting money market rates to respond to policy ratechanges in a well anchored manner, central banks aim at ensuring appropriate liquidityconditions through discretionary liquidity management operations so that money marketfunctions normally. Money market is also an important funding market for banks and financialinstitutions, and at times, even for corporates. Stressed conditions in the money markets couldincrease moral hazard with banks expecting a central bank to function as the lender of firstresort. Following the recent global financial crisis, money market funding for the financial systemeffectively got replaced with central bank funding in advanced countries. Money market rates(like LIBOR and EURIBOR) are standard benchmarks for pricing of bonds, loans and other financialproducts. Market manipulation of this key benchmark - as reportedly happened to LIBOR recently- though undermined the faith in money market. A sound money market would have to ensure 66conditions where banks can conduct business safely.Money market transactions could be both secured and unsecured, i.e., without collaterals. What Pagedoes one expect from the secured and unsecured markets? The unsecured market should Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013primarily promote market discipline. Loans being uncollateralised in this market, lenders aredirectly exposed to the risk of non-repayment. This works as an incentive for them to addressinformation asymmetry by collecting information about borrowers. It is the constant peermonitoring that promotes market discipline. In the secured segment of the money market, thelender may address credit risk concerns by asking for sound collaterals and also applying somehaircuts, but the peer monitoring could potentially then be less emphasised. Conditions ofmarket stress can lead to collateral scarcity and falling value of collaterals could stifle even thesecured money market. Illiquidity spiral from the financial markets, i.e., when financialinstruments held as assets turn illiquid, may lead to a situation where central banks would berequired to dilute the collateral standards for liquidity injection, and even exchange good qualitysecurities against securities facing illiquidity risks. This becomes necessary to unfreeze themarkets in general. After the global crisis, asset quality, particularly liquidity, has received greaterpolicy focus.Money market rates also reflect market expectations of how the policy rate could evolve in thenear term. As per standard expectations hypothesis, money market rates for different timeduration should equal expected future short-term rates, plus term premium and risk premium.Bernanke (2004)1 had examined how expectations of the likely future course of the federal fundsrate respond to the Feds policy actions and statements and noted that "...Our findings supportthe view that FOMC statements have proven a powerful tool for affecting market expectationsabout the future course of the federal funds rate".Empirical research suggests that if the shortest end of the money market, which is influenced themost by policy rate, is stable, or less volatile, then it may help in keeping term premium lower,compared to a period when volatile short rates get transmitted to the entire money market andsimultaneously the term premium rises.With the sophistication of financial markets rendering the money, output and price relationshipunstable, by the early 1980s, major central banks began to emphasise on the price channel, i.e.,policy interest rate for monetary policy transmission. As a result, the role of money marketbecame all the more important for signaling and transmission of monetary policy. Thus, thedevelopment of money markets across countries in terms of instruments and participants withvarying risk profiles has necessitated changes in the operating procedures of monetary policy.In the case of India, the ultimate goals of monetary policy, i.e., price stability and growth, haveremained unchanged over the years. In the recent years, financial stability has been considered asan additional objective of monetary policy. However, operational and intermediate objectives ofmonetary policy have undergone periodic changes in response to changes in the economic andfinancial environment. The development of the money market over the years and relativestability in the call money market enabled the Reserve Bank to move away from quantity-basedinstruments to price-based instruments under its multiple indicators approach adopted since1998. Accordingly, the overnight call rate, which was used implicitly as operating target since theinstitution of liquidity adjustment facility (LAF) in 2000, became explicit after the adoption of anew operating procedure in May 2011.Money market in IndiaFinancial reforms in India began in the early 1990s. However, various segments of domesticfinancial markets, viz., money market, debt market and forex market underwent significant shiftsmainly from the 1990s. Earlier, the Indian money market was characterised by paucity ofinstruments, lack of depth and distortions in the market micro-structure. It mainly consisted ofuncollateralised call market, treasury bills, commercial bills and participation certificates.Following the recommendations of the Chakravarty Committee (1985), the Reserve Bank adopteda monetary targeting framework. At the same time, efforts were made to develop the moneymarket following the recommendations of Vaghul Committee (1987). In this regard, important 67developments were: (i) setting up of the Discount and Finance House of India (DFHI) in 1988 toimpart liquidity to money market instruments and help the development of secondary markets in Pagesuch instruments; (ii) introduction of instruments such as certificate of deposits (CDs) in 1989 Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013and commercial papers in 1990 and inter-bank participation certificates with and without risk in1988 to increase the range of instruments; and (iii) freeing of call money rates by May 1989 toenable price discovery. However, the functioning of the market continued to be hindered by anumber of structural rigidities such as skewed distribution of liquidity and the prevalence ofadministered deposit and lending rates of banks.Recognising these rigidities, the pace of reforms in money market was accelerated. Following therecommendations of an Internal Working Group (1997) and the Narasimham Committee (1998),a comprehensive set of measures was undertaken by the Reserve Bank to develop the moneymarket. These included: (i) withdrawal of interest rate ceilings in the money market; (ii)introduction of auctions in treasury bills; (iii) gradual move away from the cash credit system to aloan-based system. Maturities of other existing instruments such as CP and CDs were alsogradually shortened to encourage wider participation. Most importantly, the ad hoc treasury billswere abolished in 1997 thereby putting a stop to automatic monetisation of fiscal deficit. Thisenhanced the instrument independence of the Reserve Bank (Table 1).Table 1Major Developments in Money Market since the 1990s1. Abolition of ad hoc treasury bills in April 19972. Full fledged LAF in June 2000.3. CBLO for corporate and non-bank participants introduced in 20034. Minimum maturity of CPs shortened by October 20045. Prudential limits on exposure of banks and PDs to call / notice market in April 20056. Maturity of CDs gradually shortened by April 20057. Transformation of call money market into a pure inter-bank market by August 20058. Widening of collateral base by making state government securities (SDLs) eligible for LAF operations since April 20079. Operationalisation of a screen-based negotiated system (NDS-CALL) for all dealings in the call / notice and the term money markets in September 2006. The reporting of all such transactions made compulsory through NDS-CALL in November 2012.10. Repo in corporate bonds allowed in March 2010.11. Operationalisation of a reporting platform for secondary market transactions in CPs and CDs in July 2010.More importantly, efforts were made to transform the call money market into primarily an inter-bank market, while encouraging other market participants to migrate towards collateralisedsegments of the market, thereby increasing overall market stability and diversification. In orderto facilitate the phasing out of corporate and the non-banks from the call money market, newinstruments such as market repos and collateralised borrowing and lending obligations (CBLO)were introduced to provide them avenues for managing their short-term liquidity. Non-bankentities completely exited the call money market by August 2005. In order to minimise thedefault risk and ensure balanced development of various market segments, the Reserve Bankinstituted prudential limits on exposure of banks and primary dealers (PDs) to the call / noticemoney market. In April 2005, these limits were linked to capital funds (sum of Tier I and Tier IIcapital) for scheduled commercial banks.In order to improve transparency and efficiency in the money market, reporting of all call / noticemoney market transactions through negotiated dealing system (NDS) within 15 minutes ofconclusion of the transaction was made mandatory. Furthermore, a screen-based negotiated 68quote-driven system for all dealings in the call / notice and the term money markets (NDS-CALL),developed by the Clearing Corporation of India Limited (CCIL), was operationalised in September Page2006 to ensure better price discovery. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Beginning in June 2000, the Reserve Bank introduced a full-fledged liquidity adjustment facility(LAF) and it was operated through overnight fixed rate repo and reverse repo from November2004. This helped to develop interest rate as an important instrument of monetary transmission.It also provided greater flexibility to the Reserve Bank in determining both the quantum ofliquidity as well as the rates by responding to the needs of the system on a daily basis (Chart 1).In the development of various constituents of the money market, the most significant aspect wasthe growth of the collateralised market vis-D-vis the uncollateralised market. Over the lastdecade, while the daily turnover in the call money market either stagnated or declined, that ofthe collateralised segment, market repo plus CBLO, increased manifold (Chart 2). Since 2007-08,both the CP and CD volumes have also increased very significantly (Chart 3). Furthermore,issuance of 91-treasury bills has also increased sharply (Chart 4). The overall money market nowis much larger relative to GDP than a decade ago. 69 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 70 PageSamachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Alongside, the rates of return on various instruments in the money market have shown greaterco-movement, especially since the introduction of LAF (Table 2 & Chart 5).Table 2Interest Rates in the Money Market(Percent per annum : Annual Averages) Repo Call CBLO Market 91 day 364-day CP CD Rate Rate Rate Rate Repo Rate T-Bills T Bills Rate1 2 3 4 5 8 9 6 72000-01 11.2 9.1 - - 9.0 9.8 10.8 9.62001-02 8.5 7.2 - - 7.0 7.3 9.2 8.02002-03 7.7 5.9 - - 5.8 5.9 7.7 6.62003-04 7.0 4.6 - - 4.6 4.7 6.1 5.32004-05 6.0 4.7 - - 4.9 5.2 5.8 5.02005-06 6.2 5.6 5.3 5.4 5.7 6.0 6.7 6.12006-07 7.0 7.2 6.2 6.3 6.6 7.0 8.5 7.92007-08 7.8 6.1 5.2 5.5 7.1 7.5 9.3 9.12008-09 7.4 7.1 6.1 6.5 7.1 7.2 10.7 9.22009-10 4.8 3.2 2.7 2.8 3.6 4.4 5.3 5.42010-11 5.9 5.7 5.4 5.5 6.2 6.6 8.7 7.72011-12 8.0 8.1 7.8 7.9 8.4 8.4 10.1 9.62013-14 (so 8.0 8.1 7.9 8.0 8.2 8.1 9.3 9.0far) 71 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Monetary operating procedureThe development of money market as well as its growing inter-linkages with other segments offinancial markets enabled the Reserve Bank to alter the operating procedures of monetary policyconsistent with the objectives of the monetary policy. Based on the recommendations ofChakravarty Committee (1985), a monetary targeting framework with feedback was introducedduring the mid-1980s, under which reserve money was used as operating target and broadmoney (M3) as an intermediate target. By the mid-1990s, this framework was renderedincreasingly inadequate due to several developments. Structural reforms and financialliberalisation led to a paradigm shift in the financing of government and commercial sectors withincreasingly market-determined interest rates and exchange rate. Development in the varioussegments of the financial market led to deepening of the financial sector. This provided theReserve Bank to effectively transmit policy signals through indirect instruments such as interestrates. On the other hand, increase in liquidity emanating from capital inflows raised the ratio ofnet foreign assets to reserve money and rendered the control of monetary aggregates moredifficult. With financial innovations, the stability in the demand function for money also cameunder question.Recognising these challenges and the growing complexities of monetary management, theReserve Bank switched to a multiple indicators approach in 1998-99. Under this approach, a hostof macroeconomic indicators including interest rates in different segments of financial markets,along with other indicators on currency, lending by banks and financial institutions, fiscalposition, trade, capital flows, inflation rate, exchange rate, refinancing and transactions inforeign exchange available on high frequency basis are juxtaposed with output data for drawingimplications for monetary policy formulation. However, the approach itself continued to evolveand was further augmented by forward-looking indicators drawn from Reserve Banks varioussurveys and a panel of parsimonious time series models (Mohanty, 2011).2 72Along with the multiple indicators approach, operating procedure also underwent a change Pagefollowing the recommendation of Narasimham Committee II (1998). The RBI introduced the Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Interim Liquidity Adjustment Facility (ILAF) in April 1999, under which liquidity injection was doneat the Bank Rate and liquidity absorption was through fixed reverse repo rate. The ILAF graduallytransited into a full-fledged liquidity adjustment facility (LAF) with periodic modifications basedon experience and development of financial markets and the payment system. The LAF wasoperated through overnight fixed rate repo and reverse repo from November 2004, whichprovided an informal corridor for the call money rate.Though the LAF helped to develop interest rate as an instrument of monetary transmission, twomajor weaknesses came to the fore. First was the lack of a single policy rate, as the operatingpolicy rate alternated between repo during deficit liquidity situation and reverse repo rate duringsurplus liquidity condition. Second was the lack of a firm corridor, as the effective overnightinterest rates dipped (rose) below (above) the reverse repo (repo) rate in extreme surplus (deficit)conditions. Recognising these shortcomings, a new operating procedure was put in place in May2011.Let me elaborate on the key features of the new operating procedure. First, the weighted averageovernight call money rate was explicitly recognised as the operating target of monetary policy.3Second, the repo rate was made the only one independently varying policy rate. Third, a newMarginal Standing Facility (MSF) was instituted under which scheduled commercial banks (SCBs)could borrow overnight at 100 basis points above the repo rate up to one per cent of theirrespective net demand and time liabilities (NDTL). This limit was subsequently raised to two percent of NDTL and in addition, SCBs were allowed to borrow funds under MSF on overnight basisagainst their excess SLR holdings as well. Moreover, the Bank Rate being the discount rate wasaligned to the MSF rate. Fourth, the revised corridor was defined with a fixed width of 200 basispoints. The repo rate was placed in the middle of the corridor, with the reverse repo rate at 100basis points below it and the MSF rate as well as the Bank Rate at 100 basis points above it (Chart6). Thus, under the new operating procedure, all the three other rates announced by the ReserveBank, i.e., reverse repo rate, MSF rate and the Bank Rate, are linked to the single policy repo rate. 73The new operating procedure was expected to improve the implementation and transmission ofmonetary policy for the following reasons. First, explicit announcement of an operating target Pagemakes market participants clear about the desired policy impact. Second, a single policy rate Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013removes the confusion arising out of policy rate alternating between the repo and the reverserepo rates, and makes signalling of monetary policy stance more accurate. Third, MSF provides asafety valve against unanticipated liquidity shocks. Fourth, a fixed interest rate corridor set byMSF rate and reverse repo rate, reduces uncertainty and communication difficulties and helpskeep the overnight average call money rate close to the repo rate.Let me now turn to a brief evaluation of the experience with the new operating procedure. In theimplementation of the new procedure, the Reserve Bank prefers to keep the systemic liquidity indeficit mode as monetary transmission is found to be more effective in this situation (RBI, 2011). 4The Reserve Bank also announced an indicative liquidity comfort zone of (+) / (-) 1.0 per cent ofnet demand and time liabilities (NDTL) of banks.Since May 2011, the liquidity conditions can be broadly divided into three distinct phases. Aftergenerally remaining within the Reserve Banks comfort zone during the first phase during May-October 2011, the liquidity deficit crossed the one per cent of NDTL level during November 2011to June 2012. This large liquidity deficit was mainly caused by forex intervention and increaseddivergence between credit and deposit growth. The deficit conditions were further aggravated byfrictional factors like the build-up of government cash balances with the Reserve Bank thatpersisted longer than anticipated and the increase in currency in circulation. Accordingly, theReserve Bank had to actively manage liquidity through injection of liquidity by way of openmarket operations (OMOs) and cut in cash reserve ratio (CRR) of banks. This was supported bydecline in currency in circulation and a reduction in government cash balances with the ReserveBank. As a result, there was a significant easing of liquidity conditions since July 2012 with theextent of the deficit broadly returning to the Reserve Banks comfort level of one per cent of NDTL(Chart 7).Since its implementation, the systemic liquidity has been in deficit mode, which has helped inbetter transmission of policy rate to various segments of money markets. First, the overnightinterest rate has been more stable since its implementation (Chart 8). 74 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Second, the repo rate and weighted call rate are far more closely aligned under the new operatingprocedure than earlier; implying improved transmission of monetary policy in terms ofmovement in call money market interest rate (Chart 9).Third, the call money rate in turn is observed to be better aligned with other money marketinterest rates after the implementation of new operating procedure than before (Chart 10). 75 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013ConclusionLet me conclude. Our experience shows that the development of money market and refinementsin operating procedures of monetary policy have moved in tandem. Financial sector reformsalong with Reserve Banks emphasis on development of various segments of financial marketenabled shifts in operating procedures based on direct quantity-based instruments to indirectinterest rate-based instruments. The Reserve Bank has been able to better transmit monetarypolicy signals in the money market through a single policy repo rate. Evidence so far suggests asignificant improvement in monetary policy transmission under the new operating framework. Inorder to reinforce this process, I make three suggestions.First, there has been a swift transmission of policy rate at the short-end of money market, partlydue to the prevalence of market liquidity in deficit mode. However, ensuring market liquidity in adeficit mode of desired level on a sustained basis is contingent on Reserve Banks ability toeffectively conduct OMOs and the market appetite for such operations. Hence, there is a need todevelop the market micro-structure and further enhance secondary market transactions ingovernment securities to facilitate smooth conduct of OMOs.Second, the LAF is not the appropriate instrument for managing the liquidity of more enduringnature. As the system is expected to be in deficit, there is a need to develop term repo tominimise daily requirement of liquidity.Third, notwithstanding significant advances in developing the market, the term structure in themoney market is incomplete. It is, therefore, desirable to extend the yield curve beyond theovernight rate by developing a term-money market.Thank you.----------------------------------* Speech by Shri Deepak Mohanty, Executive Director, Reserve Bank of India, at the Seminar onIssues in Financial Markets, Mumbai, 15th December 2012. The assistance provided by SitikanthaPattanaik, Jeevan Khundrakpam, Binod Bhoi and Rajeev Jain is acknowledged. 76 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Mid-Quarter Monetary Policy Review : December 2012 Monetary and Liquidity MeasuresOn the basis of the current macroeconomic assessment, it has been decided to :* keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.25 per cent of their netdemand and time liabilities; and* keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 percent.Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and themarginal standing facility (MSF) and the Bank Rate at 9.0 per cent.Introduction2. Since the Second Quarter Review (SQR) of October 2012, the global economy has shownsome signs of stabilisation although the situation remains fragile. While activity is picking up inthe US and the UK, near-term prospects in the euro area are still weak. Moreover, there is noclarity as yet on how the US fiscal cliff might be managed. While several emerging anddeveloping economies (EDEs) are gradually returning to higher growth, weak external demandand contagion risks from advanced economies (AEs) render them vulnerable to further shocks.3. On the domestic front, there are some incipient signs of pick-up though growth remainssignificantly below its recent trend. Also, though consumer price inflation remains stubborn, thepace of moderation in wholesale price inflation has been faster than anticipated. With food andmanufacturing prices expected to edge down further, inflationary pressures may ease somewhatin the coming months.Global Economy4. Since the SQR, global activity has remained sluggish, but country growth trajectories appearto be de-coupling. In the US, the revised GDP estimates for Q3 of 2012 indicate that a pick-up ingrowth is underway, supported by rising non-farm payroll employment, home sales and houseprices. In order to support a stronger recovery, the Fed continued its quantitative easing, andannounced further expansion through purchase of longer-term treasury securities. In contrast,euro area growth contracted for a second successive quarter in Q3, and retail sales have beendeclining at a faster pace in Q4. In Japan, GDP growth contracted in Q3, triggering a fresh dose offiscal stimulus. Overall, the global purchasing managers index (PMI) for November points toacceleration, with the all-industry index recording an eight-month high. International energy andnon-energy commodity prices softened in November for the second month in a row, suggestinglower inflationary pressures.Domestic EconomyGrowth5. GDP growth in Q2 of 2012-13 at 5.3 per cent was marginally lower than 5.5 per cent in Q1.However, there are some indications of a modest firming up of activity in Q3. Industrial activityrose sharply in October but this is, in large part, due to a low base and festival-related demandwhich propelled the growth of both consumer durables and non-durables into double digits.Significantly, capital goods production recorded a growth of 7.5 per cent after 13 successivemonths of decline. The manufacturing PMI rose moderately in November as order book volumesexpanded. While the services PMI declined from a month ago, expansion in new business andorder book volumes suggests positive sentiment about increasing activity in the months ahead.In the farm sector, rabi sowing coverage is expanding steadily, improving the prospects ofagricultural growth.Inflation 776. Headline WPI inflation edged down to 7.2 per cent in November, mainly owing to softeningof prices of vegetables, minerals and fuel. On the other hand, prices of cereals and protein-based Pageitems such as eggs, fish and meat firmed up further. Significantly, core (non-food manufactured Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013products) inflation eased, aided by decline in prices of metals, cement and chemicals. Theseasonally adjusted three-month moving average annualised momentum indicator also points toebbing of inflationary pressures. However, in striking contrast to wholesale inflationdevelopments, retail inflation remained elevated. The new combined (rural and urban) CPI(Base:2010=100) inflation increased in November, reflecting sustained food inflation pressures,particularly in respect of vegetables, cereals, pulses, oils and fats. The non-food component of theindex also suggested persistent inflationary pressures.Monetary and Liquidity Conditions7. While money supply (M3) growth remained below its indicative trajectory because of lowerdeposit growth, non-food credit growth rose above the indicative trajectory of 16 per centsuggesting some pick-up in economic activity. Liquidity conditions have remained tight in Q3 dueto large government balances with the Reserve Bank and the widening wedge between depositand credit growth. With a view to containing the liquidity deficit at reasonable levels, the ReserveBank conducted open market operations (OMOs) on December 4 and 11, injecting primaryliquidity of 232 billion. Accordingly, money market rates remained close to the repo rate.External Sector8. With the step-up in oil imports persisting despite the moderation in crude prices, thecumulative trade deficit for April-November widened from its level a year ago indicatingsignificant risks to the balance of payments from the adverse external environment. Even ascapital inflows improved compared to Q2, there were downward pressures on the rupeereflecting the large trade and current account deficits.Outlook9. Lead indicators point to a modest firming up in the momentum of global growth over therest of 2012 and in 2013 if there is firm policy action in the euro area and the US. The biggest riskto the outlook stems from political economy considerations that could impede, delay or eroderesolute policy action. The consequences could be deepened financial stress and heightened riskaversion. For EDEs, the threat of spillovers remains significant in view of the depressed outlookfor global trade and volatile capital flows. Although inflation pressures appear to be moderating,elevated food and commodity prices remain contingent risks, especially for EDEs facing domesticsupply constraints.10. On the domestic front, GDP growth is evolving along the baseline projection of 5.8 percent for 2012-13 set out in the SQR. The recent policy initiatives by the Government and furtherreforms should help to boost business sentiment and improve the investment climate. As regardsinflation, excess capacity in some sectors is working towards moderating core inflation.Furthermore, the easing of international commodity prices, particularly of crude, is expected toimpart some softening bias to the evolving inflation conditions if it is not offset by the impact ofrupee depreciation. The Reserve Bank is closely monitoring the evolving growth-inflation dynamicand will update the formal numerical assessment of its growth and inflation projections for2012-13 as part of the third quarter review in January 2013.Guidance11. Headline inflation has been below the Reserve Banks projected levels over the past twomonths. The decline in core inflation has also been comforting. These emerging patternsreinforce the likelihood of steady moderation in inflation going into 2013-14, though inflationmay edge higher over the next two months. In view of inflation pressures ebbing, monetarypolicy has to increasingly shift focus and respond to the threats to growth from this pointonwards. Liquidity conditions will be managed with a view to supporting growth as stated in theSQR, thereby preparing the ground for further shifting the policy stance to support growth.Overall, recent inflation patterns and projections provide a basis for reinforcing our Octoberguidance about policy easing in the fourth quarter. However, risks to inflation remain and 78accordingly, even as the policy emphasis shifts towards growth, the policy stance will remain Pagesensitive to these risks. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 RBI releases Financial Stability Report : December 2012The sixth issue of the Financial Stability Report (FSR) of the Reserve Bank of India is being releasedin an environment of global macroeconomic instability and uncertainty. Economic growth inIndia has moderated in recent quarters, buffeted by global headwinds and domestic policyuncertainties. Growth, however, needs to accelerate if the momentum of poverty reduction,employment generation and pay off from the demographic dividend is to be accelerated. TheReport reflects the collective assessment of the Sub Committee of the Financial Stability andDevelopment Council (FSDC) on risks to financial stability.Highlights(1) Global risks remain elevated due to delays in resolution of issues like the European sovereigndebt crisis and the imminent US fiscal cliff. (Para 1.2-1.6; Chapter : I )(2) Risks to domestic growth arise from structural impediments such as fall in domestic savings,persistently high inflation, regulatory and environmental issues. These have caused a fall ininvestment demand and moderation in consumption spending leading to decline in growth.(Para 1.17-1.21, Chapter 1)(3) External sector imbalances remain a worry. Rising gold imports have worsened the currentaccount deficit. Domestic savings have been falling. Moreover, a lower proportion of householdsavings is channelled towards financial products. (Para 1.25-1.27 and Box 1.1; Chapter 1)(4) Financial markets remained largely stable but exchange rate volatility was high relative tothat of some peers and advanced economies. Financial sector dominated the corporate bondissuance, reducing effective disintermediation. (Para 1.24 and 1.31; Chapter I)(5) Corporate sectors ability to service debt has been falling since 2009-10. Some industrialgroups with greater exposure to key infrastructure sectors like power have witnessed highgrowth in leverage in recent years. (Para 1.36-1.39; Chapter I)(6) The Reserve Banks latest Systemic Risk Survey conducted in October 2012 among bankers,consultants, academicians, etc. revealed concerns about the evolving global risks such as the fallin global growth and sovereign risk / contagion and a host of domestic factors like the increasingfiscal deficit, deterioration in growth outlook and bank asset quality. Respondents, however,remained confident about the stability of the domestic financial system. (Para 1.40-1.42 ; ChapterI)(7) Distress dependencies between banks have remained largely unchanged in the period underreview. (Para 2.3-2.7, Chapter II)(8) While there has been no major shift in the pattern of interconnectedness or contagion risksin the system in the recent periods, an assessment of the impact of the liquidity contagion in theIndian banking system has been attempted for the first time in this issue of the FSR. (Para 2.19-2.23, Chapter II)(9) Asset quality of the banking system came under stress during the period under review withgreater recourse to restructuring. Banking sector, however, remained resilient to credit, marketand liquidity risks and capable of withstanding macroeconomic shocks, given their comfortablecapital positions. (Para 2.32-2.37 and 2.40-2.49; Chapter II)(10) Regulatory reforms initiated in the wake of the global financial crisis are in various stagesof implementation across countries. Some reforms may have unintended consequences for 79emerging markets. (Para 3.1-3.4; Chapter III)(11) The recent deterioration in asset quality and regulatory changes requiring higher provisions Pagemay pose challenges for banks in India as they migrate to Basel III. (Para 3.6; Chapter III) Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013(12) Potential risks posed by procyclicality of margin movements at central counterparties(CCPs) in various market segments will need to be monitored. There are challenges in migratingall OTC derivative transactions to central clearing given problems in standardisation, insufficientliquidity and opacity in pricing information of some products / markets. (Para 3.37-3.40; ChapterIII)(13) Financial Inclusion, Financial Literacy and Consumer Protection have been recognised asintertwining threads in pursuit of financial stability. RBI re-aligns Implementation Date for Basel III Capital Regulations with Financial Year - Shifts from January 1, 2013 to April 1, 2013The Reserve Bank of India has rescheduled the start date for implementation of Basel III to April 1,2013 from January 1, 2013. India will also closely monitor the progress on Basel IIIimplementation in other countries, particularly the major ones who are the members of the BaselCommittee.BackgroundThe Reserve Bank of India had issued guidelines on implementation of Basel III capital regulationin India on May 2, 2012. These guidelines were to be implemented as on January 1, 2013 in aphased manner and were to be fully implemented as on March 31, 2018.The commencement date of Basel III implementation was kept as on January 1, 2013, eventhough the Indian Financial Year begins on April 1, keeping in view the internationally acceptedimplementation schedule as agreed to by the Basel Committee on Banking Supervision (BCBS).The Basel Committee in its Press Release dated December 14, 2012 observed that the elevenmember jurisdictions have published the final set of Basel III regulations effective from the startdate of January 1, 2013. These include Australia, Canada, China, Hong Kong SAR, India, Japan,Mexico, Saudi Arabia, Singapore, South Africa and Switzerland. Seven other jurisdictionsincluding the European Union and the United States have issued draft regulations, and haveindicated that they are working towards issuing final versions as quickly as possible.The Basel Committee has further observed that, "The globally agreed timeline includes a numberof milestones from 2013 to 2019, designed to provide for a gradual phasing in of the new capitalrequirements. It is expected that as remaining jurisdictions finalise their domestic regulationsduring 2013, they will incorporate all the remaining transitional deadlines in line with theoriginal global agreement, even where they have not been able to meet the January 1, 2013 startdate. Hence, by the end of 2013, almost all Basel Committee jurisdictions will be implementingBasel III in accordance with the agreed timetable. This is an absolutely critical step towardsstrengthening the resilience of the global banking system." All Basel Committee members havereiterated their commitment to implement the globally-agreed reforms. 80 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013In-line with Global models, stricter disclosure norms may be adopted : SEBI December 3, 2012Sebi for stricter disclosure norms; consults global modelsWith an aim to preventing insider trading, capital markets regulator Sebi is looking at regulationsin overseas markets to tighten disclosure norms for the listed companies and other marketentities in India.While Sebi has recently announced various additional disclosures required to be made by listedfirms and intermediaries like brokers, investment bankers and mutual funds, it is looking atstricter norms for compliance, as also further necessary details required to be made public.In this regard, the Securities and Exchange Board of India (Sebi) is looking at regulations invarious countries, including major Asian financial markets like Singapore and Hong Kong, to fine-tune its own disclosure norms, a senior official said.Sebi might find regulations within Asian markets more relevant for disclosures to be made bymarket intermediaries, although norms similar to those in Western countries like the US and UKcould be considered when it comes to disclosures regarding price sensitive information by listedcompanies.The steps are being taken amid a growing trend of companies announcing some key businessdevelopments outside the regulatory framework, while many companies also failing to make theroutine disclosures like quarterly results, board meeting announcements and shareholdingpatterns in time.The existing norms provide for largely a generic set of disclosure requirements for listedcompanies and are contained in the Listing Agreement they sign with the stock exchanges.The Listing Agreement has six categories of price sensitive information required to be disclosedby companies, while there is also a category of any other information having a bearing on theiroperations and share prices.In the recent months, Sebi had already asked companies to file a business responsibility reportevery year, while disclosures have been tightened for audit observations made on their accountsas well.Besides, Sebi had also sought additional disclosures from the mutual funds and investmentbankers, including those about their track records.Sebi has developed quite an advanced surveillance and investigation system, which many foreignregulators are also looking to emulate and it now wants to make its disclosure regulations as wellamong the best in the world, the official said.Sebi is of the view that a strong disclosure regime also helps in developing an equity culture inthe country as the investor confidence tends to improve in a better-regulated marketenvironment, besides working as a check on possible market manipulative activities, he added.Source:http://economictimes.indiatimes.com/markets/regulation/sebi-for-stricter-disclosure-norms-consults-global-models/articleshow/17450770.cms 81 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Speedy payment to all including Tribal and Far Flung areas December 3, 2012Government plans micro ATMs for transfer of cash to poorThe government is likely to shoot down the Department of Financial Services (DFS) plan toappoint common banking correspondent (BC) companies for transferring cash to poor people andreplace it with a country-wide network of micro ATMs, as it seeks to finalise the last milepayment architecture for cash transfers.In a meeting on Monday evening, Rural Development Minister Jairam Ramesh, UIDAI chairmanNandan Nilekani, and Planning Commission officials met Finance Minister P Chidambaram toshare their reservations about the common banking correspondent model. An official whoattended the meeting told ET that it was agreed in-principle to junk this model but a finaldecision will be taken by the Finance Minister.In a SMS to ET, Ramesh confirmed the development. "The DFS model is now history. Women SHG,Ashas, anganwadi workers, post offices, teachers, kirana stores, fertiliser shops, etc, can now beBCs," he said. Banking correspondents are individuals who work as banks agents in areas thatdont have branches. A banking correspondent company manages these agents.The UPA government has made cash transfers an important plank of its 2014 election campaign,as it plans to make a wide range of payments from pensions to scholarships to kerosene subsidydirectly to the bank accounts of beneficiaries, eliminating leakages and avenues for corruption. Itis estimated that once the system is fully rolled out from mid-2014, cash transfers to the tune ofRs 3,00,000 crore will happen annually. Government plans micro ATMs for transfer of cash topoor While the DFS, which falls within the finance ministry, has been promoting the commonbanking correspondent company model, a committee on micro-payments headed by Nilekani hasproposed that hand held machines be given to individual banking correspondents. Thesehandheld machines will be connected to all public sector banks and will allow the targetedbeneficiaries to access their accounts from anywhere.In a presentation made at the Monday meeting, Nilekani said that with each Micro-ATM or handheld-machine costing about Rs.15,000, the cost of a ten-million-terminal- network will work outto about Rs.1,500 crore. Add to that a margin of 3.14%, as recommended by his committee onmicropayments, and the total cost of effecting cash transfers of around Rs.3,00,000 crore willwork out to Rs.5,332 crore.The critical difference between the DFS model and the Micro ATM approach is that under thefirst model, the country was divided into 20 clusters, and there was going to be a commonbanking correspondent company servicing customers of all state-owned banks in each cluster.This was different from the previous system where every bank had its own bankingcorrespondents. Further, with each BC company having its own proprietary technology, villagerscould not access their account from PoS terminals of any BC company. In that sense, each BCcompany had a captive customer base.The DFS plan was an attempt to fix that problem -- by appointing one BC for the whole cluster,concerns about the lack of "interoperatability" would be addressed. At the same time, it was feltthat the resulting economies of scale would make the BC model viable.But bankers and rural finance professionals expressed apprehension that the bankingcorrespondent company could become an all-powerful intermediary.Source:http://economictimes.indiatimes.com/news/economy/finance/government-plans-micro- 82atms-for-transfer-of-cash-to-poor/articleshow/17435797.cms Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Jail term if cheque bounces due to mismatch of signature December 3, 2012Cheque signature mismatch may lead to criminal proceedings : SCA person may face criminal proceedings if a cheque issued by him gets dishonoured on theground that his signature does not match the specimen signature available with the bank, theSupreme Court has said.A Bench of justices T.S. Thakur and Gyan Sudha Mishra set aside the verdict of Gujarat High Courtwhich had held that criminal proceedings for dishonouring of cheque can be initiated only whenthe cheque is dishonoured because of lack of sufficient amount in the bank account and not incase where a cheque is returned due to mismatch of signature of account holder."Just as dishonour of a cheque on the ground that the account has been closed is a dishonourfalling in the first contingency referred to in Section 138 of Negotiable Instrument Act, so alsodishonour on the ground that the signatures do not match or that the image is not found,which too implies that the specimen signatures do not match the signatures on the chequewould constitute a dishonour within the meaning of Section 138 of the Act," the bench said.The apex court, however, said that in such cases of dishonouring of cheques, the account holdermust be given a notice and an opportunity to arrange the payments before initiation of criminalproceedings against him."Dishonour on account of such changes that may occur in the course of ordinary business of acompany, partnership or an individual may not constitute an offence by itself because such adishonour in order to qualify for prosecution under Section 138 shall have to be preceded by astatutory notice where the drawer is called upon and has the opportunity to arrange thepayment of the amount covered by the cheque," it said.Source:http://www.thehindubusinessline.com/industry-and-economy/banking/cheque-signature-mismatch-may-lead-to-criminal-proceedings-sc/article4156366.ece SEBI to put one-time leverage for Domestic hedge funds December 3, 2012Domestic hedge funds to face leverage limits, Sebi plans one-timer to cut risks in IndiaHome-grown hedge funds will have to play with a leverage thats significantly lower than theirglobal counterparts when they take the first steps on Dalal Street next year.Capital market regulator Sebi is fine-tuning a proposal that will restrict these money managersfor ultra-rich and well-heeled investors to one-time leverage as against the accepted levels offour to five times in many advanced markets.The leverage, said sources familiar with the proposal, would be a combination of externalborrowings by local hedge funds from financial institutions and the implicit leverage fromexposure to derivatives market.The regulator is believed to be in touch with the government to clear the tax fog on such fundentities to avoid complications arising out of double taxation - at the level of asset managementcompanies or trust as well as at the level of investors."While leverage generally improves the return to investors, there are inherent risks. Its commonin other markets, but in India, high interest rates make loans comparatively less attractive," said a 83fund manager who is planning to apply for a licence. Page"What the regulator may be scared of is the risk of double leverage happening when borrowedfunds are used to bet on futures and options," he said. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Understandably, operations of funds in India would be very different from the billions of dollarthat hedge funds invest in global markets. The thinking in Indian regulators, incidentally, followsChinas decision to allow foreign hedge funds to set up operations in the country.Disappointment for SomeAccording to Opalesque, a news service covering hedge funds and alternative investment sector,Chinas decision may have had a different spin off that manifested in an increase of investorallocations to Greater China-focused hedge funds.In India, rich investors have often preferred PMS and wealth management offerings by MNCbanks and large brokerages to invest a slice of their savings, despite lessthan-impressiveperformance by many of these financial products.Hedge funds, as against PMS, would allow pooling of capital and more flexibility. The Sebidecision could disappoint some of the fund managers who were expecting a minimum leverageof two to three times.Source:http://economictimes.indiatimes.com/markets/regulation/domestic-hedge-funds-to-face-leverage-limits-sebi-plans-one-timer-to-cut-risks-in-india/articleshow/17458372.cms Govt. suggests merger an option for capital infusion December 3, 2012Government may ask PSBs to weigh merger to overcome capital infusion burdenThe government will use the capital infusion demand from the state-run banks to nudge them toconsider mergers and consolidation to help evolve a stronger network of public sector banks.A finance ministry official said that banks will be asked to seriously introspect and look formerger possibilities when they come up with requests for fresh capital infusion. State Bank ofIndia will, however, be exempted as it already has five subsidiaries to be merged into the parent."The official line is that any request for merger should come from the banks themselves and thegovernment will act as a facilitator, but big and medium-sized banks will be asked to introspectwhen they come for fresh capital infusion request," he said, requesting anonymity.Finance Minister P Chidambaram has been quite vocal on merger within the state run banks tocreate at least a couple of global banks. Last week, at the banking summit in Pun, he had askedbanks not to fear consolidation. "I know there is pride and identity, but ultimately someconsolidation would have to take place in the banking system in this country," he had said.Effective January 1, 2013, under the Basel III guidelines, as determined by the Reserve Bank ofIndia (RBI), Indian banks will have to maintain a minimum common equity ratio of 8% and totalcapital ratio of 11.5%. State-run banks currently maintain 8% Tier I Capital. The above-quotedfinance ministry official clarified that the government has not prepared any road map orstructure for bank mergers."Larger banks can assimilate smaller banks irrespective of geographies," he said."We are committed to capital infusion. But if there is some merger, there may be opportunities toreduce this burden, the official added. In the budget for 2012-13, the government reiterated itscommitment to protect financial health of state-run banks and announced a capitalisationsupport of Rs.15,888 crore.As per the RBI, the government will have to provide an additional Rs.90,000 crore to the state-runbanks over the next five years to meet the Basel III norms if it wants to retain its 58%shareholding. Analysts agree recapitalisation burden on government will come down if strongerbanks acquire the weaker ones. 84"Larger banks have easier access to equity finance and a sound merger may raise the banksability to raise external equity and thus reduce its dependence on the government," said Vivek PageGupta, partner BMR Advisors. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013But the chairman of a state-run bank argued that mergers cannot be done just to reducegovernments liabilities. "There are issues of culture, work atmosphere and the unions. Thegovernment only talks about merger but they cannot do anything about it," he said.The government is also looking at other measures to meet the capital infusion need of the state-run banks. It is also in discussion with the Reserve Bank of India to set up a holding companystructure for state-run banks.Source:http://economictimes.indiatimes.com/news/economy/finance/government-may-ask-psbs-to-weigh-merger-to-overcome-capital-infusion-burden/articleshow/17458723.cms CCI to look into saving account interest rate December 3, 2012PSU banks under lens for fixing savings account rateCompetition Commission of India, the fair play watchdog, has decided to look into the common,4% interest rate being paid by all public sector banks on savings bank deposits despite theReserve Bank of India moving to an unregulated regime in October 2011."They seem to be acting in tandem and it needs to be investigated. Because of this policy, smalldepositors are losing out and banks are also losing business," said a CCI official, who did not wishto be identified.The official also said that banks such as Kotak Mahindra and Yes Bank which had started payingup to 7% on savings bank deposits, had seen a surge in inflows.According RBI data, five private players, 10 foreign banks and a cooperative bank have increasedtheir savings deposit rate by one to five percentage points.For banks, current accounts (CA) and savings accounts (SA) are the steadiest and cheapest sourceof funds. Banks usually target at least 30% of their total deposits from CASA.While they resort to periodically increasing or decreasing term deposit rates, savings accountrates were only raised in May 2011 after RBI mandated an increase from 3.5% to 4%. The RBIsmove to an unregulated regime a few months later was opposed by most public sector banks.By keeping interest rates on savings bank deposits unchanged at 4%, banks have managed toensure a healthy net interest margin, which is the difference between the cost of funds and therate at which they lend. This comes at a time when deposit rates have been rising.While public sector banks said that they are yet to receive any communication from CCI, thechairman of a top public sector bank dismissed the suggestion of a cartel at work. "Who is payingmore? Even ICICI Bank and HDFC Bank are paying the same rate. RBI has deregulated the ratewhich will not result in an overnight increase or decrease," the chairman said.A senior SBI executive added that it was only banks with a small network of branches that areoffering higher rates. "It is not class-wise, but size-wise," the banker added.Another bank chief said that each bank has its own resource-raising strategy and takes its owndecision. "Every bank has its own policy and no one exchanges notes," he said.Some public sector players were contemplating an increase in savings bank deposit rates aroundthe time RBI began discussions on deregulating the only remaining regulated rate. But all of themchose against increasing the rate after SBI, the countrys largest lender with around a quarter ofthe business, decided to maintain status quo.In fact, in the run up to the deregulation, the Indian Banks Association, the banking industrylobby group, had opposed the move with some bankers citing the example of other countrieswhich had seen a decline in term deposits after the savings bank rate was de-regulated. 85During a resource management meeting at the RBI headquarters, most banks had opposed themove but the central bank went ahead with the move only to see two banks raise rates on funds Pagelying idle in savings bank accounts. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Source:http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/psu-banks-under-lens-for-fixing-savings-account-rate/articleshow/17459814.cms IMF endorses reversed capital control measures December 4, 2012IMF officially endorses capital controls in reversalThe International Monetary Fund endorsed nations use of capital control measures in certaincircumstances, making official a shift in the works for almost three years that will guide thefunds advice to member countries.In a reversal of its historic support for unrestricted flows of money across borders, theWashington-based IMF said controls can be useful when countries have little room for economicpolicies such as lowering interest rates or when surging capital inflows threaten financialstability. Still, it said the measures should be targeted, temporary and not discriminate betweenresidents and non-residents."Capital flows can have important benefits for individual countries across the fund membershipand the global economy," the IMF staff wrote in a report discussed by the board on November 16and published on Monday. They "also carry risks, however, as they can be volatile and largerelative to the size of domestic markets."Countries from Brazil to the Philippines in recent years have sought to manage inflows of capitalthat put upward pressure on their currencies and threatened to create asset bubbles. The newguidelines will enable the fund to provide consistent advice to the countries that request it,though rules prevent it from imposing views about managing capital flows on its 188 membernations.IMF Managing Director Christine Lagarde has cited the shift on capital controls as an illustrationof the funds attempts to modernise.In some cases "temporary capital controls might prove useful," Lagarde said in a November 14speech in Kuala Lumpur, Malaysia, a country that implemented such measures during the Asianfinancial crisis of the late 1990s and turned down IMF assistance. "Malaysia was ahead of thecurve in this area."Not all countries welcomed the new guidelines. Paulo Nogueira Batista, who represents Braziland 10 other countries at the IMFs executive board, said they put too much emphasis on thebenefits of capital flows and their recipients and show a bias against capital controls."Any attempt to come up with recommendations should have been preceded by a deeper andbroader analysis and much more empirical work, allowing the fund to draw on countryexperiences," he said in a statement sent by e-mail. "Our chair does not consider itself part of this itutional view."The guidelines are "not set in stone" and will be reviewed and updated in the light of newexperience and research, Vivek Arora, an assistant director in the IMFs strategy, policy and reviewdepartment, told reporters on a conference call on Monday.Source:http://www.business-standard.com/india/news/imf-officially-endorses-capital-controls-in-reversal/494506/ 86 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Information sharing mechanism to be improvised for better : Sebi December 4, 2012Sebi to strengthen information sharing with overseas regulatorsMarket regulator Sebi and other regulators in Asia have decided to further strengthen theinformation sharing mechanism among themselves and globally on various enforcement relatedissues."We need to continue our efforts to further strengthen the existing mechanism for enforcementrelated cooperation both at the regional and at the global level," Sebi Chairman U K Sinha said atthe Asia-Pacific Regional Committee (APRC) meeting in Bangkok (Thailand) on November 29.The meeting was also attended by securities regulators from Australia, Hong Kong and Japan.Members of APRC of International Organisation of Securities Commission (IOSCO) met inBangkok, Thailand from November 28-30, 2012, a Sebi release said today.Sinha is the current chairman of the APRC. IOSCO is a global body of securities and futuresmarket regulators across the world, of which India is a key member.The other major members of IOSCO include market regulators in the US, UK, Japan, Switzerland,Germany, France and China.Source:http://economictimes.indiatimes.com/markets/regulation/sebi-to-strengthen-information-sharing-with-overseas-regulators/articleshow/17466849.cms Govt. to shower more powers on banks for road projects December 5, 2012Bankers to get more powers in road projectsThe government is set to make amendments to the model concession arrangement for roadprojects that will give more functional and supervisory powers to banks, according to an official.The move is aimed at speeding up execution of road development projects, which are often heldup due to various factors including financing issues. Tardy progress in improving roadinfrastructure is often cited as impediment to economic growth in Asias third largest economy."In the event of suspension of a concessionaire or the company that was awarded the project,banks will now be allowed to step into project agreements," the official from the ministry of road,transport and highways said.The official explained that the amendment would allow lenders to carry out internal scrutiny andadvise the highways authority on selection of the new company for the project.At present, bankers have no say in the selection of a concessionaire, and this acts as a deterrentfor banks that are approached for credit. Bankers say the proposed change will help projectswhere the present developer is non-performing and banks fear that the account will turn into abad loan. "It will also have a deterrent impact on developers as they know that banks can initiateaction against underperformance," said the chief general manager of a state-run bank.Till August, of the 146 road sector projects sanctioned, 83 were delayed, according to governmentdata.The ministry of statistics has pointed to delays in land acquisition, environment clearance andpoor performance of contractor as reasons for slow execution of road projects. According to theofficial, the government is also considering bankers demand that land acquisition be completedbefore road projects are awarded. "Banks have said that some projects get stalled because of landclearances, which then lead to cash-flow issues. 87We are looking to resolve the issue," the official said. At present, the National Highways Authority Pageof India (NHAI) acquires 80% of the land before bidding them out to developers. To prevent costoverruns, NHAI will also take into account factors such as inflation while arriving at the total cost Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013of the project. The cost of 146 projects, initially estimated at Rs.92,000 crore, has risen 1.7% toRs.94,000 crore, the official added.Another banker said that if some of these proposed changes are accepted, it will be easier forbanks to utilise schemes such as take-out finance being provided by pure infrastructure lenderssuch as IIFCL.Source:http://economictimes.indiatimes.com/news/economy/infrastructure/bankers-to-get-more-powers-in-road-projects/articleshow/17484642.cms More info on borrowers through common window December 5, 2012Now, lenders can have easy access to information on borrowersThe Central Registry of Securitisation Asset Reconstruction & Security Interest of India and CreditInformation Bureau have entered into a memorandum of understanding for linking their Websites.Through this tie-up, a lender (bank) will be able to view both the credit score of the borrower andthe encumbrance status of the property offered as security through a common window ofCERSAI.The MoU was exchanged between Ashok Kumar Ralhan, Chief Operating Officer of CERSAI andArun Thukral, Managing Director, CIBIL in the presence of D.K.Mittal, Secretary, Department ofFinancial Services.CERSAI manages the central registry and the portal for parking of data and information relatingto the mortgage transactions.Credit Information Bureau (India) provides credit scores on individuals as also firms andcompanies for facilitating credit decisions by lending institutions.Source:http://www.thehindubusinessline.com/industry-and-economy/banking/now-lenders-can-have-easy-access-to-information-on-borrowers/article4163798.ece Recruit as per own policy and requirements : FinMin to PSBs December 5, 2012P Chidambaram ask banks to play more proactive role in hiring their employeesThe finance minister has asked chiefs of public sector banks to play a more proactive role in termsof recruiting their employee rather than being excessively dependent on Institute of BankingPersonnel Selection (IBPS) to fill vacancies. P. Chidambaram conveyed this to bank chiefs at ameeting in Delhi while adding each banks should design its recruitment policy to suit its ownrequirement.At present, IBPS screens and conducts a uniform online examination on the applicants on behalfof public sector banks. IBPS does not interview the candidate for the PSU bank, but has a say indirecting candidates, who have cleared examination, to different banks for interview."Bankers have been satisfied with IBPS and recently some banks were thinking of asking IBPS tointerview candidates on their behalf. However, the FMs view on the subjects will results intorethinking on this matter," said a banker present in the meeting. 88Candidates are required to name three banks where it would like to appear for interview if Pageselected after giving written examination. Most candidates prefer bigger banks while a lot ofcandidates prefer banks with headquarters located near their hometown. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Over the last three to four years, IBPS has developed skills sets in screening and conductingexaminations. Also, bankers said that IBPS is the only institute with the infrastructure to conductlarge-scale examinations. "When we are looking at hiring thousands of employees we receiveapplication from over a lakh candidates. So hiring at PSU it is a massive task," said a bank chief. Inthe year 2011-12, IBPS tested 9.7 million candidates. Besides, PSU banks, it also conducts similarexams for insurance companies and some of the central and state government companies.Meanwhile, D Sarkar, CMD of Union Bank of India has been appointed as chairman of thegoverning board of IBPS replacing M D Mallya, former CMD of Bank of Baroda who retired lastmonth.Source:http://economictimes.indiatimes.com/news/economy/policy/p-chidambaram-ask-banks-to-play-more-proactive-role-in-hiring-their-employees/articleshow/17478475.cms New Basel-III capital norms likely to trouble banks : RBI December 6, 2012Tough times for banks ahead : RBIThe brass of the Reserve Bank of India ( RBI) on Wednesday said the government and theregulators role in managing crisis was likely to be tested as "tough times" might continue for theIndian banking industry."It will be tested over time," a top RBI official told bankers. RBIs top executives met bankers at ameeting organised by the Bankers Club here on Wednesday.According to the bankers, while Governor D Subbarao maintained most Indian banks wereadequately capitalised, he said meeting the new Basel-III capital norms could pose a challenge fordomestic lenders. There were concerns that the central government may find it difficult tocapitalise public sector banks.According to Basel-III norms, Indian banks need to maintain a minimum capital adequacy ratio ofnine per cent, in addition to a capital conservation buffer, which will be in the form of commonequity at 2.5 per cent of the risk-weighted assets.In other words, banks minimum capital adequacy ratio must be 11.5 per cent, according to Basel-III norms.The common equity in tier-I capital must be 5.5 per cent of risk-weighted assets and theminimum tier-I capital adequacy ratio must be seven per cent instead of six per cent. The newrules will come into effect on January 2013 and banks will have to implement them by March2018."RBI also hinted there were concerns the regulators role may get diluted if there is excessiveinterference from the government," a banker with a city-based state-run bank said, requestingnot to be named.Bankers said Subbarao also expressed concerns on the mushrooming of chit funds and about thesafety of public deposits parked with many chit fund companies.Source:http://www.business-standard.com/india/news/tough-times-for-banks-ahead-rbi/494720/ Alternative mechanism for cheque dishonor cases : FinMin December 7, 2012 89Cheque bounce cases : FinMin mulls Lok Adalat type redress mechanism PageTo cut down the number of cheque-dishonour cases, the Finance Ministry is looking at analternative dispute resolution mechanism, such as a Lok Adalat. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013The idea is to consider prosecution under Section 138 of the Negotiable Instruments (NI) Act onlyif the alternative mechanism too fails. Section 138 deals with penalties in case of dishonour ofcheques due to insufficient funds in the bank account of the drawer.Further, cheques taken as security without stating the amount of debt may be excluded from thepurview of the Section.These measures were suggested to the Finance Ministry by a committee constituted by theMinistry of Law and Justice.Under Section138, the drawer of the cheque, which has been returned unpaid by a bank becausemoney in the account is insufficient, is deemed to have committed an offence that is punishablewith imprisonment up to two years, or with fine that may be up to twice the amount of thecheque, or both.Counterpoint Bankers, however, feel that Section 138 has served them well and there is no needto amend it."The existing provisions which make cheque bouncing an offence is facilitating recovery of loansand helping reduce bad loans of banks," said a banker in the know of the development.Most cases under Section 138 relate to recovery of loan defaults that are less than Rs.10 lakh. Forthe purpose of recovery of such loans civil suits have to be filed by banks.Since the judicial proceedings take a long time, initiating action and proceedings under theSection is facilitating speedy recovery, said the banker.Source:http://www.thehindubusinessline.com/industry-and-economy/banking/cheque-bounce-cases-finmin-mulls-lok-adalat-type-redress-mechanism/article4171561.ece Take new initiatives for faster recovery of the NPAs : FinMin December 7, 2012Banks asked to take fresh steps to speed up NPA recovery : FM P ChidambaramState-owned banks have been asked to take fresh steps to speed up recovery of non-performingassets (NPAs), Finance Minister P Chidambaram said in the Rajya Sabha today."Government has advised public sector banks to take a number of new initiatives to increase thepace of recovery and manage the NPAs, which include appointment of nodal officers for recovery,to conduct special drives for recovery of loss assets...," he said during the Question Hour.He said the "stress" in the economy is reflected in the increasing NPAs and they will come downonce the economic situation improves. He also said a bit of handholding is required for thestressed sectors.The Finance Minister said banks are obliged to follow RBI guidelines regarding recovery of loans.Referring to concerns of members on use of muscle men by banks for recovery from poor people,Chidambaram said he has asked the heads of the banks that recovery must be done in a"respectful manner".The minister said he will again tell banks to be compassionate in recovery from poor borrowers. Ifspecific cases of use of muscle men is brought to notice, "severest action" will be taken, he said.Besides, "no special favour" will be shown to large borrowers by banks in recovery of loans, hesaid. "I will not allow" banks to give special favours to large borrowers."Banks are required to monitor their NPAs and take steps to bring them down throughupgradation and recovery among others. RBI also monitors the NPA levels in banks.Source:http://economictimes.indiatimes.com/news/economy/finance/banks-asked-to-take-fresh-steps-to-speed-up-npa-recovery-fm-p-chidambaram/articleshow/17504575.cms 90 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 Govt. to use electoral rolls for opening Aadhar accounts December 7, 2012Banks get electoral rolls to create Aadhaar accountsThe government is using electoral rolls to open bank accounts in the 51 districts chosen for theroll-out of the direct cash transfer of subsidies."Banks have been given electoral rolls in rural areas and they have to ensure that per family atleast one account is opened," a senior bank official said.Public sector banks have been asked to open the bank accounts by December 15. The accountswould be used to transfer cash subsidies directly to beneficiaries. The accounts were to beopened using Aadhaar cards, on which the much touted subsidy transfer scheme is based. Butthe government seems to prefer voter identification cards. The government had claimed that the51 districts were chosen for the scheme based on at least 80 per cent coverage of issue ofAadhaar cards.For banks, the challenge is dealing with the shortage of business correspondents (BC) in ruralareas. The BC model is yet to be stabilised, the banker said, and the cash transfer scheme wasbased on that model. Efforts were on, he added.The chairman of a public sector bank said : "Getting BCs is not very difficult but the rate ofattrition is very high, due to availability of better job avenues."Poor mobile connectivity and communications are also major problems that hamper the bankswork in rural areas.The government is pushing the banks hard to have all infrastructure in place for the roll-out ofthe scheme before December 15.The chairman said banks were ready with the technology infrastructure and testings are on. "Wehope that everything would be in the place before the D-Day."Yesterday, K V Kamath, non-executive chairman of ICICI Bank and chairman of Infosys, said : "Thescheme will change the budgetary process in the country, it will change our deficit process and itwill make a huge lot of good, as money goes into the hands of people. There will definitely behiccups in the initial days of the implementation of the scheme."He expressed confidence that the banks had the necessary systems and support to make it asuccess, a view public sector bankers also supported.Source:http://www.business-standard.com/india/news/banks-get-electoral-rolls-to-create-aadhaar-accounts/494826/ Furnish list of RGESS-complaint securities, ETFs & MF schemes on website : Sebi to Exchanges December 7, 2012Sebi directs exchanges to furnish list of RGESS-compliant securitiesCapital market regulator Securities and Exchange Board of India ( Sebi) on Thursday directedstock exchanges to furnish a list of Rajiv Gandhi Equity Savings Scheme ( RGESS)-complaintstocks, exchange-traded funds ( ETFs) and mutual fund schemes on their websites.Exchanges will have to forward this list to depositories on a monthly basis and whenever the listundergoes any change. Meanwhile, asset management companies will have to send the list ofRGESS-eligible schemes and ETFs to stock exchanges. 91The eligible stocks for this scheme include top 100 listed stocks ( BSE 100 and CNX 100) andpublic sector undertakings ( PSUs). ETFs and MFs with these stocks as underlying will also be Pageeligible. According to the Budget announcement, the government has introduced RGESS for Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013providing income tax benefits for first-time capital market investors under a new section 80CCG.RGESS, notified by the Income Tax department on November 23, will be only open to new retailinvestors, who will be identified on the basis of their PAN numbers.First-time investors who have opened their demat accounts but have not transacted yet will alsobe eligible."Stock exchanges, depositories, mutual funds, AMCs, trustee companies and boards of trustees ofmutual funds are directed to take note of the notification and take necessary steps to implementthe scheme," said Sebi in a circular on Thursday.Similar to other tax-saving schemes, investments through RGESS will also have a three-year lock-in period but investors will be allowed to trade in the securities after the first year."For transactions undertaken by investors through their RGESS-designated demat account,depositories may seek necessary transactional details from stock exchanges... for the purpose ofenforcing lock-in and for generating reports mandated vide the ministry of finance notificationon RGESS," said the Sebi circular.Source:http://www.business-standard.com/india/news/sebi-directs-exchanges-to-furnish-listrgess-complaint-securities/198675/on Comments on Bank exposure norms at examination stage : RBI December 8, 2012RBI considering comments on bank exposure norms to group companiesThe Reserve Bank is examining the comments from stakeholders to firm up norms including onthe issue of providing capital by the banks to their subsidiaries, the government said today."The RBI is presently considering the comments received from the stakeholders to finalise thenorms that also include the issue of providing capital by banks to their subsidiaries," the Ministerof State for Finance Namo Narain Meena said in written reply to the Lok Sabha.The Minister was responding to a query on whether the RBI is considering implementingguidelines on bank exposure to their own group non-financial and financial entities.Aiming to avoid concentration of credit risk, the RBI in August proposed that a banks exposure toits own group entities should not exceed 20 per cent of the paid-up capital and reserves.In case of all non-financial services companies and unregulated financial services companiestaken together, the exposure should not exceed 10 per cent of the paid-up capital and reserves,the RBIs draft guidelines on Management of Intra-Group Transactions and Exposures (ITEs), ithad said.The central bankBSE 1.13 % had sought comments on the draft guidelines by September 14.The draft had been prepared in the light of experience gained in monitoring of identifiedfinancial conglomerates during last few years, RBI had said.These guidelines had been proposed for all scheduled commercial banks, including foreign banksoperating in India, belonging to a financial group.Source:http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-considering-comments-on-bank-exposure-norms-to-group-comapines/articleshow/17522336.cms Oversight mechanism for brokers to get stricter December 8, 2012 92Sebi to tighten oversight mechanism for brokers, market intermediaries to cover risks PageSebi today proposed a strict oversight mechanism for brokers and other market intermediaries tocover the risks posed by their business activities on investors and the overall market. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Besides, the regulator has also asked various stock exchanges to establish an "informationsharing mechanism" among themselves for exchange of inspection results of their respectivemember brokers.The proposed moves are aimed at tackling any possible systemic risks posed by individualconduct business irregularities at any of the market entities."The stock exchange or the Clearing Corporation, as the case may be, shall, in consultation withSebi, formulate a policy for annual inspection of their members in various segments and followup action thereon," the capital markets regulator said in a circular."The policy shall also cover various kinds of risks posed to the investors and market at large onaccount of the activities/business conduct of their members," the Securities and Exchange Boardof India (Sebi) said.Clearing Corporations work with the exchanges to handle confirmation, delivery and settlementof transactions. They play a key role in ensuring that executed trades are settled within aspecified period of time.The regulator also asked all the recognised bourses and Clearing Corporations to conduct theinspection of their members in various segments as per the new policy framework.In case of members holding memberships of multiple exchanges, the stock bourses would alsoneed to establish an information sharing mechanism with one another on the importantoutcome of inspection in order to improve the effectiveness of supervision.The regulator said these decisions are taken after consulting with stock exchanges and theassociations of stock brokers.Source:http://www.economictimes.indiatimes.com/markets/regulation/sebi-to-tighten-oversight-mechanism-for-brokers-market-intermediaries-to-cover-risks/articleshow/17523811.cms Depository system under review : Sebi December 10, 2012Sebi committee to review depository systemMarket regulator Sebi is looking to overhaul its norms for depository systems with an aim tostrengthen its oversight mechanism and to safeguard against any systemic risks posed by single-point failures.The depositories work as safe-keepers of various kinds of securities issued by the companies aswell as other entities and these entities are regulated by the Sebi ( Securities and Exchange Boardof India).The depositories have the mandate to help the companies convert their physical shares orsecurities into dematerialised or demat form and thereafter maintain those shares, and alsosupervise proper conversion and reconciliation of their total share capital by the companies.A Depository System Review Committee constituted by Sebi has been asked to conduct anoverall assessment / adequacy of existing depository framework and identify potential areas forreview, a senior official said.The move comes at a time when efforts are on to expand the ambit of depositories by allowingthem to hold new asset classes in demat format.Sebi has received suggestions from the government to expand the list of asset classes to be heldby a depository.It has been suggested that there are many assets / records such as warehouse receipts, fixeddeposits with banks and corporates, insurance policies, Post Office investments and University 93degree certificates that can be held in demat form. Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013To begin with, depositories may be be first allowed to hold only those financial assets for whichthere exists a sectoral regulator, as it might require legal amendments in relevant Acts beforeSebi might notify records such as degree certificates as securities, the official said.Sebis Depository System Review Committee, which comprises outside experts as also a membersecretary from the regulator, would assess the existing depository system to benchmark itagainst the global best practices.Besides, it will also identify the areas for continuous improvement of systems, procedures andpractices and make the required recommendations.The mandate to the Sebi panel also includes identifying "systemically important marketinfrastructure providers / institutions / depository participants and their inter-linkages andidentify areas and suggest safeguards to prevent single point failures and denial of depositoryservice.It would also review the existing system of inspection by depositories and suggest changes forstrengthening monitoring and oversight of depository participants, the official added.Sebis Depository System Review Committee would also study the relevant principles of IOSCO, aglobal body of market regulators from across the world, and European Central Bankrecommendations for Central Securities Depositories.Source : http://economictimes.indiatimes.com/markets/regulation/sebi-committee-to-review-depository-system/articleshow/17542878.cms Depository system under review : Sebi December 10, 2012Sebi committee to review depository systemMarket regulator Sebi is looking to overhaul its norms for depository systems with an aim tostrengthen its oversight mechanism and to safeguard against any systemic risks posed by single-point failures.The depositories work as safe-keepers of various kinds of securities issued by the companies aswell as other entities and these entities are regulated by the Sebi ( Securities and Exchange Boardof India).The depositories have the mandate to help the companies convert their physical shares orsecurities into dematerialised or demat form and thereafter maintain those shares, and alsosupervise proper conversion and reconciliation of their total share capital by the companies.A Depository System Review Committee constituted by Sebi has been asked to conduct anoverall assessment / adequacy of existing depository framework and identify potential areas forreview, a senior official said.The move comes at a time when efforts are on to expand the ambit of depositories by allowingthem to hold new asset classes in demat format.Sebi has received suggestions from the government to expand the list of asset classes to be heldby a depository.It has been suggested that there are many assets / records such as warehouse receipts, fixeddeposits with banks and corporates, insurance policies, Post Office investments and Universitydegree certificates that can be held in demat form.To begin with, depositories may be be first allowed to hold only those financial assets for whichthere exists a sectoral regulator, as it might require legal amendments in relevant Acts beforeSebi might notify records such as degree certificates as securities, the official said. 94Sebis Depository System Review Committee, which comprises outside experts as also a membersecretary from the regulator, would assess the existing depository system to benchmark it Pageagainst the global best practices. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Besides, it will also identify the areas for continuous improvement of systems, procedures andpractices and make the required recommendations.The mandate to the Sebi panel also includes identifying "systemically important marketinfrastructure providers / institutions / depository participants and their inter-linkages andidentify areas and suggest safeguards to prevent single point failures and denial of depositoryservice.It would also review the existing system of inspection by depositories and suggest changes forstrengthening monitoring and oversight of depository participants, the official added.Sebis Depository System Review Committee would also study the relevant principles of IOSCO, aglobal body of market regulators from across the world, and European Central Bankrecommendations for Central Securities Depositories.Source:http://economictimes.indiatimes.com/markets/regulation/sebi-committee-to-review-depository-system/articleshow/17542878.cms Recovery of bad loans get easier for banksDecember 11, 2012Lok Sabha approves changes in Debt Recovery BillThe Lok Sabha on Monday approved an amendment bill to make easier recovery of bad loans bybanks amid walkout by the BJP, Left and some other parties after the government rejected theirdemand for referring it to the Standing Committee.The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, whichwas approved by voice vote in the Lower House, seeks to convert any part of debt into shares ofdefaulting company by the Asset Reconstruction Company (ARC).The Bill was introduced in Lok Sabha in December, 2011.While the opposition demanded that the bill be referred to the Standing Committee for scrutiny,Finance Minister P Chidambaram said when the bill was introduced last year the Speaker decidedagainst referring it to the Parliamentary committee.Referring it to the committee now would delay the process further, he said, adding the thenminister wanted it to be passed without delay as amendments were of technical nature."The bill was introduced in 2011 and should not be referred (to Standing Committee) now after12 months...It would defeat the very purpose the bill. In the interest of banking sector, it isnecessary to pass the bill in 2012," he said, adding the move would quicken the process of loanrecovery.On the issue of rising non-performing assets (NPAs) of banks, Chidambaram said the bankingsector is well regulated and the gross NPA, which is around 3.5 per cent of total loans, was nothigh and the situation would improve with economic recovery.Source:http://www.thehindubusinessline.com/industry-and-economy/banking/lok-sabha-approves-changes-in-debt-recovery-bill/article4184618.ece RDA rules out hiking investment limit for insurers December 11, 2012Raising investment limit for insurers to 30 per cent would be imprudent : IRDAInsurance regulator IRDA on Monday said raising investment limit for insurance companies to 30per cent would be "imprudent" and insurers should be conservative in their approach, not as 95aggressive as venture capitalists. Page"Generally investment, which are proposed, are much higher than what the Insurance Actcontemplates and the level of exposure which the draft they (government) had suggested was Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013very high. It is about the level venture capital companies were investing as per SEBI norms," IRDAChairman J Hari Narayan said on the sidelines of an event organised by Ficci."So, the question is whether insurance investment must be as aggressive as venture capitalist. Ithink not. I think insurance companies must be more conservative in their approach," he said.On the governments proposal to raise investment limit for LIC to 30 per cent of the paid-upcapital in a company, he said, "Government had proposed a certain pattern of investment withcertain prudential limit for LIC and called our comments which we have given them."The Insurance Act stipulates that an insurance company can invest 10 per cent of the fund or 10per cent of the companys stake, whichever is lower."I have not seen any (final) notification of the government on that though the government hadsent draft notification and we have offered our comments on it. So, I suppose it is underexamination," he said.Asked if the regulator would permit private sector insurers to invest beyond 10 per cent ceiling ifthe government notifies increase in investment exposure for LIC to 30 per cent, Hari Narayansaid, "No, certainly not. I think its very very imprudent.""... it is important that insurance investments are governed by prudence ... About government andits role vis-a-vis the investment regulations governance in LIC they are defined in Insurance Actand Life Insurance Act. The government has right to define the insurance parameters ...."Even if that being so, I would urge that prudence should be hallmark of insurance," he added.Explaining rationale behind not increasing investment ceiling, he said, "Number one is once youget to 30 per cent, takeover code kicks in. If you buy 30 per cent then the company will becompelled to purchase another 20 per cent."So, in no time, it will be owing 50 per cent of the company. In which case insurance companiesare supposed to own some companies. Then it will be running some steel companies."It may be correct in case of venture capital firm, he said, adding, "they are aggressive investorsand they are willing to play risk reward game in that manner.""Would it be wise thing to do for the insurance companies? The way I think is insurance andpension have to be necessarily very conservative," he said.Hari Narayan said the government should look at bringing out a National Health InsuranceScheme by combining existing health insurance schemes to improve the level of insurancecoverage. "The government should look at combining the benefits of schemes like the Aarogyasrischeme and the Rashtriya Swasthya Bima Yojna," he said.Source:http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/raising-investment-limit-for-insurers-to-30-per-cent-would-be-imprudent-irda/articleshow/17558596.cms Govt. should pay interest on CRR : Deputy Governor December 11, 2012Existing laws dont allow interest to banks on their CRR : RBI Deputy Governor KamaleshChandra ChakrabartyThe Reserve Bank can pay interest to banks on their cash reserve (CRR) deposits if the laws arechanged, senior-most Deputy Governor Kamalesh Chandra Chakrabarty has said."Under the present law, I cant pay interest on the CRR...that modification came four-five yearsback...The government should change the rule (for payment of interest on CRR)," Chakrabarty toldreporters in an interaction at his office."If the CRR is a cost on banks, then they can adjust that somewhere else," he added. 96Explaining the rationale behind the regulatory mandate, the deputy governor, who looks afterbanking supervision, apart from a host of other departments at the RBI, said the CRR is charged Pageon banks because only they can create money. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013"Who creates money?...Its only bank deposits that too chequeable deposits or demand depositsthat create money. Thats why CRR is imposed only on banks...if a bank gives money to NBFCs, itwill go not to NBFC but to some bank accounts (of NBFCs)," Chakrabarty, who recently got a two-year extension, said.Non-banking finance companies (NBFCs), insurance companies or any other financial institutioncant be equated with the banks with regard to CRR as they dont create money, he said.The CRR is the portion of deposits that banks have to keep with the RBI for which they dont earnany interest. CRR stands at 4.25 per cent currently, while the policy rate or repo (rate at which theRBI lends to banks) stands at 8 per cent.Most of the profits that RBI accrues (last year it paid Rs.16,000 crore to the government asdividend alone) come from the CRR, and there have been media reports in the recent past thatNorth Block favours the idea of paying banks interest on the CRR.The RBI used to pay interest on CRR in the past, but a few years back the government hadchanged the rules in this regard and since then it was stopped.Source:http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/existing-laws-dont-allow-interest-to-banks-on-their-crr-rbi-deputy-governor-kamalesh-chandra-chakrabarty/articleshow/17556698.cms RBI simplifies account opening norms December 11, 2012RBI eases KYC norms for banksThe Reserve Bank of India ( RBI) today eased the mandatory know your customer (KYC) norms forbanks so that opening a bank account will be simple and hassle-free.In a communication to banks, RBI asked them not to insist on introduction by an existingcustomer while opening a new account, as it is not mandatory under any rule of the central bank.If the identity proof has an address that is the same as the address on which an account is beingopened, then there is no need for a separate address proof, said the RBI.Currently, banks ask for separate documents for the identification and address verificationprocess. But, in the case the address on the account opening form is different from the addressstated in the identity proof document, then the banks should obtain a separate proof of address.The banking regulator has allowed rent agreements registered with the state government or anyother registration authority as a proof of address.The central bank has asked banks to accept Aadhaar cards, as both identity and address proof, ifthe address on the account opening form and Aadhaar are the same. RBI said the UniqueIdentification Authority of India (UIDAI) had conveyed that banks are accepting the Aadhaarletter issued by it as a proof of identity, but not of the address.The regulator had earlier advised banks to satisfy themselves with the current address of thecustomer even if he files Aadhaar as proof of identity. It also said job cards given under the ruraljob scheme should be accepted as a valid document to open bank accounts. Earlier, accountsopened using job cards were subject to the limitations applicable to small accounts.Source:http://www.business-standard.com/india/news/rbi-eases-kyc-norms-for-banks/495206/ RBI Plans for cost-effective Credit to Exporters December 12, 2012 97RBI plans to push export lending PageThe RBI has mooted a separate carve-out for export credit within the overall priority sectorlending target for banks to make funds available for exports amidst rising concern that the Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013declining exports will keep current account deficit elevated and depreciate the rupee,undermining its efforts to rein in inflation.Indias exports fell for seventh month running, declining 4.2% in November to $22.9 billion whileimports rose 6.4% to $ 41.5 billion, yielding a trade deficit on $19.3 billion, just short of recordhigh $21 billion"There is little that can be done for the sector as it depends of revival of demand in othercountries...Policymakers are looking at measures that could provide some help succor to thesector," said a finance ministry official.The ministry is separately discussing a package of measures with the commerce and industryministry to give fillip to sagging exports that fell by 4.2% in November this year.Export credit is included in the overall 40% advances banks have to make to the five big prioritysectors, but unlike agriculture and minority sector there is no separate carve out for the tradesector. The central bank BSE -0.43 % has pointed that export credit was less than 2% of aggregatebank credit and thus suggested carving a separate group to boost flow funds to the sector.With the slow pace of global recovery and possibility of several economies facing furtherslowdown, the RBI feels merchandise exports need to be given a helping hand in form of lowerinput and transaction costs.High lending rates to control inflation have also added to woes of exporters."Our competitors can avail funds at a much cheaper cost and that enhances competitiveness oftheir products...Availability of funds is especially an issue for small and medium exporters andthese issues....The issue of availability of funds and its cost have become more crucial as buyersare seeking credit for longer duration now," said Ajay Sahai, Director General & CEO, FIEO, a bodyof exporters.The central bank has also suggested to the government to explore the possibility ofextending 2% interest subvention scheme to other growth oriented sectors. The finance ministry,however, is yet to take a final call on this but has reservations as it believes that it wouldtantamount to direct subsidy to exporters. The finance ministry feels exporters could accessexternal commercial borrowings.Export bodies and industry groups have been lobbying for providing flow of credit to the exportsector at low cost to enhance competitiveness of Indian goods in overseas markets.Source:http://www.economictimes.indiatimes.com/news/economy/foreign-trade/rbi-plans-to-push-export-lending/articleshow/17577182.cms Non-payment of dues under Derivatives Contract would Qualify as wilful default : Supreme Court December 12, 2012Banks get SCs backing on Derivative defaultsThe Supreme Court on Tuesday ruled that banks were entitled to declare as a wilful defaulter anyperson who did not repay his dues under a foreign exchange derivatives contract. This was legaland within the various circulars issued by the Reserve Bank of India ( RBI) in dealing withderivative transactions, the apex court said.The judgment paves the way for banks to resume recovery proceedings, which were stalled as thematter was sub judice.Companies such as Hindustan National Glass & Industries, Emcure Pharmaceuticals and FinolexIndustries had argued derivative transactions did not involve lending or borrowing and, therefore,RBI circulars did not cover those.The Bench, of judges A K Patnaik and Swatanter Kumar, thus settled the issue in view of 98contradictory judgments of the Bombay High Court and the Calcutta High Court, in a large batchof appeals. Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013The Bombay HC, in the petitions moved by ICICI Bank and Deutsche Bank, had held borrowers inderivative transactions were wilful defaulters, while the Calcutta HCs view was they were not.In view of diverging views, the parties had appealed to the Supreme Court. Writing the judgment,Patnaik said the terms lender and borrower should be given a wider interpretation.A senior official with a Mumbai-based bank said : "It is a landmark judgment. Many defaultershad been hiding behind the judicial system so far. This will help banks recover their lost money.""Now, borrowers will be concerned about the consequences. If they are listed as wilful defaulters,no bank would offer them credit. We expect them to knock our doors requesting for asettlement," said a banker.Bankers said even as they would follow RBIs guidelines on recovering dues from wilful defaulters,they expected firms to approach them for out-of-court settlements.According to the judgment, any dues with bank customers involved in derivative transactionswould be covered by RBI circulars on the subject.Companies had also challenged the power of lenders to get the names of defaulting borrowersfrom CIBIL, according to RBI circulars. Banks have to follow a lengthy procedure to includedefaulters in the list, and this bars them from getting further loans from financial institutions.The borrowers in this case challenged the action of the lending banks and alleged the actiontaken was illegal. The court rejected this argument.It was said exporters and other companies dealing in foreign exchange initially benefitted fromderivative transactions. Trouble started when the Western economies suffered setbacks in recentyears. The global economy was hit by a financial crisis in 2008 and continues to be in a state ofuncertainty.The foreign exchange variations played havoc with Indian companies. The borrower companiesthen approached the high courts, maintaining they were not wilful defaulters and derivativetransactions were valid and accepted in international business dealings. On Tuesdays judgmentrejects their stand.A legal expert with a large bank said : "There is a good chance that financial products, whereprovisions of wilful defaulters are not applied, can be brought under the scope of wilfuldefaulters. This will make borrowers think again before defaulting on their dues."Source:http://www.business-standard.com/india/news/banks-get-scs-backingderivative-defaults/495321/ RBI likely to tighten capital, provisioning norms for NBFCs December 13, 2012RBI tightens norms for NBFCsThe Reserve Bank of India has proposed tighter norms for non-banking financial companies withregard to capital requirements, risk weights, provisioning norms and asset classification.The central bank has proposed that stakeapproval for the appointment of a chief executive officerThe central bank has released the revised draft guidelines with regard to NBFC regulation basedon the recommendations of the Usha Thorat committee which was set up to review the existingregulatory and supervisory framework of such entities.For all captive NBFCs, those who are primarily engaged in finatier-I capital requirement has been raised to 12% from 7.5%.NBFCs that are involved in financing to sensitive sectors like stock market, real estate and 99commodities, will also have to maintain 12% tier I capital. For all other NBFC, tier-I capitalrequirement has been hiked to 10% from 7.5%. Overall capital adequacy requirement of NBFCs Pagehave been retained at 15%. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013It is proposed that risk weight for NBFCs that are not sponsored by banks, should be 125% forcommercial real estate exposure and 150% for capital market exposure.The central bank has also proposed asset classification norms for NBFCs should be in line withthat of banks, though in a phased manner. At present, while banks classify an asset as non-performing if repayment is due for 90 days, for NBFCs it is 180 days. It is now proposed from April1 2014, NBFCs will classify as account as NPA if payment is overdue for 120 days and follow the90 day norm after a year later. oning for standard assets from 0.25% to 0.40% of theThe banking regulator has said all the deposit taking NBFC should be rated by a credit ratingagency and unrated entities will not be allowed to accept public deposits. Unrated NBFCs-D hasbeen given one year to get themselves rated if they wish to continue to accept deposits.RBI has laid revised the principal business criteria as it has made by increasing the threshold forNBFC. According to the revised norms, a company that does not accepting deposits, will qualifyfor registration as NBFC if and when its financial assets aggregate Rs.25 crore and constitute 75%and above of its total assets and financial income constitutes 75% or above of its gross income.Existing NBFCs will be given a period of 2 years with the following milestones for achieving theminimum threshold of Rs.25 crore of financial assets.The central bank also said if a group has floated multiple NBFCs but those will not be viewed on astandalone basis and instead their total assets will be aggregated to determine if suchconsolidation leads to the cut off limit prescribed for a systemically important NBFC that isRs.100 crore of assets.Regarding liquidity management of NBFCs, RBI said those entities should maintain high qualityliquid assets in cash, and there should not be any liquidity gap in the 1-30 day bucket.Source : http://business-standard.com/india/news/rbi-tightens-norms-for-nbfcs/199323/on FIIs may get to trade in currency futures December 13, 2012RBI mulling allowing FII entry in currency futures marketReserve Bank is contemplating to allow foreign institutional investors (FIIs) in currency futuresmarket, Deputy Governor H R Khan today said."We are thinking whether FIIs can participate in currency futures," Khan said while speaking at aseminar on capital markets organised by industry body CII here.He said the RBI is also mulling allowing a repo in certificate of deposits (CDs) issued by banks andcommercial papers (CPs) by corporates.This move, if allowed, will help expand the corporate bond market. Normally, CDs and CPs are ofshort-term maturity of say, one to six months.He said discussions to bring down "haircut" on repo or keeping it tenor based, are at an advancedstage and the RBI will come out with guidelines on the same in the next few weeks.A haircut is a percentage that is subtracted from the market value of an asset that is being usedas collateral.On the proposed reduction in withholding tax on rupee- -denominated infrastructure bonds,Khan said the Government is expected to notify the changes soon.Additionally, for boosting foreign fund flows, Khan said, "we are thinking we will reduce theresidual maturity and lock-in period. We are flexible on that." 100He reiterated the governments last week announcement of raising the FII caps by USD 5 billioneach in government securities (G-Secs) and corporate bonds."We continue to evolve and in a cautious manner we will open up. Wherever procedural glitches Pageare there, we will try to sort them out," Khan said. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Source : http://economictimes.indiatimes.com/markets/forex/rbi-mulling-allowing-fii-entry-in-currency-futures-market/articleshow/17590091.cms Govt. advices banks to assess remittance charges December 13, 2012Government advises banks to review charges levied on remittancesGovernment has advised banks to review the charges levied on remittances which crossed USD17 billion in the first three months of the current financial year."Banks have been advised to review their existing scale of charges, both at the foreign anddomestic end, to minimise the current cost of remittances," Overseas Indian Affairs MinisterVayalar Ravi told Lok Sabha, replying to a question.However, the banks are required to have sound risk management systems and regularmonitoring of funds to avoid concealed overdrafts, he said.The Minister said India received a total of USD 17.45 billion (approx Rs.94,683 crore) inremittances between April and June this year. The country received USD 66.13 billion (approxRs.3.5 lakh crore) in remittances in 2011-12 as compared to USD 55.62 billion in the year before.The remittances to the country through private transfer of funds have been on the rise in the lastfew years.Listing initiatives to simplify remittances to India, he said banks have been encouraged to bringimprovements in infrastructure and extending the scope of electronic payment mechanism forinter-city settlements between the banks in India so as to reduce the cost of NRI remittances.Ravi said government has advised the banks to examine the feasibility of setting up centralisedremittance receiving centres for efficiency and better customer service."Further they may identify remittances as an independent business segment and resort to latesttechnology for handling large volume at lower cost and explore tie-ups with more correspondentbanks at existing and new centres," he added.Source:http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/government-advises-banks-to-review-charges-levied-on-remittances/articleshow/17584359.cms Land Acquisition Bill & Setting up of NIB, passed by cabinet December 14, 2012Cabinet clears CCI, Land Acquisition BillEmboldened by Parliaments vote in favour of 51% FDI in multi-brand retail, the UPA Governmenttoday gave up a big push to reformist agenda with the Cabinet clearing a much-awaited proposalto set up the National Investment Board (NIB) and amendments to the Land Acquisition Bill.The cabinet also approved the re auction of 1800 Mhz spectrum in three circles at a base pricewhich is 30% lower than what was fixed by the government in the auction concluded just amonth ago, which might help the government raise resources for its dwindling kitty.Besides, the Cabinet Committee on Economic Affairs (CCEA) gave a nod to new investment policyon urea which might help in garnering investment worth Rs.35,000 crore.The proposed NIB, to be now known as the Cabinet Committee of Infrastructure, will be a body tospeed up various clearances for infrastructure projects above Rs.1,000 crore of projects. The body, 101to be chaired by Prime Minister Manmohan Singh, would be set up at a time when the PlanningCommission envisages investment to the tune of Rs.56,14,730 crore in infrastructure sector in Pagethe 12th five year plan (2012-13 to 2016-17). Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Earlier, a proposal to this effect was deferred by the Cabinet after Environment and ForestMinister Jayanti Natarajan protest against the move to set up NIB, as she feared overridingpowers to the body, bypassing her ministry.Today, she said "All concerns have been addressed. I am satisfied."Recently, Finance Minister P Chidambaram had said that there were over 100 projects, eachinvolving investment of Rs.1,000 crore or more, that have been delayed due to various reasons."Our problem is not conceptualising projects. Our problem lies in getting numerous clearancesand getting the project off the ground within a reasonable time," he had said.For example, there are NTPC projects involving 11,000 mw of capacity that are stuck due tovarious clearances.The cabinet also cleared the amendments to the Land Acquisiton bill, though in a diluted form.The cleared Bill requires the consent of only 70% of land owners when the government acquiresland for a public-private partnership (PPP) project. For all other types of projects, 80% consent willbe required.In its original form, the legislation, "The Right to Fair Compensation, Resettlement, Rehabilitationand Transparency in Land Acquisition Bill", had required 80% consent not just from landowners,but also from the dependent farm workers.This provision was removed after protests from industry and infrastructure lobbies.Earlier, the high base price for 2G services had prevented telcos from bidding in the circles ofDelhi, Mumbai and Karnataka during the previous auction which was concluded in November,forcing the government to re auction them once again and this time at a substantially lowerprice. The three circles are crucial as they constitute for a substantial portion of the auctionrevenue for the government as well as its future earnings from revenue share.Last month, the Government was able to sell less than 50% of the total spectrum that was put upfor the 2G auction and had raised just Rs.9,407 crore, as against its initial target of Rs.40,000crore.approval on the reduced pricing and they plan to complete the auction process within thisfinancial year.Source : http://www.business-standard.com/india/news/cabinet-clears-cci-land-acquisition-bill/199488/onSet up an Ombudsman for insurance-related matters : Bombay HC to IRDA December 14, 2012HC wants IRDA to set up Ombudsman for policy-holdersThe Bombay high court today suggested the Insurance Regulation and Development Authority(IRDA) to set up an ombudsman to address insurance-related grievances of consumers.The suggestion was made by a division bench of Chief Justice Mohit Shah and Justice AnoopMohta while hearing a public interest litigation (PIL) filed by a city-based social worker GaurangDamani pointing out the hardships being faced by Medi-claim policy holders."The IRDA should consider setting up of a forum or an ombudsman to look into the insurance-related complaints. Instead of dragging such matters to court or consumer forum, you can havean ombudsman to handle it," the bench said.The IRDA informed the court that draft regulations have been prepared for settling insurance 102claims and that they would be placed before its Board for consideration.The bench has posted the matter for further hearing on January 7 and directed for a senior officerof IRDA to remain present in the court for assistance. Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Damani in his PIL had alleged that there were no standard guidelines to settle insurance claimsand it was often done at the whims and fancies of Third Party Administrators (TPA).He also argued that the TPAs were not entitled to settle claims, but were found to be doing so inseveral cases."TPA receives financial incentives to reduce claim ratio," said Damani adding there wasdiscrimination in settling insurance claims of individuals and that of corporate clients.According to the PIL, problems began in July 2010 after public sector insurance companies, actingthrough TPAs, suddenly stopped offering cashless medi-claim benefits to consumers in tophospitals in the metros.Earlier, over 1,500 hospitals used to offer cashless policy claims and there was no need for apatient to bother about paying cash while undergoing treatment as it would be settled by theinsurance company. The scheme was, however, withdrawn reportedly due to many irregularitieswitnessed.Source : http://timesofindia.indiatimes.com/business/india-business/HC-wants-IRDA-to-set-up-Ombudsman-for-policy-holders/articleshow/17601596.cmsFIU to review KYC, reporting of suspicious transactions by custodians December 17, 2012FIU reviews KYC, suspicious transactions reporting by FIIsMoney laundering watchdog Financial Intelligence Unit ( FIU) is reviewing the reportingprocesses and compliance norms followed by foreign institutional investors (FIIs) and custodianswho service these investors.FIU, which falls under the finance ministry, is the national agency responsible for receiving,processing, analysing and disseminating information relating to suspect financial transactions toenforcement agencies and foreign FIUs.As part of the process, FIU has called a meeting of the Securities and Exchange Board of India(Sebi) officials and top custodians to review the investment processes, know-your-customer (KYC)procedures and types of suspicious cases noticed by the custodians. "This is the first such meetingcalled by FIU in five years. The level of compliance, problem areas and any new measures requiredare likely to be discussed in the meeting," said a senior official familiar with the development.FIU also wants a report from each of the custodians about their status of compliance on thePrevention of Money Laundering Act (PMLA) provisions, in terms of KYC and suspicioustransactions. The meeting, to be headed by the director of FIU, assumes significance following arecent White Paper on black money. This had identified participatory note (P-note) investmentsthrough the FII route as one of the problem areas.The Paper, from the central government in June, said P-notes are one way through which illicitmoney transferred outside India comes back to the country through round tripping.Source:http://www.business-standard.com/india/news/fiu-reviews-kyc-suspicious-transactions-reporting-by-fiis/495818 RBI norms on foreign banks entry soon December 18, 2012Expect RBI to soon relax norms for entry of foreign banks : 103SR Rao, Commerce SecretaryThe Reserve Bank is soon expected to relax norms for entry of foreign banks into the country, a Pagetop government official today said. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013"RBI is very soon, I believe, is going to announce a very progressive policy for permitting openingof more foreign banks..." Commerce Secretary S R Rao said.He was speaking at a CII function on Driving South Asia Economic Integration."I do hope that with far more regional integration of economies and commerce, the market forcesthemselves will demand that each of the central banks of sovereign nations take similar calls andI am sure the time is propitious and it is going to happen sooner than later," he said.Currently, expansion of foreign banks in India is on a reciprocal basis.India and Pakistan are negotiating issues with regard to opening up of bank branches in eachother territory to facilitate trade and commerce.As per the World Trade Organisation agreement, India allows opening of 12 branches of foreignbanks in a year.Last year, the RBI in a discussion paper suggested that foreign banks should be incentivised tooperate in India as wholly-owned subsidiaries, as against the current system of having presencethrough branch network."On balance, the subsidiary model has clear advantages over the branch model despite certaindownside risks... There may be a need to incentivise the subsidiary form of presence of foreignbanks," it had said.At present, there are about 34 foreign banks operating in India, with five major banks, includingStanChart, HSBC, Citibank and Deutsche, accounting for over 70 per cent of the total asset size ofoverseas lenders in the country.Source:http://economictimes.indiatimes.com/news/economy/policy/expect-rbi-to-soon-relax-norms-for-entry-of-foreign-banks-sr-rao-commerce-secretary/articleshow/17653314.cms New law after 56 years, aims at improving corporate governance December 19, 2012LS approves amendments to Companies BillThe Lok Sabha today approved the much-awaited amendments to the Companies Bill, 2011,making it mandatory for profit-making companies to spend on activities related to CorporateSocial Responsibility (CSR). In case, a company is not doing so, it will have to explain the reasonsfor shortfall.The Bill, aimed at improving corporate governance, also contains provisions to strengthenregulations for corporates as well as auditing firms.Moving the Bill for consideration, Minister of State (Independent Charge) for Corporate AffairsSachin Pilot said private companies, while maximising their growth, also have responsibilitytowards society besides equitable and sustainable growth of the country. The changes in the Billinclude provisions making it mandatory for companies to spend 2% of their average net profit onCSR activities. However, only companies reporting Rs 5 crore or more profits in the last threeyears have to make the CSR spend. Companies failing to meet the obligation will have to explainand disclose reasons in their annual books of account. Otherwise, companies would face action,including penalty.Pilot emphasised that the Bill aims to encourage firms to undertake social welfare voluntarilyinstead of imposing that through "inspector raj".Safeguarding workmen in the legislation, the new law mandates payment of two years salary toemployees in companies which wind up operations. This liability would be overriding, Pilot said.The amended legislation, with 470 clauses, also limits the number of companies an auditor can 104serve to 20. It has also brought in more clarity on criminal liability of auditors. Besides, theapproved amendments also include annual ratification of appointment of auditors for five yearsand introduction of a new clause related to offence of falsely inducing banks for obtaining credit. Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013Besides, the changed law allows more statSerious Fraud Investigation Office (SFIO) to tackle corporate fraud.The amendments, to the Bill that has been in force since 1956, were first introduced in August2008. However, it was withdrawn as the Lok Sabha was dissolved. It was again introduced inParliament in 2009 and sent to the Standing Committee, which presented its report in August2010. Notably, unlike most Bills, the Bill was referred to the Standing Committee twice. Therevised Bill 2011 was again referred to the committee as certain new provisions were included.The current amendments to the Bill are in line with the suggestions put forward by aParliamentary Standing Committee on Finance.Source:http://www.business-standard.com/india/news/ls-approves-amendments-to-companies-bill/199960/on LS clears Banking Bill as govt withdraws future trading clause December 19, 2012Banking Bill paves way for new banks, foreign investmentThe government on Tuesday cleared the decks for the Reserve Bank of India (RBI) to initiate theprocess to issue new banking licences and widened the window for infusion of capital into thebanking sector.The Lok Sabha cleared the Banking Laws (Amendment) Bill, 2011, after Finance Minister PChidambaram agreed to drop the contentious proposal on allowing banks to do futures trading.He also clarified status quo would be maintained on the jurisdictions of RBI and the CompetitionCommission of India ( CCI) in the banking sector."Since it is important that the Bill is passed, I am dropping the controversial clauses." While thecentral bank would regulate the banking sector, the competition watchdog would look at anti-competitive practices, Chidambaram said.Most provisions in the Bill are to strengthen RBI. In Parliamentary democracy, give and take wasrequired and rest of the Bill was important as RBI was awaiting more powers, the financeminister added.Changes to the Bill would pave the way for RBI to issue new bank licences. The central bank hadbeen insisting the enabling legislation be put in place before applications were invited for newbank licences.As the Bill has provisions to increase investors voting rights in private banks to 26 per cent fromthe current 10 per cent, it is expected to bring in more foreign investment in the banking sector.In case of public sector banks, voting rights have been enhanced from one per cent to 10 per cent.The Bill was passed by voice vote after the amendments proposed by the Left parties wererejected by the House. The Bill would now be taken up in the Rajya Sabha.The insurance Bill, which seeks to raise the cap on foreign direct investment in insurance firms to49 per cent from the present 26 per cent, would not be taken up for consideration in the ongoingsession of Parliament, Chidambaram told reporters after the passage of the Banking Bill.Earlier, during the discussion on the Banking Bill, he highlighted the need for consolidation in thebanking sector so that India could have two-three large public sector banks that could competeglobally.He also said about 6,000 new bank branches would be opened and that banks planned to recruitaround 84,000 people this year. He reiterated the government was committed to infusingRs.15,000 crore into public sector banks in the current financial year and more next year. Capital 105might be infused now through rights issues and bonus shares.Earlier, Bharatiya Janata Party leader Yashwant Sinha, who heads the standing committee onfinance, had opposed the two contentious clauses in the Banking Bill, saying those were not Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013considered by his panel. He had said the provisions would allow banks to put their money inspeculative trading.Source:http://www.business-standard.com/india/news/banking-bill-paves-way-for-new-banks-foreign-investment/496093/ RBI to speed up process for issuing new banking licences December 20, 2012RBI to expedite new bank licence process : ChakrabartyThe Reserve Bank of India will expedite the process of issuing final guidelines regarding the entryof new entities in the banking sector after the Lok Sabhas passage of the Banking Laws(Amendment) Bill.The amendments give more power to the central bank, such as superseding bank boards, andallows it to inspect banks associates and subsidiaries. RBI had made it a precondition to get thesepowers before it allowed new entrants."Time we cannot say but the process will be expedited... I dont think it should take much time,"said RBI deputy governor K. C. Chakrabarty, on the sidelines of an event.Following the budget announcement by Pranab Mukherjee, former finance minister and now thecountrys president, in 2010-11 that companies and business houses would be allowed to applyfor setting up new banks, RBI started the process of framing guidelines.It issued a discussion paper in August 2010. A year later, it issued the draft guidelines. In July thisyear, it released the gist of the comments it had got on the draft norms.When asked whether RBI was comfortable giving bank licences to companies, Chakrabarty said itwas difficult to say anything at the moment, as the final guidelines first needed to be issues.The draft norms had said applications of both non-bank finance houses and business houseswould be considered, while entities in real estate would not.RBI is also expected to set up a committee to vet the applications of interested parties. NBFCssuch as L&T Finance, Shriram Transport and Reliance Capital had expressed interest.In the draft norms, RBI had suggested an initial minimum capital of Rs.500 crore, while theaggregate non-resident shareholding in a new bank was to be capped at 49 per cent for the firstfive years.Source:http://www.business-standard.com/india/news/rbi-to-expedite-new-bank-licence-process-chakrabarty/496210/ Banking licenses must be obtained by Co-operative credit societies from RBI December 21, 2012Full StoryCo-operative credit societies will have to seek banking license from RBIThousands of cooperative credit societies will have to seek banking license from the Reserve Bankof India following amendment in the Banking Regulation Act.Currently, co-operative credit societies are registered and regulated by Registrar of Co-operativeSocieties but their operations do not come under the purview of the banking regulator, the RBI, 106despite accepting deposits and giving loans.Cooperative credit societies have mushroomed across India, mainly floated by employees of alarge company to encourage savings habit. For instance, IDBI Bank, itself has an in-house credit Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013co-operative society even as it operates as a bank. In fact, it was floated when it was operating asa financial institution.While those co-operative credit societies with reserves and paid-up capital of over Rs.1 lakh haveto register with RBI, most of these societies operated with a lower capital to avoid regulatoryoverview. Following the amendment in the Banking Regulations Act, the RBI will issue detailsguideline regarding the capital requirements that would apply for cooperative credit societies. Asper the amendment in the Act, these societies will have to comply to the norms specified by theRBI within one year of it being notified. Alternatively, they will be forced to suspend bankingoperations.The move is aimed to protect the depositors interest since unlike cooperative banks andcommercial banks wherein deposits of Rs.1 lakh is covered none of these entities have insurancecover on the deposits they mobilise. As of now, all deposit-taking activities are regulated exceptfor co-operative societies.Source:http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/co-operative-credit-societies-will-have-to-seek-banking-license-from-rbi/articleshow/17695227.cms Ceiling for FDI in ARCs raised to 74% from 49% December 22, 2012Foreign investment ceiling in ARCs raised to 74% from 49%Foreign investment ceiling in Asset Reconstruction Companies (ARCs) has been increased to 74per cent from 49 per cent, a move aimed at bringing more foreign expertise in the segment."The ceiling for FDI in ARCs has been increased from 49 per cent to 74 per cent ," the FinanceMinistry said in a statement today, adding, this is subject to certain conditions.The decision was taken after consultation with the stakeholders and the sector regulators, itadded.However, the foreign investment in ARCs would need to comply with the FDI policy, including theone related with sectoral caps. Further, foreign investment limit of 74 per cent in ARC would be acombined limit of FDI and FII.With this change in the policy, "the prohibition on investment by FII in ARCs will be removed". Thetotal shareholding of an individual FII shall not exceed 10 per cent of the total paid-up capital, theMinistry said.Earlier, Foreign Institutional Investors (FIIs) were permitted to invest only in Security Receipts(SRs) issued by ARCs upto 49 per cent of each tranche of scheme of SRs. The Finance Ministry alsosaid "the limit of FII investment in SRs may be enhanced from 49 per cent to 74 per cent".Further, "the individual limit of 10 per cent for investment of a single FII in each tranche of SRsmay be dispensed with," it said, adding the necessary notification and circular would be issued byRBI and SEBI.The investments by FIIs would remain within the limit on on corporate bonds, and sectoral capsunder the extant FDI regulations. The government had opened the ARC segment for FDI in 2005as domestic companies did not have any experience in setting up this business.Presently there are 14 ARCs in the country, of which nine have no foreign investment. ARCIL, apublic sector ARC, is handling about 60 per cent of the asset restructuring business in thecountry. 107Source:http://economictimes.indiatimes.com/news/economy/finance/india-raises-fdi-limit-in-arcs-to-74-from-49/articleshow/17709239.cms Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 PSBs can alter the authorised share capital upon their discretion : FinMin December 22, 2012PSU banks can alter authorised share capital : Finance MinistryState-owned banks can now increase capital while issuing preference shares, rights issues orbonus shares without being limited by the earlier ceiling of Rs.3,000 crore, the Finance Ministrysaid today.The restriction has been removed following passage of the Banking Laws (Amendment) Bill 2012in Parliament. The Bill will become a law after its is signed by the President.The Ministry said the Bill will strengthen the regulatory powers of the Reserve Bank and furtherdevelop the banking sector in India."It will also enable the nationalised banks to raise capital by issue of preference shares or rightsissue or issue of bonus shares."It would also enable them to increase or decrease the authorised capital with approval from theGovernment and RBI without being limited by the ceiling of a maximum of Rs.3,000 crore," theministry added.The government had to drop a controversial clause which would have allowed banks to enter intoforward trading under intense opposition from different parties.The Bill, which was passed by both the Houses of Parliament in the just concluded WinterSession, has also paved the way for new bank licences by RBI."This would not only help in achieving the goal of financial inclusion by providing more bankingfacilities but would also provide extra employment opportunities to the people at large in thebanking sector," the ministry added.Source:http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/psu-banks-can-alter-authorised-share-capital-finance-ministry/articleshow/17709545.cms IRDA and FinMin have different views on online sale of insurance policies December 24, 2012IRDA, FinMin at odds over nod for online sales of insurance policiesThe insurance regulator has expressed reservations over the finance ministrys view that firmsneed not take another approval for insurance products sold online, arguing that such plans needto be assessed differently from those sold through intermediaries.The ministry is seeking to push online insurance products because it believes that cheaper plansavailable online can help expand the coverage across the country from the abysmally low 4.4%for life insurance and 0.7% for nonlife insurance.However, this has led to a difference of opinion between the ministry and the InsuranceDevelopment and Regulatory Authority."The structure is different because in an e-product there is no commission payable. It is a globalpractice that the two products require different approvals," said a senior official with IRDAThe official said that in case of online policies, a record should be maintained as per a pre-set 108format to ensure that the product sold is what the customer asked for."In order to protect the investor interest, it is required that separate approval for online policies isgiven," the official said. The ministry has refused to buy this argument, though, and asked the PageIRDA to fix a ceiling for all products and charges per deal. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013"Our view is there is no need for a re-approval as it causes unnecessary delays. As far as pricing isconcerned, the insurance companies and web aggregators can work that out within the IRDAceiling," said a senior finance ministry official, requesting anonymity.Industry players admit that a separate clearance for online policies is a tedious task and oftenacts as a deterrent."If a product can be sold directly or through phone and has the same features, then there is noneed for a second approval for an online product," said the chief marketing officer of a privatesector insurance firm.But online web aggregators feel that the conditions laid by the IRDA are too stringent. "Atpresent, we get Rs.30 per lead or 25% of the commission earned on premium. They also need torevisit these norms if the online insurance penetration has to be increased," said an industryplayer, who did not wish to be named.Akshay Mehrotra, chief marketing officer of Policybazaar.com, one of the bigger online insuranceaggregators, said the online potential was yet to be fully tapped."There are only three pure online ULIP (unit-linked insurance plan) products available as of now.Insurance firms also need to develop focused online products for expanding reach," saidMehrotra.Since the beginning of this month, the firm has sold about 15,000 policies online. As per industryreports, the sale of online insurance has almost doubled over the past year and online insuranceindustry is expected to touch Rs.1,500 crore by the end of this fiscal.Most industry players, such as Aegon Religare Life Insurance, Aviva India, HDFC Life, and ICICIPrudential Life Insurance, also have online insurance products.Source:http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/irda-finmin-at-odds-over-nod-for-online-sales-of-insurance-policies/articleshow/17737382.cms Stick to core banking activities : FinMin to PSBs December 24, 2012Exit non-core biz to help conserve capital, FinMin tells banksThe need to conserve capital has prompted the Finance Minister to ask public sector bank chiefsto stick to the knitting (banking) and come out of all non-core activities.Referring to the fact that the global crisis had revealed that banks should adhere to their coreactivities, the minister, at a meeting last month, underlined the need for PSBs to come out of allrelated activities.Finance Minister P. Chidambaram told the PSB chiefs that banks should concentrate on corebanking functions to improve their capital base.Besides the core banking activity, many PSBs have diversified into ventures (non-core activities)such as mutual funds, life and non-life insurance, investment banking, equities broking, custodialservices, pension, primary dealership, and information technology.These non-banking entities require capital infusion from time to time for expansion of business.These entities could have a ripple effect on the balance-sheet of the parent bank should they totup losses, said a banker versed with the developments.Additional capital As per Reserve Bank of India estimates, PSBs will be required to raise additionalequity capital aggregating Rs.1.4-1.5-lakh crore under the Basel III regulatory framework, ofwhich, the Government, to maintain its current shareholding, will have to pitch in withRs.88,000-91,000 crore. The balance Rs.52,000-59,000 crore has to come from the market. 109The Finance Ministers observations on the importance of PSBs to come out of all relatedactivities and focus on core banking functions assume significance in the context of theGovernment facing the challenge of a huge capital infusion. There are 26 PSBs, including five Pageassociate banks of the State Bank of India. Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013The Basel III regulatory framework has prescribed minimum capital requirements, capitalconservation buffer, leverage ratio and dynamic provisioning for banks. Basel III will becomeeffective from January 1, 2013, in a phased manner for Indian banks. It will be made fullyapplicable from March 31, 2018.The objective of the framework is to improve the banking sectors ability to absorb shocks arisingfrom financial and economic stress and reduce the risk of spill-over from the financial sector tothe real economy.Source:http://www.thehindubusinessline.com/industry-and-economy/banking/exit-noncore-biz-to-help-conserve-capital-finmin-tells-banks/article4232419.ece Kisan Credit Card scheme should be easily accessible by Farmers : FinMin December 28, 2012Give farmers easy access to Kisan Credit Card scheme : Finance ministryThe finance ministry has asked banks to provide farmers easier access to the Kisan Credit Cardscheme, a move that comes after a decline in farm loans disbursed by the state-run banks.The ministry has, among other measures, advised the banks against charging any processing feefor a card limit of Rs.3 lakh and asking for a separate margin on crop loans.Farmers will also be exempt from submitting documents related to the land title at the time ofannual renewal of the card, even if the land is already hypothecated to the bank due to a chargeagainst a previous loan, because there is no risk of change in the land ownership."Some of the provisions were already there in the KCC scheme, but we wanted banks toimplement them effectively to improve credit flow to agriculture sector," said a finance ministryofficial, who did not wish to be named.The measures follow a decline in loan disbursals to the sector in the first half of the current fiscalby a few banks, including Central Bank of IndiaBSE 0.66 % (-78.60%), IDBI BankBSE 1.01 % (-41.71%) and Canara BankBSE 1.03 % (-3.75%), compared with the year-ago period.The KCC scheme was introduced in August 1998, with a major share of crop loans being routedthrough it, and it was further extended in 2006-07 to the state cooperative agriculture and ruraldevelopment banks so that all short-term loan requirements for cultivation could be coveredunder a single window.Banks have already been directed to issue new Kisan Credit Cards that can be used at ATMs orpoint of sale terminals. Farmers will also get to earn interest on their balance as per theprevailing savings rate. There were about 113.9 million KCC holders at the end of March."The idea is to provide double benefit to the farmers so that they can avail the amount as pertheir convenience and also earn interest on their balance," the finance ministry official said.At present, new borrowers are required to pay 7% interest on such loans while farmers who havemade payments on time get a further subvention of 3%, bringing down the interest rateeffectively to 4%.The official said that the government may also look at setting up a farm credit rating institutionunder Nabard to build a credit history of farmer borrowers. "This will help in further easinginterest rates for those farmers who repay on time," the official added.Officials at a few banks, however, said that they had already been proactively waiving processingfee and margin money at the time of renewal of these credit cards. 110"What is important is to weed out the duplicate cards to ensure effectiveness of the scheme,"said an official with the countrys biggest bank, State Bank of IndiaBSE -0.30 %. Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013The official, who did not wish to be named, added that the recent directive to capture biometricdetails of the borrowers so as to have a second level identification will also support thegovernments agenda on financial inclusion.Source:http://economictimes.indiatimes.com/news/economy/finance/give-farmers-easy-access-to-kisan-credit-card-scheme-finance-ministry/articleshow/17788843.cms New norms to double the CSR contribution by PSUs December 28, 2012Govt to double CSR contribution of top earning PSUsTop earning PSUs like ONGC, BHEL and NTPC may have to double their expenditure on corporatesocial responsibility (CSR) as per the new draft guidelines being finalised by the Department ofPublic Enterprises (DPE).Under the proposed norms, Central Public Sector Enterprises (CPSEs) with net profit of overRs.500 crore in the previous year will have to earmark 1% of it from the current level of 0.5% forCSR activities. However, the upper limit of 2% remains unchanged."As per the proposal, now the PSUs earning profit after tax of over Rs.500 crore have to raise theirexpenditure on CSR to 1% as 0.5% is too small," Secretary in the Department of Public EnterprisesOP Rawat said. The new guidelines are expected to be finalised in the next few days and likely tobe implemented from the beginning of 2013-14 fiscal, he added.Currently for those government companies whose net profit is Rs.500 crore and above in theprevious year, their CSR spending ranges between 0.5% and 2% of their profits.However, the percentage of earmarking funds remains the same for PSUs having net profit of lessthan Rs.500 crore.PSUs with net profit between Rs.100-500 crore are required to earmark 2-3% and public sectorcompanies with a profit of less than Rs.100 crore are required to contribute 3% of their incomefor undertaking such activities.At present, CSR and sustainable development are two separate subjects and are dealt differentlyfor the purpose of Memorandum of Understanding (MoU) evaluation.The draft guidelines suggests combining CSR and sustainable development into one set of norms."CSR and sustainable development have been combined together because they are inter-coinedsubjects," Rawat said.Besides, CPSEs would be required to disclose the reasons for not fully utilising the budget for CSRand the sustainable development for the same year, as per the draft guidelines."They have to ensure that they spend full amount earmarked for corporate social responsibility,otherwise, they have to disclose why they have not spent these funds," he said.The proposed guidelines stated that if PSUs are unable to spend the earmarked amount for CSRin a particular year, it has to be spent in the next two years."If CPSEs fail to utilise the funds in the next two years, the remaining amount will go to asustainability fund which will be managed by a different implementation mechanism in theDPE," the Secretary said.The draft guidelines continue to exempt sick and loss-making PSUs from allocation of budget forundertaking CSR activities.Of the total 249 CPSEs, there were 158 profit-making PSUs, as on March 2011.Source:http://www.business-standard.com/india/news/govt-to-double-csr-contributiontop- 111earning-psus/200752/on Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013 New Bank licence : Final norms likely in January December 28, 2012RBI may release final guidelines in JanuaryYear 2013 could ring in some good news for bank aspirants. The Reserve Bank of India (RBI),currently giving final touches to the proposed bank licence norms, is likely to release the finalnorms in January, according to RBI sources.However, the process of inviting the applications might not start immediately, sources added.After the final norms are issued, the central bank is expected to set up an external committee, toscreen applications. After the panel is set up, RBI will start accepting applications. It could takesome time for fresh applications to come in, sources said.The process of issuing the final norms was expedited by the banking regulator following passageof the Banking Laws (Amendment) Act in Parliament earlier this month.The law was amended to give more power to the central bank, such as to supersede a banksboard and to inspect the banks subsidiaries - a demand made by RBI Governor D Subbarao forallowing new entrants in the sector.Although final norms will be issued in January, it could take another six to 12 months for theregulator to complete the screening process and issue the first set of licences. In the first phase,three or four entities are expected to get licences.RBI is expected to give a year to the entity after awarding the licence, to open the first branch.Banking aspirants said a full-fledged branch, having the core banking solution, could be openedin six to eight months from the date of receiving the licence.Although the central bank is open to considering industrial houses for licences, it is not clear ifthey will get any in the first phase.Apart from industrial houses, non-banking financial companies (NBFCs) also eye licences but theregulator has made it clear that real estate and broking entities will not be considered.Following the Budget announcement in 2010-11 by then finance minister Pranab Mukherjee thatNBFCs and business houses will be allowed to set up new banks, RBI started the process offraming guidelines for entry of new banks.RBI released a discussion paper on the entry of new players in August 2010. A year later, it issuedthe draft guidelines.In July this year, it released the gist of the comments it had got on the draft norms. Theconsultation process with stakeholders on the issue has been completed.Source:http://www.business-standard.com/india/news/new-bank-licence-final-norms-likely-in-january/200766/on Transaction cost for direct cash transfer is likely to be paid by Govt. December 29, 2012Govt to pay banks for direct cash transfersIn a bid to incentivise banks for facilitating direct cash transfers to Aadhaar-enabled accounts -which may not bring any business to the banks - the government is considering paying them atransaction fee. A business model is being worked out to help banks recoup their transactioncosts.Although the transaction costs would vary depending on the frequency of withdrawals anddeposits from a bank account, the government is considering paying a transaction fee for all last- 112mile payments to the banks at the rate of 3.14 per cent of the amount of transaction with a capof Rs.20 a transaction. Page"There will be a cost to the bank in each transaction. The banks may not get much business fromsuch accounts as the beneficiaries may immediately withdraw the money as soon as it is Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • Canara Bank Samachar Lehar January 2013transferred to the account. Moreover, most of these transactions will involve very small amounts.But administration costs broadly remain the same, no matter what the amount is," said a financeministry official. Earlier this year, the Nandan Nilekani-led Task Force on Aadhaar-Enabled UnifiedPayment Infrastructure had suggested in its report that at the rate of 3.14 per cent, the totaltransaction fee could be Rs.5,000 crore when the scheme is fully implemented. It, however, addedthat as subsidised goods such as fertiliser, liquefied petroleum gas (LPG), kerosene, and foodwould be purchased using electronic payments over time - obviating the need for reimbursementof the subsidy - the actual expenditure might be much lower.Currently, the cost incurred in some of the government disbursements through cheques is borneby the banks themselves. A transaction involving cash deposit at a bank branch or payment ofcheque costs about Rs.40-50, while at an ATM it comes down to Rs.15-20 per transaction.Officials said in case of cash transfers through Aadhaar, the government would bear the cost sothat the banks do not hesitate in opening such accounts.The direct cash-transfer scheme will be rolled out in 43 districts from January 1, but the businessmodel for recouping transaction costs of banks would not be in place immediately as a finalapproval for the model is still awaited. Till the time it comes into force, banks will have to takethe burden. The costs would not be huge initially, as only a few schemes are covered under thescheme at present.Source:http://www.business-standard.com/india/news/govt-to-pay-banks-for-direct-cash-transfers/497073/ Basel III norms to be implemented from April 1, 2013 December 29, 2012New bank capital rules to start in April : RBIIndia will start implementing new global capital rules for banks, known as Basel III, from April 1,2013 rather than the beginning of January, the Reserve Bank of India said on Friday.It said this would align the introduction of the rules with the start of the countrys tax year, whichruns from April to March. The central bank gave no other reason for the change.The new rules have been created by international regulators to strengthen banks after thefinancial crisis. Under the Basel III regime, Indias banks will have to hold core capital of at leastseven percent of (risk weighted) assets.The central bank had originally said in May that implementation of Basel III would begin inJanuary. The new rules are set to be fully implemented by the end of March 2018.Source:http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/new-bank-capital-rules-to-start-in-april-rbi/articleshow/17799267.cms 113 Page Samachar Lehar January 2013 issue- Compiled by RSTC Gurgaon
    • KEY BANKING INDICATORSBANK RATE 9.00% Base Rate of major Banks 9.75-10.50%CRR 4.25% BPLR of major Banks 14.75-18.50%SLR 23% FOREX RESERVES US $ Billion 262.11REPO RATE 8.00% SCB Total Deposits - `. Cr. 64,10,000REVERSE REPO 7.00% SCB Total Credit - `. Cr 48,94,440LIBOR US $ 6 0.5125% CREDIT- DEPOSIT RATIO 76.36%month Compiled by Regional Staff Training College, Gurgaon Sector- 18, Plot no- 80, Near IFFCO Chowk Gurgaon. Email:rstccodel@canarabank.com PH: 0124-2341589 FAX: 2341588