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ALL INDIA BANK OFFICERS’ ASSOCIATION (CENTRAL OFFICE)

A. K. Nayak Bhawan, 2nd

Floor 14, Second Line Beach, CHENNAI-600 001 Phone: 25265511 / M 09769991311 / FAX: 044-25249081 /

e mail: aiboa.hq@gmail.com www.aiboa.org

FINANCIAL SECTOR WEEKLY NEWS UPDATES

16TH TO 31ST

APRIL 2012 ---- BY VASANT PONKSHE, SECRETARY, AIBOA

India needs to be ever ready to deal with any economic crisis: Pranab Mukherjee

NEW DELHI: Exuding confidence that India will be able to come out of every difficult situation, Finance Minister Pranab Mukherjee today said the country needs to be ever ready to respond to external shocks on real time basis. Addressing CII's Annual General Meeting and National Conference here, he said that like in the past three financial years, India could confront any situation successfully in the future."However, at the same time, we shall have to keep in mind, complacency can turn out to be our worst enemy. We need to be ever ready to confront external shocks and also respond on a real time basis to all the issues which may come in way," he said. Global recovery, amid the ongoing sovereign debt crisis in some European nations, has been weak and uncertain. Post 2008, Mukherjee said, global recovery is turning out to be harder than expected."We are not yet completely insulated from the evolving global economic scenario," he said, pointing out that there has been moderation in FII inflows in the country, which in turn has affected stock markets and depreciation of the domestic currency. The global financial crisis, which surfaced in September 2008, had also impacted India's economic growth. However, with the help of three stimulus packages, India managed to record 8.4 per cent economic growth in 2009-10 and 2010-11 and clocked an estimated 6.9 per cent GDP expansion last fiscal. "Given the overall fundamentals, the estimated growth of GDP of 6.9 per cent in 2011-12 appears to disappointing," Mukherjee said while attributing the slowdown to poor performance by the industrial and agriculture sectors.

RBI chief Duvvuri Subbarao says India core inflation lower than expectation

India's core inflation of 4.7 percent in March was below the central bank's expectations, the Reserve Bank Of India's Governor Duvvuri Subbarao said on Wednesday. The central bank cut rates on Tuesday by an unexpectedly sharp 50 basis points to boost the sagging economy, but warned there was limited scope for more cuts. The governor was speaking in a conference call with analysts a day after its policy statement.

Economic reforms have slowed, will pick up after 2014 elections: Kaushik Basu

WASHINGTON: Acknowledging that economic reforms in India have slowed down and may remain that way till the next general elections in 2014, Chief Economic Advisor Kaushik Basu said they will gather pace thereafter and from 2015 India will be among the world's fastest growing economies. Relatively less important bills might go through Parliament but major economic reforms would hit the road block, Basu said, adding that they are unlikely to happen before the next Parliamentary elections. At the same time, he said there are some reforms that need to go into fast gear and identified the opening up of the retail sector as one key reform in waiting. India, he said, also needs to address the issue of massive subsidy leakage and that of poor infrastructure. After the elections, the government of the day would take reforms on fast track and there would be a flurry of reforms, Basu said, addressing a meeting at the Carnegie Endowment for International Peace, an eminent Washington-based think tank. In Washington to attend the Annual Spring meeting of the International Monetary

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Fund (IMF) and the World Bank, Basu was addressing the concerns expressed by the US corporate on some recent decisions of the Indian government and its reluctance to initiate the series of next phase of reforms. He is accompanying Finance Minister Pranab Mukherjee to the IMF, World Bank meet. Post 2014, Basu said, "you would see a rush of important reforms" and after 2015 India would be one of the "fastest growing economy of the world".

RBI's annual monetary policy review: Proposals & guidelines

RBI asks banks to allot Unique Customer Identification Code (UCIC) to existing individual customers by end-April, 2013. The unique number will help identify a single customer for various services in a bank. RBI to issue detailed guidelines on the 'basic savings bank deposit account' with certain minimum common facilities without the requirement of minimum balance to all customers. RBI forms committee chaired by KC Chakrabarty to study the increase in demand for coins, and supply and distribution bottlenecks to ensure regular and smooth availability of coins. The panel is expected to submit its report by end-May, 2012. RBI proposes to set up a working group to assess feasibility of introducing more long-term fixed interest rate loan products by banks. Currently, banks offer fixed rates on deposits and mostly floating rates on home loans, which expose borrowers to uncertain rate movements. RBI forms a working group under the chairmanship of deputy governor Anand Sinha to study the methodology of the determination of credit spreads and its components and suggest measures for appropriate pricing of floating rate loan products to improve transparency in pricing and loan documentations. The group is expected to submit its report by end-July, 2012. RBI says policy on compensation for private and foreign banks will come into effect from FY13. The policy will cover effective governance of compensation, alignment of compensation with prudent risk-taking and disclosures. RBI forms a working group under the chairmanship of R Gandhi to enhance liquidity in g-sec and interest rate derivatives markets. The panel will submit its draft report to RBI by end-May, 2012. RBI is developing web-based access to the NDS-order matching (OM) system for secondary market transaction, which may be implemented by end-June, 2012. RBI forms a working group chaired by KUB Rao to study lending by NBFCs against gold. The committee is expected to submit its report by end-July, 2012. The panel will study practices of NBFCs involved in lending against gold, assess trends in demand for gold loans and study how it influences gold imports, among other things. RBI says the working group chaired by Usha Thorat on regulatory framework for NBFCs to release draft guidelines by end-June, 2012. The group had submitted its report in August, 2011. RBI says the working group chaired by B Mahapatra to study guidelines on restructuring of advances by banks and financial institutions and is expected to submit report by end-July, 2012. The group, formed in January 2012, will suggest revisions taking into account the best international practices and accounting standards.

RBI cuts bank rate to 9 per cent

MUMBAI: The Reserve Bank today issued a notification to reduce the bank rate or the interest the banks and financial institutions pay to the central bank on borrowed funds to 9 per cent from 9.5 per cent now. "The Reserve Bank of India (RBI) has decided to lower the Bank Rate to 9 per cent per annum from 9.5 per cent per annum with effect from April 17, 2012," the RBI said in a statement. The notification follows the announcement made by RBI Governor D. Subbarao in the annual credit policy which was unveiled yesterday. In line with 0.5 per cent cut in short-term lending (repo) rate, the RBI also reduced the bank rate to 9 per cent. The RBI decided to reduce the benchmark repo rate to 8 per cent from 8.5 per cent, after a gap of three years, to promote growth which during 2011-12, which slipped to a three year low of 6.9 per cent. The central bank has pegged the GDP growth rate for the current fiscal at 7.3 per cent.

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RBI has better understanding of growth, inflation now - Duvvuri Subbarao

MUMBAI: The Reserve Bank of India cut its repo rate by 50 basis points (bps) on Tuesday and not by 25 bps as widely expected, because it has a better understanding of growth and inflation than during the March policy, Governor Duvvuri Subbarao said. He said a bigger cut in the key interest rate would ensure more effective monetary policy transmission. The wholesale price index, India's main inflation indicator, rose an annual 6.89 per cent in March, higher than 6.70 per cent rise estimated by analysts, but lower than 6.95 per cent in February. The country's industrial output rose a much slower-than-expected 4.1 per cent in February from a year earlier, recent data showed.

Indian economy to recover gradually, more rate cuts by RBI seen: Poll

BANGALORE: India's economy will pick up this year, although more gradually than previously thought, while average inflation will be slower, giving the central bank room to cut rates by another 50 basis points during the fiscal year ending March 2013, a Reuters poll showed. The survey showed Asia's third-largest economy growing at an annual 6.5 p ercent in the three months to June, and accelerating to 7 pe rcent in the next quarter. That is down from 6.8 per cent and 7.1 per cent in the January poll. Growth is expected to clock a 7.1 per cent rate for the fiscal year 2012-13. The International Monetary Fund is a little more optimistic, at 7.3 percent. Growth for the latest fiscal year ended in March is expected to be 6.8 per cent. Yet even so, growth estimates have now been cut for the fifth straight quarterly Reuters poll. The current rate, at 6.1 per cent, is far below the near double-digit rates before the onset of the global financial crisis in 2008-09. "One of the biggest challenges the economy has faced last year has been the policy inertia and that continues to remain," said Upasana Bharadwaj at ING Vysya Bank. But she said the surprisingly sharp 50 basis point cut from the Reserve Bank of India this week "should provide some boost to overall sentiment and help in stimulating investment." That was the RBI's first rate cut in three years, following a lengthy battle to bring down inflation.

Growth will improve, but inflation will stay sticky: RBI

NEW DELHI: India's economic growth is likely to improve marginally in the current financial year from the projected growth of 6.9 percent in 2011-12, but inflation will remain "sticky" due to high oil prices, impact of hike in taxes, wages and large suppressed inflation, the Reserve Bank of India said Monday. "Growth is likely to improve moderately in 2012-13. While inflation has moderated, risks to inflation are still on the upside," the RBI said in the "macroeconomic and monetary developments" released ahead the annual monetary policy statement for 2012-13 Tuesday. Although the central bank said there was need to support growth, it did not give any indication whether it would cut rates to make credit cheaper. Most analysts feel that the RBI would cut key policy rates by 0.25 percent. If that happens, it will be the first rate cut in almost three years. "With significant upside risks to inflation, monetary policy needs to keep them anchored, while shifting the balance of policy to arrest the deceleration in growth momentum," the central bank said. The RBI said inflation is likely to remain at around the current level in 2012-13. "The path of inflation in 2012-13 could remain sticky around current levels due to high oil prices, large suppressed inflation, exchange rate pass-through, impact of freight and tax hikes, wage pressure and structural impediments to supply response." According to the data released by the ministry of commerce and industry Monday, inflation, based on wholesale price index, declined marginally to 6.89 percent in March as compared to 6.95 percent in the previous month. Inflation in manufactured products fell substantially, but there was a sharp increase in food inflation.

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Signals 'disturbing', but not 1991-type situation now: RBI

Reserve Bank Governor D Subbarao has said that rising fiscal deficit and short-term debt levels are "quite disturbing" but the nation is not facing a repeat of a 1991 balance of payment crisis. While the 1991 crisis was triggered by high oil prices almost drying foreign reserves and currency crash, large fiscal deficit and current account deficit are lead indicators of stress building up in the system again, he said at a panel discussion on India's economic reforms and development here last evening. With Prime Minister Manmohan Singh listening, Subbarao said fiscal deficit in 1991 was 7 per cent and it is ruling at 5.9 per cent in 2012. The current account deficit at 3.6 per cent is higher than 1991 figure and short-term debt at 23.3 per cent of GDP in 2012 is much more than 10.2 per cent in 1991. "That is quite a disturbing picture. Nevertheless, I would still argue that in 1991, an implosion was imminent. In 2012, an implosion is not imminent," he said. Stating that the structure of the economy has changed in fundamental ways, he said financial markets are more matured, more diverse and much deeper and have "resilience to absorb shocks". "Our regulatory systems and out crisis response mechanism are more robust and more sophisticated," he added. While fiscal deficit was not entirely structural in nature, current account deficit was high because of high oil prices and gold imports, he said adding India's foreign exchange reserves today are much larger than those in 1991.

RBI wants government to hike prices of diesel, kerosene, LPG

MUMBAI: Making a case for raising prices of diesel, kerosene and LPG, the Reserve Bank today said hike in rates of petroleum products is necessary to arrest fiscal slippages. "Overall from the perspective of vulnerabilities emerging from the fiscal and current account deficits, it is imperative for macroeconomic stability that administered prices of petroleum products are increased to reflect their true costs of production," RBI Governor D Subbarao said in the Annual Monetary Policy Statement for 2012-13. While petrol prices are market-linked, the government fixes the rates of LPG, kerosene and diesel, which results in a large budgetary expenditure on subsidies. Global crude oil prices have surged since the beginning of 2012 on account of geo-political concerns in the Middle East and abundant global liquidity. The price of Brent crude rose to $120 a barrel in mid-April from $111 in January. RBI said the Budget estimate of oil subsidy is likely to fall "significantly short of the required amount". High subsidies are putting pressure on the country's fiscal deficit, which touched 5.9 per cent of GDP last fiscal and is pegged at 5.1 per cent in 2012-13. India imports about 80 per cent of its crude oil requirement. The government targets to bring down the subsidy bill to below 2 per cent of GDP this fiscal and 1.75 per cent in the subsequent years. Government has made a provision of Rs 40,000 Cr. towards fuel subsidy for 2012-13. "...Several upside risks to the budgeted fiscal deficit remain. Containment of non-plan expenditure within budget estimates for 2012-13 is contingent upon the government's ability to adhere to its commitment of capping subsidies," Subbarao said.

Pre-mature capital account convertibility can harm economy: RBI

NEW DELHI: Reserve Bank of India (RBI) Governor D Subbarao has said that India will "gradually" move towards capital account convertibility only after preconditions like fiscal consolidation are met. "There is no evidence (the world over) that capital account convertibility, regardless of macroeconomic circumstances, has been a positive force," he said at a panel discussion on India's economic reforms and development here last evening. On the contrary, evidence suggests that premature capital account liberalisation can create macroeconomic imbalances with huge costs to growth and welfare, he said. "All the historical evidence shows that pre-mature capital account liberalisation can turn you into a 'high beta' economy," he said explaining that high beta economy is vulnerable to volatile external cycles, sharp fluctuations in exchange rates and asset price build-up and bubbles.

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Capital Account Convertibility (CAC) -- or a floating exchange rate -- means the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. This means that capital account convertibility allows anyone to freely move from local currency into foreign currency and back. "We are committed to opening up the capital account gradually along a road map, with the road map itself getting recalibrated on a dynamic basis," the Governor said. "We need to balance the needs of the macro economy with the compulsions of macroeconomic and financial stability."

In line with IRDA cap, LIC may pare stake in 51 unlisted companies

NEW DELHI: Life Insurance Corporation of India, the country's largest insurer, is likely to pare down its holding in unlisted firms to bring it in line with the 10% investment ceiling, a government official said. The official said data available with the government shows that the insurer has exceeded the investment limit in about 78 companies, of which only 27 are listed. "It was pointed out to us that LIC has exceeded the investment norm only in state-run banks and public sector companies under government pressure," the official said. "But this is not the case. So, if investments have to be pared down, it would have to begin with unlisted companies." Some of the companies where LIC has exposure in excess of 10% include L&T, ITC, JSW Steel, MTNL and Wockhardt. The Insurance Regulatory and Development Authority had in 2008 amended investment norm that prohibit an insurer from having more than 10% stake in a company. But a senior executive at LIC said investments in some of these 78 companies were done before IRDA amended the investment regulation. He said it would be difficult to bring down the investments immediately. "We will have to arrive at valuations before reducing our exposure to some of the unlisted companies, which takes time," he said, adding, "LIC has already made efforts to cut exposure." In the past four months, the insurer has brought down its holdings in Central Provinces Railways and Empire Industries. IRDA has said it would not force LIC to reduce its stake immediately nor would it set a time frame for the exercise.

Centre turning dictator? Government orders PSU banks to cut rates immediately

KOLKATA: The government has ordered state-run banks to lower lending rates immediately even before the ink has dried on the Reserve Bank of India's decision to cut interest rates, potentially adding to the corporate governance debate triggered by the imposition of its will on Coal India. The direction from D.K. Mittal, secretary, financial services, may put many lenders in a tight spot as profitability and cost structures differ between banks, said two persons familiar with the development. "With the reduction of CRR and repo rate, all lending rates be relooked at very quickly," Mittal wrote to state-run banks' chairmen. "Direct lending to agriculture has to be 13.5% and growth has to be 25% over 2011-12." The RBI has cut cash reserve ratio twice and bought government bonds, releasing more than 2 lakh Cr. into the system to ease liquidity pressures. It cut repo rate - the rate at which it lends to banks -by 50 basis points to 8% on Tuesday. A basis point is 0.01 percentage point. "Micro management is not desirable when it becomes a routine," said D.K. Dhingra, former executive director at state-run Uco Bank. IDBI Bank, a relatively small lender compared with State Bank of India or Punjab National Bank, cut its benchmark lending rates by a token 25 basis points to 15% on Wednesday. But many big banks that raised deposit rates recently are still studying the market. "It's not acceptable that someone interferes on a daily basis," said Ravi Trivedy, a consultant and former partner at KPMG. "The government or the Reserve Bank can frame the policy parameters. Once these are in place, one should allow the professional managers to take independent decisions. It's a governance issue," he said. Bank chairmen say policy rate cut does not automatically lead to lower market interest rates since there are issues such as slow deposit growth, rising bad loans and an uncertain environment where inflation could rear its head again and upset all calculations. "I will be genuinely concerned about the deposits growth because bank deposits are getting crowded

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out because of other competing savings instruments," State Bank of India Chairman Pratip Chaudhuri said after the rate cut.

Window dressing: Banks raise Rs 2 lakh Cr. in 6 days

MUMBAI: Commercial banks in the country raised a record Rs 2 lakh Cr. as deposits in the last six days of March, managing to achieve an annual growth of 17.4% and reaching the Reserve Bank's comfort zone. This is reckoned to be the largest window-dressing effort to shore up the deposit figures. Banks raised a total of Rs 61.12 lakh Cr. as on March 30, up Rs 2 lakh Cr. since March 23. Banks succeeded in raising huge amounts in a short span as many large banks, including the country's largest, State Bank of India, raised deposit rates, particularly for shorter tenor products in the last few days, despite the Reserve Bank signalling rates may ease. Besides, banks were also selling certificates of deposits, or CDs, at high rates. Rates on three-month CDs were around 10% in the last week of March. Even though the rates were marginally lower than in the previous weeks, they were still reckoned to be high. Besides, banks have been raising rates and have also created special tenors like 91-day deposits and 100-day deposits, which offered 9% to 10%. It is common for banks to go for an overdrive to raise deposits to shore up their balance sheets towards the last few days of a fiscal, but this time round the amount raised is higher than usual. This is because deposits had slowed down in the second half of the fiscal. In fact, as on March 23, with just six days remaining for the fiscal to end, deposits growth stood at only 13.4%, compared to the central bank's comfort level of 17% for the year. Bank loans rose by Rs 93,160 Cr. in the last six days of the previous fiscal to touch Rs 47 lakh Cr. as on March 30. The extent of window dressing has, however, been lower as banks were seeing credit pickup throughout the last quarter of FY'12.

Refrain from year-end window dressing: RBI

The Reserve Bank of India (RBI) has come down heavily on banks that went for aggressive expansion of the top line around March-end to meet yearly targets. In the last week of March, bank deposits had risen by a whopping Rs 2 lakh Cr. while loan growth stood at Rs 93,000 Cr. Also, more than a fifth of the deposits collected in 2011-12 came in during this period. As a result of the mad rush for deposits, mostly by public sector banks which control two-third of the market, short-term rates went through the roof. Rates on three-month certificates of deposit went up to 11.75 per cent, 100-150 basis points (bps) higher than what it was a month before. According to bankers, RBI wanted a more steady growth of deposit and credit through the year, rather than a skewed one. Bankers attributed the reason for a sharp increase in deposit growth at the end of the year to sluggish deposit mobilisation in 2011-12, although retail deposit rates hovered around 9.5 per cent. “High inflation during the most part of the year, which had made real return to the depositors negative, had an adverse impact on resource mobilisation,” said a banker. He added issuance of tax-free bonds and tax-savings bonds by corporate entities, which offered attractive yields to savers, had also channelised public deposits away from banks. The spike in deposit and credit growth in the last week of March had helped deposits to grow by 17 per cent on a year-on-year (y-o-y) basis (till March 30), which was less than 14 per cent a week earlier. Similarly, banks recorded loan growth of Rs 93,000 Cr. in the last week of March, resulting in y-o-y loan growth of 19.3 per cent, higher than RBI’s projection of 16 per cent. However, both deposits and credit fell drastically once the new month commenced, RBI data showed. Deposits dropped about Rs 17,000 Cr. dragging the annual growth rate from 17 per cent to 14 per cent, again, in the first week of the new financial year. Similarly, annual credit growth came down from 19.3 per cent to 18.73 per cent within a week. During the Annual Monetary Policy announcement, RBI also said banks must aim to reduce the variation in interest rates on bulk and retail deposits of similar maturities. During the end of the last financial year, the gap between retail and corporate bulk deposit rose to as high as 350 bps.

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RBI asks banks to cut exposure to 'gold' NBFCs

MUMBAI: RBI has asked banks to reduce their regulatory exposure ceiling in a single NBFC having gold loans to the extent of 50% or more of its total financial assets. The exposure has come down to 7.5% from 10%. "The business model of some gold loan companies motivated us to take this action," RBI governor D Subbarao said. "We did this to avoid concentration or systemic risk." But, RBI has allowed the exposure to go up by 5% to 12.5% of a bank's capital funds if the additional exposure is due to funds lent by an NBFC to the infrastructure sector. Banks said the directive will not have much of an impact on their lending to such NBFCs. "None of the banks have reached the 10% limit," said Abraham Chacko, MD and CEO of Kerala-based Federal Bank. "Our bank's exposure to these NBFCs is nowhere close to 7.5%, which gives us enough room to lend to these institutions." "It is just a readjustment and RBI is putting in place a framework to avoid financial crisis," said Chacko. NBFCs meet their funding requirements by issuing debentures and borrowing from banks. Deposit-taking NBFCs and banks use mobilised funds to lend against gold. PSUs such as Indian Overseas Bank, Indian Bank, South Indian Bank, and private sector banks such as ICICI Bank and HDFC Bank, and NBFCs such as Muthoot Finance and Manappuram Finance are players that are active in this segment.

RBI asks banks to set up process to identify NPAs

MUMBAI: The Reserve Bank of India has asked banks to install a robust mechanism to identify stressed accounts and promptly restructure viable cases to preserve the economic value. The central bank has also mandated banks to have a proper system-generated segment-wise data on their NPA accounts, write-offs, compromise settlements, recovery and restructured accounts. The move comes after the central bank said in its annual financial inspection in March that restructuring facilities are not extended to small accounts. Corporate loan accounts that needed to be restructured hit a nine-year high of 50,250.22 Cr. in 2011-12 with the corporate debt restructuring (CDR) cell. Rising interest rates and the increasing debt burden have affected the repayment capacity of companies forcing RBI to review the NPA management mechanism in banks. The central bank is expected to issue detailed guidelines separately. In January, the central bank constituted a working group to review guidelines on restructured advances. The report is expected to submit its recommendations by end of July. "CDR has increased very significantly. It does represent a stress in the system. But, at the same time, the evidence shows that the accounts have been restructured and have remained standard after restructuring. Out of this, the slippage is not more than 15% and even after taking an outer limit of 20%, 80% of the restructured assets are proved to be good assets," said Anand Sinha, deputy governor, RBI. "But, if the account is under stress you only have two options: either call back the advance, which is not correct if the account is viable, or if it is not, you have to restructure it. So, rescheduling should not be seen with negativity," said Sinha. RBI's working group has had three meetings so far.

Liquidity challenge likely to re-emerge in 2012-13, says Standard Chartered

NEW DELHI: Projecting a challenging year for the Indian banking sector, global financial services major Standard Chartered today said the liquidity challenge is likely to re-emerge in 2012-13, forcing RBI to take action. "Our projections for FY13 indicate that the liquidity challenge is likely to re-emerge, necessitating RBI action," a research report from Standard Chartered said. After 125 basis points (bps) of cash reserve ratio (CRR) reductions in the second half of 2011-12, it said "we expect the RBI to rely more heavily on OMOs (open market operations) in FY13". Even if central bank cuts the CRR by another 50 bps, it may have to buy Rs 1.5 lakh Cr. worth of government securities this fiscal, Standard Chartered said. Unlike last year, relatively benign inflation should give the RBI scope to conduct these liquidity-easing measures, it added. Managing the banking-system liquidity deficit has been a

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challenge for the central bank recently. In the last fiscal, the RBI bought Rs 1.29 lakh Cr. worth of Government Securities via OMOs. It also reduced the CRR by 125 bps to inject Rs 80,000 Cr. in the system. The global financial services major expects the government's record market borrowing of Rs 5.7 lakh Cr. (gross) to "crowd out" private-sector credit in 2012-13. "The lack of decisive government steps to improve investment sentiment and kick-start the investment cycle will also weigh on credit growth," the Standard Charted said.

Rising rural, urban wages aiding inflation: RBI report

MUMBAI: Rising wages in both rural and urban India have contributed to inflation, and managing price levels when wages are rising is key to deriving benefits from higher growth, the Reserve Bank of India has said. "The pressure on generalised inflation from sustained increase in wage costs has been one important characteristic of the recent high inflation episode. Wage increases for unskilled labourers in rural areas continue to be at a rate faster than the comparable rate of inflation," the RBI's annual macroeconomic and monetary developments report said. The wholesale price-based index inflation for March dipped to 6.89%, down from 6.95%. "Even if I don't agree with the Reserve Bank of India, it is true that all public sector employees' dearness allowances go up in line with inflation," said Saugata Bhattacharya, chief economist at Axis Bank. "Wage price spiral is the most dangerous part of inflation. Government interventions and subventions have contributed to increase in inflations." "Outside the public sector realm, corporate India is prepared to give a salary hike on account of increased productivity that has nothing to do with inflation. This is not accounted for anywhere. On a broader macroeconomic level, people have also lost jobs and have not got fresh jobs," said Bhattacharya. The RBI has seen significant divergence in wage rise and inflation across major states. States such as Manipur, Rajasthan, Andhra Pradesh, Karnataka, Himachal Pradesh and Bihar have seen significant rise in both wage and inflation. "A host of factors could explain the increase in wages, including high inflation, withdrawal of the labour force with increased participation in education and government schemes such as Mahatma Gandhi National Rural Employment Guarantee Act," said the RBI report.

Global venture capital funding in smart grid falls

Although a number of state utilities in India are planning to invest in smart grids in their distribution areas, the global funding scene for such grids remains dull."The lackluster venture capital (VC) investing trend in smart grid continued into this year with a weak first quarter of $62 million going into 10 deals, compared to the last quarter with $66 million in ten deals. Funding amounts and deals are staying flat after peaking in 2010," a report by Mercom Capital Group, said. "VC funding in the last year has been on a steady decline. There seems to be a disconnect in smart grid between consumer interests & awareness, and the market offerings of smart grid technologies and products," said Raj Prabhu, managing partner at Mercom Capital Group. The top VC deal in Q1 2012 was $30 million raised by Silver Spring Networks, a smart meter networking company, followed by $13.7 million raised by Tendril, an energy management company. Other top deals included $7.7 million raised by Varentec, a start-up focused on "power routers" that can control power flows on the grid, $4.1 million raised by Vizimax, a designer and manufacturer of automation systems for grid modernization, and $4 million raised by Smart Wire Grid, a provider of smart wire technology to control power flows on transmission lines. Eight VC investors participated in Q1, all participating in one deal each including Archangel Informal Investments, BDC Venture Capital, Braemar Energy Ventures, Hitachi, Khosla Ventures, Pasadena Angels, Tech Coast Angels and Yaletown Venture Partners.

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KKR, Goldman Sachs to invest $52 mn in TVS Logistics

MUMBAI: Private equity firm Kohlberg Kravis Roberts & Co (KKR) and Goldman Sachs will invest 2.69 billion rupees ($52 million) in India's TVS Logistics Services to help it expand business, the three companies said on Thursday. KKR and its affiliates would invest 2.42 billion rupees in the unlisted third-party logistics operator while Goldman Sachs pour in the remaining 270 million rupees, the companies said. "The additional investment will allow TVS Logistics to continue expansion, both through acquisitions and organic growth," said R. Dinesh, managing director of T V S Logistics Services. The logistics firm plans to focus on India's automobiles and discrete manufacturing sectors that are seeing rapid growth and have relatively low third-party logistics penetration, Executive Director S. Ravichandran said.

RBI asks banks to extend lending to small villages

KOLKATA: RBI told banks to prepare a roadmap for extending services to all small villages with less than 2,000 population. It has also told bank captains to ensure quality of services and improve lending to the underprivileged mass through their existing financial inclusion channels. Banks are now extending services through 138,502 rural outlets comprising 24,085 rural branches, 111,948 business correspondent outlets and 2,469 outlets through other modes. RBI has given state-level bankers' committees the mandate to prepare blueprints to cover unbanked villages of population less than 2,000. While all the efforts made for financial inclusion have expanded the access to banking services, it is important that quality services are provided through the newly set-up information and communication-based delivery model," RBI said.

MSC Bank gets banking license, scope for stronger business

The Maharashtra State Cooperative Bank (MSCB), which has been under the administrator’s rule since May last year, finally received the banking licence on Thursday from the Reserve Bank of India (RBI). The state’s anchor bank for agriculture and allied activities had missed the pertinent deadline of March 31. MSC Bank managing director Pramod Karnad, while confirming the development, said the licence came after the entity fulfilled the necessary formalities. “Also, we had achieved a positive net worth and four per cent CRAR (capital-to-risk assets ratio) as mandated by the RBI and Nabard (National Bank for Agriculture & Rural Development), he told Press. MSCB’s CRAR stood at 5.76 per cent. A state government official said the license was crucial for MSCB to “regain its past glory” and “enhance its credibility”. It would also facilitate the bank to get better credit rating by the regulator, auditors and the government. Further, the license would help MSCB establish ATM centres. Its forex operations, too, would gain, as some relaxations are expected from overseas bankers. Besides, risk management parameters by other banks could be modified. The official informed that the government had provided Rs 50 Cr. in the supplementary demands presented to the legislature on March 17. “This helped MSCB fulfil Nabard’s condition of achieving 4 per cent CRAR,” he said. “Nabard had, in its audit report for 2010-11, shown 3.95 per cent CRAR.” It was certain recommendations in the Rakesh Mohan Committee report that made banking licence mandatory for the MSCB. Across the country, there are 134 banks that have not received the licenses from central bank. MSCB was one of the four state cooperative banks at the national level that had yet to qualify for a license. Of the 31 state cooperative banks, 25 state cooperative banks have already granted banking license. If the banks are unable to get a license, then they have to either become a cooperative credit society or merge with another bank.

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RBS to offer philanthropy services in India

MUMBAI: The Royal Bank of Scotland (RBS) India will soon provide philanthropy services as a part of its wealth management segment in the country. "We have started providing philanthropy services under wealth management in Britain from 2005. As India is one of our key international markets, we will soon provide this service to our clients under our wealth management portfolio," RBS executive director for philanthropy services, wealth management division, Maya Prabhu, said here. Rising level of prosperity and family-run businesses here provide a lot of opportunities in this space, she said. According to the bank, the blueprint for providing such services in India will be ready by this June-July. Prabhu said education and health among others will get the priority. But, though education and health are "the themes which have seen larger interest" as a part of philanthropy services here, it will be client-specific, she said, adding family-run foundations are very active in the education space in the country. Earlier this month, RBS sold some of its businesses like cash equities, equity capital markets and mergers and acquisition here and in 11 other countries in the Asia Pacific to the Malaysia-based CIMB Group for around 75 million pounds ($120 million). The bank will continue in debt financing, risk management and transaction services business, and is awaiting the RBI nod to sell its retail banking arm in the country to HSBC since mid-2010.

Banks now want graduates for clerical posts

Till recently, intermediate and completion of 18 years of age were the minimum required qualifications. However, from this year onwards, some banks have made graduation as the basic educational qualification required. For example, Andhra Bank, which notified 600 clerical vacancies on Thursday, has prescribed this new norm. When contacted, Mr. M. N. Sudharkar, Deputy General Manger – Human Resources, Andhra Bank, said: “The minimum qualification for clerks has been enhanced to graduation based on guidelines from the Government.” Andhra Bank was not alone, other banks, including Bank of Baroda, had upgraded the minimum qualification, he added. It, however, retained minimum age required as 18 years though nobody in India can complete graduation by that age. This would mean trouble for over 30 lakh candidates who appeared for the common written examination for clerical posts conducted by the Institute for Banking Personnel Selection in November last year with intermediate as the minimum qualification. But making graduation as minimum qualification will make the test obsolete for those who did not have a degree. Though the test score is valid for one year, they cannot apply to clerical positions now. Mr. M. Balachandran, Director, Institute of Banking Personnel Selection, said that the Government order on making graduation as minimum qualification was a “recent development” which came after IBPS conducted the written exam. “Many banks are now changing the norms. From the next exam, IBPS will prescribe graduation as the minimum criteria,” he added. In fact, this is one of the key recommendations of the Dr. Anil Khandelwal Committee, which looked into the human resources aspect of banks.

Andhra Bank to hire 600 clerks

Andhra Bank will be recruiting 600 clerks to work in branches located in various parts of the country. According to a notification released by the Hyderabad-based bank, graduates in the age group of 18-28 and who scored a minimum of 124 in the common written examination for clerical posts are eligible to apply. For candidates in the reserved category, the minimum score has been fixed at 105. As the recruitment will be State-wise, candidates should apply to the vacancies in the State from which they had taken the common written examination. The online registration for recruitment would commence on April 24 and close on May 5.

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Bank of India to recruit 3,149 clerks

Bank of India is recruiting 3,149 clerks across the country. Recruitment for these posts will be done State-wise. So, the candidates have been asked to apply for vacancies in the State or Union Territory from which they appeared for the common exam conducted by IBPS (Institute of Banking Personnel Selection). Highest vacancies are in Jharkand (485), Uttar Pradesh (423) and Madhya Pradesh (401). The cut-off marks vary from State to State. The bank has fixed 131 as the cut-off marks for general category candidates in the North-Eastern States. While for States such as Haryana and Delhi, it has fixed higher cut-offs of 181 and 176, respectively The bank has specified that candidates with 50 per cent in their 12th standard exam or a graduation degree are eligible to apply. State-wise and category-wise vacancies are mentioned in the detailed advertisement on the bank's Web site. The minimum age requirement is 18 years, while the maximum is 28 years. Applications have been invited online and are open from April 16-28. Tentative dates for the interview may be in May/June. Those who have secured sufficiently high marks in the IBPS common exam will be called for interview in the ratio of 1:3.

Bank employees protest against contract recruitment

Bank Employees' Federation, West Bengal, is undertaking demonstrations to protest against the recruitment of contract workers by public and private sector banks. According to Mr. Joydev Dasgupta, secretary, Bank Employees' Federation, West Bengal, close to 200 bank employees staged demonstrations in front of HDFC Bank's Clive Row office on Thursday. Bank Employees' Federation is a unit of United Forum of Bank Unions (UFBU). The Federation will also stage demonstrations in front of various public and private sector banks to protest against torture by the managements of private sector banks on contract workmen. “These new generation private banks and even some public sector banks have been employing workmen on contract basis. These contract workmen are not given proper remuneration, adequate leave and are made to work for unreasonably long hours. This apart, they are not given benefits such as provident fund, etc. It is a clear trampling of labour laws,” Mr. Dasgupta said. The Federation will stage similar demonstrations outside the head office of United Bank of India and Bank of India's regional office on Friday. “Through our demonstrations we want to make the public aware of the repression and torture on contract workmen by bank management,” he added.

Risks to asset quality from aviation sector reduces: Banks to RBI

MUMBAI: Lenders have told the Reserve Bank of India that risks to asset quality from the aviation sector have reduced, Governor Duvvuri Subbarao said on Tuesday at a post-policy media conference. Earlier in the day, the RBI cut interest rates for the first time in three years by an unexpectedly sharp 50 basis points to give a boost to sagging economic growth, but warned that there is limited scope for further rate cuts.NEW DELHI: Projecting a challenging year for the Indian banking sector, global financial services major Standard Chartered today said the liquidity challenge is likely to re-emerge in 2012-13, forcing RBI to take action. "Our projections for FY13 indicate that the liquidity challenge is likely to re-emerge, necessitating RBI action," a research report from Standard Chartered said. After 125 basis points (bps) of cash reserve ratio (CRR) reductions in the second half of 2011-12, it said "we expect the RBI to rely more heavily on OMOs (open market operations) in FY13". Even if central bank cuts the CRR by another 50 bps, it may have to buy Rs 1.5 lakh Cr. worth of government securities this fiscal, Standard Chartered said. Unlike last year, relatively benign inflation should give the RBI scope to conduct these liquidity-easing measures, it added. Managing the banking-system liquidity deficit has been a challenge for the central bank recently. In the last fiscal, the RBI bought Rs 1.29 lakh Cr. worth of Government Securities via OMOs. It also reduced the CRR by 125 bps to inject Rs 80,000

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Cr. in the system. The global financial services major expects the government's record market borrowing of Rs 5.7 lakh Cr. (gross) to "crowd out" private-sector credit in 2012-13.

Banks uncertain of meeting deposit growth target

Bankers indicated meeting the deposit mobilisation target would be difficult, as consumers were preferring competing savings options over bank deposits. The Reserve Bank of India (RBI) has projected a growth of 15 per cent in deposits for 2012-13. On the credit side, the central bank has projected a growth of 17 per cent for this financial year. Pratip Chaudhuri, chairman of State Bank of India (SBI), the largest lender in the country, said: “I will be genuinely concerned about deposit growth. Bank deposits are getting crowded out by other competing savings products, not only because their pricing is better but also because their tax treatment is superior. And, we had perhaps expected the Direct Taxes Code to kick in, which would have provided a level playing field to bank deposits and competing products. It has not happened. So, banks will face challenges in deposits.

“Maybe a part of the challenge has to be answered by pricing. So, even if we lower deposit rates now with euphoria and relative surplus liquidity situation, going forward, as the other institutions start issuing their debt papers, we will have to see how the situation develops.” Deposit growth has been decelerating during 2011-12, particularly the fourth quarter, reflecting the tight liquidity conditions and higher base effect. As on March 31, 2012, time deposits grew 15.4 per cent on a year-on-year basis against 18.3 per cent in the corresponding period a year ago. Chanda Kochhar, MD and CEO of ICICI Bank, the largest private sector lender in the country, said: “The deposit number one will have to watch. It will depend on what competing products are available to customers, and the liquidity situation in the country. It is not only growth; deposit growth at what rate is also important.” Currently, the post-tax returns on a one-year savings bank deposits fetched between 8.33 and 6.47 per cent across various tax brackets. Competing instruments offers between 9.50 and 8.49 per cent across various tax brackets. In the annual policy meeting with senior RBI officials on Tuesday, bankers requested the central bank to consider revision in the rates on Foreign Currency Non-resident (FCNR) accounts, as the increase in interest rates on Non-resident (External) Rupee accounts (NRE) had led to migration of deposits from the former to latter instead to attracting fresh inflows. RBI Governor D. Subbarao said: “Banks have told us that migration is taking place from FCNR to NRE accounts and asked whether we could calibrate FCNR rates. At the macro level, we will have to take into account the debt concern and capital inflows.” However, bankers remained confident they would be able to meet the credit growth targets, as sentiments are improving.

Financial inclusion must be qualitative, not quantitative

The message is loud and clear from the Reserve Bank of India (RBI). While bringing more villages within the realm of financial services remains the focus, steps must be taken to improve service quality and increase the number and value of transactions in these areas, the banking regulator said. “Going forward, the focus will be more on the number and value of transactions in no-frills accounts and credit disbursed through information and communication technology-based business correspondent outlets. For this purpose, banks have been advised that financial inclusion plans prepared by their head offices are disaggregated at respective controlling offices and further at branch levels," RBI said in its monetary policy statement for 2012-13, released here on Tuesday. It also mandated the State Level Bankers’ Committees (SLBCs) to prepare schedules for covering all unbanked villages with a population of less than 2,000. SLBCs will then nationally allot these villages to banks for providing financial services in a time-bound manner. RBI will soon issue a detailed guideline in this regard. By the current map of providing banking services in every village with a population above 2,000, SLBCs had identified 74,414. These were allocated to banks,

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including regional and rural ones, for providing financial services by March. Banks have so far covered 74,199 of these villages. “Now, the challenge is to cover all the unbanked villages in the country," RBI said. Industry players estimate there are around 600,000 villages in India. Banks are currently providing services in rural areas through 138,502 outlets, including 24,085 rural branches and 111,948 business correspondents. No-frills accounts have expanded to around 99 million.

Liquidity challenge likely to re-emerge in 2012-13, says Standard Chartered

NEW DELHI: Projecting a challenging year for the Indian banking sector, global financial services major Standard Chartered today said the liquidity challenge is likely to re-emerge in 2012-13, forcing RBI to take action. "Our projections for FY13 indicate that the liquidity challenge is likely to re-emerge, necessitating RBI action," a research report from Standard Chartered said. After 125 basis points (bps) of cash reserve ratio (CRR) reductions in the second half of 2011-12, it said "we expect the RBI to rely more heavily on OMOs (open market operations) in FY13". Even if central bank cuts the CRR by another 50 bps, it may have to buy Rs 1.5 lakh Cr. worth of government securities this fiscal, Standard Chartered said. Unlike last year, relatively benign inflation should give the RBI scope to conduct these liquidity-easing measures, it added. Managing the banking-system liquidity deficit has been a challenge for the central bank recently. In the last fiscal, the RBI bought Rs 1.29 lakh Cr. worth of Government Securities via OMOs. It also reduced the CRR by 125 bps to inject Rs 80,000 Cr. in the system. The global financial services major expect the government's record market borrowing of Rs 5.7 lakh Cr. (gross) to "crowd out" private-sector credit in 2012-13. "The lack of decisive government steps to improve investment sentiment and kick-start the investment cycle will also weigh on credit growth," the Standard Charted said.

RBI's monetary policy review: Onus of checking fake currency notes on bank

MUMBAI: The Reserve Bank of India will soon revise the procedure for authentication of currency notes by banks before it goes to customers. The move is aimed at curbing the hazard of increasing number of counterfeit currencies in circulation. "Banks are advised to streamline their system in a manner which will make them bear the risk of counterfeit bank notes rather than the common man who unknowingly comes in possession of such notes," RBI said in its Annual Monetary Policy statement. The number of counterfeit notes in circulation has risen to 4.3 lakh in 2010-11 from 3.89 lakh in 2008-09, according to RBI data, even as the number of such fake notes at RBI's vault has declined to 45,235 notes from 52,620. In February, RBI had filed a FIR against nine state-run and private lenders, including some branches of State Bank of India, ICICI Bank, Oriental Bank of Commerce, Indian Overseas Bank, Vijaya Bank, Bank of India, Syndicate Bank and Allahabad Bank, for having fake currencies in their vaults. Fake notes worth 39,030 were deposited by these banks in denominations of 10, 50, 100, 500 and 1,000. RBI has already put in place a mechanism which processes notes of 100 and above denomination through machines confirming to RBI's standards, before issuing them over the counter through ATMs. But this has not improved the detection ratio from banks. "Despite the above measure and after rationalising the procedure of filing FIRs, the detection and subsequent reporting of counterfeit bank notes by banks continue to be inadequate," the central bank said. This has serious repercussions as RBI is unable to assess the number of counterfeit notes in circulation and its ramifications for the economy.

RBI tightens norms for bank lending to gold finance cos

MUMBAI: Concerned over spurt in gold imports, RBI today asked banks to reduce exposure to NBFCs giving loan against the precious metal and has set up a working group to suggest ways to deal with the issue. The Reserve Bank, in Annual Monetary Policy Statement, has

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also asked banks to set up internal exposure limits for those non-banking financial companies (NBFCs) who have gold loans portfolio of more than 50 per cent of the total financial assets. "Banks should reduce their regulatory exposure ceiling in a single NBFC, having gold loans to the extent of 50 per cent or more of its total financial assets, from the existing 10 per cent to 7.5 per cent of bank's capital funds," RBI Governor D Subbarao said. He further said that banks should have an internal sub- limit on their aggregate exposure to all such NBFCs. The Working Group, headed by K U B Rao (a senior RBI official), will conduct a detailed study of the issues connected with rising gold import and loans. The group will submit its report by July-end. Among other things, it will examine the current practices of NBFCs involved in lending against gold and also whether it is influencing price of precious metal. RBI, Subbarao said, has been receiving complaints against some NBFCs which are not following the guidelines while giving loans against gold. Concerned over the spurt in gold imports and loan against precious metal, RBI had earlier tightened the prudential norms to check excessive lending by NBFCs. India's gold and silver imports during first 11 months of the current fiscal stood at $54.5 billion. It had imported gold worth $40.5 billion and silver worth $1.9 billion in the last fiscal.

Lower transaction costs on ATMs to help PSBs save 3k Cr. per year

NEW DELHI: State-run banks may get to save about 3,000 Cr. a year as the transaction rate for ATMs has nearly halved. This follows the finance ministry's directive to the banks to share the new ATMs that they set up under the 'lead bank' arrangement. The government is set to roll out a similar arrangement for business correspondents across the nation as well, allowing a single bank to bid for the entire district. The government, which had invited bids for the 5,000 ATMs across Maharashtra, has been able to reduce cost of a transaction for on-site ATMs to 8.30, from as much as 16 for small banks, a finance ministry official said. "We are also expecting revenue from advertising at the ATMs, which will help recover 20%-30% of the cost," the official added. An ATM is viable only when it clocks an average of about 150 transactions per day. State-run banks owned 41.5% of the 60,153 ATMs across the country at the end of last March, government data shows. The ministry expects the bid price to go down further. "The cost will reduce by another 30% if there are 200 transactions at a particular ATM," the official said. As part of its measures to cut down the fixed costs of banks, the ministry had recently asked the public sector banks to provide details of all branches that have not made profit for the past two fiscals. Citigroup shareholders reject Pandit's $15-mn pay package

Citigroup Inc shareholders have rejected its executive pay plan, a first among the six largest US banks, amid criticism it lets Chief Executive Officer Vikram Pandit collect millions of dollars in rewards too easily. About 45 per cent of the votes favoured the plan, which Citigroup had said will attract and retain top talent, according to a preliminary tally at the New York-based firm’s annual meeting in Dallas yesterday. While the vote isn’t binding, outgoing Chairman Richard Parsons said changes will be made. “That’s a serious matter,” Parsons said during his final Citigroup shareholders’ meeting as chairman. The board will seek a more quantitative, formula-based method for setting top executives’ pay, he said in a subsequent interview. “We’re going to have some more conversation with our shareholders, make sure we understand their concerns and then fix it,” he said.

How to redress your banking grievances

Around 24% of complaints received by the Banking Ombudsman offices are about disputes related to plastic money. According to the Annual Banking Ombudsman Report 2010-11, the typical complaints include excessive charges, non-dispensation of money from ATMs, unsolicited credit cards, mis-sold insurance policies, settlement offers conveyed over the

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phone and wrong debits. Even at ET, a sizeable number of readers' queries are related to ATMs, credit and debit cards.

Disputes over wrong billing: It is very important that you go through your credit card/bank account statements carefully every month. If you find any wrong entry, bring it to the card issuer's notice immediately. Typically, such bills state that the details will be considered correct unless the cardholder points out the discrepancies within 30 days. After all, you cannot wish away the dispute by avoiding the payment. If you do that, the interest and other penal charges will keep mounting, inflating your original outstanding amount. Touch base with the company the moment you find any discrepancy, and if you do not receive a satisfactory response, write to the grievance redressal officer, with the nodal officer as the final stop at the card-issuer level. "If the bank is unable to provide a solution within 15 days, you can take your grievance to the Banking Ombudsman for a resolution," says Madan Mohan, chief counselor with the ICICI Bank-supported Disha Financial Counselling. Unsolicited cards:The Banking Ombudsman report mentions a complaint where a senior citizen was upgraded to a 'platinum' card. The card holder had requested for the literature to examine the offer, and the bank sent the platinum card along with it. Later, he was billed an amount of 5,510.83, presumably the joining fee. Since he did not need the card, he requested the bank to cancel the same. However, the bank continued to demand the outstanding on the platinum card. After the Banking Ombudsman stepped in, the bank reversed the card fee as well as other associate financial charges in addition to converting the platinum card into a lifetime-free card and confirmed NIL outstanding on the card.

PFC raises Rs 3440 Cr. with 3-yr and 5-yr bonds

MUMBAI: Power Finance Corporation (PFC) today raised Rs 3440 Cr. through a combination of three year and a five-year bond. The issue was fully subscribed within an hour of opening. The company offered a coupon of 9.46% on the three year paper while the five year paper which had a put and a call option at the end of two years, the company offered 9.52%. The money was raised through private placement of bonds which was mainly subscribed by banks. Money market dealers said that the company had initially proposed to raise bonds with a combination of four instruments of varying maturities- two year, three year, five year and seven year. However on getting a positive response for the three year and five year paper, it scrapped the proposed of issuing two year and seven year paper. "The demand is high for government backed papers since there aren't many well rated corporates in the bond market," said a dealer on PFC issue. PFC is a specialised developmental financial institution set up by government in 1986 with the objective to fund projects in domestic power sector

Banks can be liable for loss of dishonoured cheques

When a cheque is dishonoured, the payee can take legal action against the drawer under the Negotiable Instruments Act. The complainant needs to produce the dishonoured cheque and the bank advice as evidence. But, what if the dishonoured cheque is lost by the bank? Here’s a case of ICICI Bank v/s Shri Sonnegowda & Ors in revision petition No. 649 of 2012, decided on April 16, 2012. Sonnegowda had received a cheque of Rs 2 lakh from Siva Sankar, drawn on ICICI Bank. This cheque was deposited by Sonnegowda in his Pragathi Gramin Bank account, which sent it for collection to ICICI Bank. The cheque bounced due to insufficient funds. Sonnegowda wanted to institute a criminal complaint against Siva Sanker under Section 138 of the Negotiable Instruments Act, but was unable to do so, as the bank did not return the dishonoured cheque with the memo of dishonour. As both banks avoided giving proper information, Sonnegowda filed a consumer complaint in the District Forum. Pragathi Gramin Bank filed its reply, admitting all the facts. However, it disputed any liability,

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claiming it was helpless as ICICI Bank had not returned the cheque. ICICI Bank tried to escape its negligence by claiming Sonnegowda was not its customer and there was no privity of contract. As no services had been rendered by ICICI Bank to Sonnegowda, a consumer complaint would not be maintainable. The Forum held ICICI Bank liable to return the cheque to Sonnegowda. In case it was unable to do so, said it is liable to pay Rs 2 lakh, with an interest at 12 per cent per annum, plus compensation of Rs 25,000 and cost of Rs 5,000. ICICI Bank’s appeal against this order was dismissed by the Karnataka State Commission. ICICI Bank finally approached the National Commission through a revision petition. The bank reiterated its stand. It claimed it could not be held liable for the value of a cheque dishonoured due to insufficient funds. The National Commission observed it was an undisputed fact that Sonnegowda neither received the value of the cheque or the bounced cheque. He had been prevented from taking legal action against the drawer of the cheque, as the bank did not return the dishonoured cheque. Thus, Sonnegowda had been put to loss though he was not at fault. The liability would lie on the party responsible for losing the cheque.

As a last effort, ICICI Bank tried to blame its own advocate for not conducting the matter properly before the District Forum, and requested the case be remanded back to the Forum for fresh adjudication. Rejecting this plea, it was held the bank could take legal action against its advocate, but Sonnegowda could not be made to suffer due to this. The National Commission observed the Forum had given an opportunity to the bank to return the cheque with the memo of dishonour within 30 days. It held the bank was liable to pay Rs 2 lakh only in case of default. Hence, the order was fair and could not be faulted. With this observation, the National Commission refused to admit ICICI Bank’s revision petition. While dismissing the petition, the Commission observed that the concurrent findings of the District Forum and the State Commission were proper. Also, filing a revision petition wasn’t justified, as there was no jurisdictional or legal error in the orders passed. The Commission asked the bank to pay Rs 10,000 to the legal aid in four weeks, and a nine per cent interest in case of delay in payment.

Banking sector upbeat despite reports of lay-off

BANGALORE: Despite speculations of banking major HSBC cutting jobs in India, hiring in banking sector remains upbeat. "It is not a trend and all banks are hiring. The only time hiring stopped was 18 months post sub-prime crisis in the US, not now," says Kunal Banerji, CEO of executive search firm Absolute HR International. The Pune-based executive search firm has 5 banking majors in its client out of which 3 are multinational corporates. Reports in media said that HSBC is expected to cut 300 jobs in India as part of its global strategy to reduce workforce. However E. Balaji, CEO of staffing form Ma Foi Randstad said there is nothing to be concerned about. The Bangalore-based company provides permanent and temporary staffing to banks. "Some banks have posted good results so it is not a sector problem," the CEO added. However salary increments for the is expected to see a dip. A study by consultancy firm Aon Hewitt said that financial institutions 'plagued by various regulatory hurdles, policy issues and the slowdown in the global economy' will see a salary raise of 10% in 2012.

RATE CUTS THIS WEEK

Bank of Maharashtra trims lending rates

Bank of Maharashtra (BoM) has decided to reduce its base rate to 10.5 per cent from 1 May. The interest rates on loans that are linked to base rate will be reduced by 0.10 per cent and the rate cut will benefit existing and prospective home loan borrowers, auto loan borrowers, micro, small and medium enterprises (MSME) and all other categories of borrowers.

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Following the slash in the base rate, the bank on Thursday released its new floating interest rate structure. As per the revised interest rate structure, the loan taken for the tenure up to and inclusive of 5 years up to Rs 25 lakh can be availed at the base rate of 10.5 per cent. The loan amounting to Rs 25 lakh to 30 lakh taken for the same tenure will also come at the same interest rate, while as the amount exceeding Rs 30 lakh but less than Rs 75 lakh can be availed at the interest rate which is 0.5 per cent more than the new base rate and that of Rs 75 lakh and above will come at an interest rate which would be 0.75 per cent more than the new base rate. The loan taken for the tenure above 5-years and up to and inclusive of 10 years and amounting to Rs 25 lakh will come at 0.2 per cent more rate than the base rate, while as the loan between Rs 25 lakh to 30 lakh will come at a rate which will be 0.25 percent more than the base rate. The loan exceeding Rs 30 lakh but less than Rs 75 lakh will come at 1 per cent more interest rate than the base rate while as the loan amounting to Rs 75 lakh and above will come at a rate which is 1.25 per cent more than the base rate. The loan with the tenure of more than 10 years, but below and inclusive of 20 years will come at the rate which is 0.3 and 0.5 per cent more than the base rate for up to Rs 25 lakh and that between Rs 25 lakh to Rs 30 lakh. The loan amount exceeding Rs 30 lakh, but less than Rs 75 lakh will come at a rate more than 1.25 per cent of the base rate, while Rs 75 lakh and above will come at 1.5 per cent more than the base rate.

SBI to cut interest rates on loans that have high interest rates

MUMBAI: State Bank of India, the country's largest lender, will cut lending rates on loans that have high interest rates, Chairman Pratip Chaudhuri said on Tuesday. Chaudhuri said, "Lending rates will be cut across segments, first will be SME loans." The SBI Chairman highlighted that retail loans and agricultural credit will drive loan offtake. Chanda Kochhar of ICICI Bank said, "RBI's cut in repo rate will lead to lower EMIs for borrowers." Meanwhile, HDFC Bank said that if deposits grow by 2-3% then rates will head lower. The reduced cost of borrowing is expected to be passed on partially by banks to borrowers in the form of lower interest rate on loans. Base rate of banks vary from 10 per cent to 12 per cent, while home loan rates are between 10.75 per cent and 14 per cent. Auto loans range from 12 per cent to 15 per cent. Realty firms too hailed the RBI's decision to cut short-term lending rate saying the move would reduce the cost of funds to home buyers as well as developers and boost property demand. The country's largest realty firm DLF welcomed the decision, saying it would significantly improve the cash flows of developers.

ICICI Bank, PNB cut lending rates by 25 bps after RBI rate cut

MUMBAI: Country's largest private bank - ICICI Bank - and the second largest state run bank- Punjab National Bank - lowered their lending and deposit rates taking a cue from the cut in policy rate by the Reserve Bank of India (RBI). The reduction in lending rate or base rate - the minimum rate at which it lends - will result in a lower home loans, education and auto loans rates for existing and new customers since these loans are given at a mark-up to base rate. ICICI Bank revised its base rate by 25 basis points to 9.75% while Punjab National Bank cut base rate by 25 bps to 10.50%. IDBI Bank was the first bank to lower lending rates to 10.50% yesterday after the RBI cut the repo rate by 50 bps on Tuesday signaling a lower interest rate regime. However, most bank will watch for the stand that country's largest bank - State Bank of India - takes on the lending rates. SBI's base rate is pegged at 10%. The move to lower rates in case of most public sector banks is also prompted by a dictate from the finance ministry asking banks to lower lending rates following a policy rate cut by RBI. Commenting on the cut in rates, Chanda Kochhar, MD & CEO said, "With the easing of systemic liquidity, we have already seen some correction in wholesale deposit rates. We expect the cost of funds to gradually come down and this reduction in the lending rates is a proactive move by us to pass on the benefit to our valued customers."

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ICICI Bank revised rates would be with effect from April 23 while PNB has said that its revised rates would come into effect from May 1, 2012.

Punjab National Bank cuts lending rate by 0.25 pc (REPEAT NEWS FOR PNB)

NEW DELHI: Country's second largest public sector bank PNB today announced cut in lending rate by 0.25 per cent, a move that will make housing and corporate loans cheaper. "The bank has decided to decrease the base rate by 25 basis points from 10.75 per cent to 10.50 per cent," Punjab National Bank said in a statement. The base rate is the minimum interest rate below which banks can't lend. With the reduction in rates, likely to be followed by other lenders, housing and corporate loans would become cheaper by at least 0.25 per cent. Besides, PNB has also decided to slash interest rate on term deposits of less than Rs 1 Cr. by 0.25-0.50 percent in select buckets. The new rates will be effective from May 1, the bank said. The decision comes barely two days after the RBI reduced the short-term lending (repo) rate by 0.5 per cent to 8 per cent in its monetary policy on Apri 17.IDBI Bank had announced cut its lending and deposit rates yesterday.

IDBI Bank cuts lending and deposit rates by 25 basis points

MUMBAI: IDBI Bank on Wednesday cut its lending and deposit rates by 25 basis points, making it the first lender to lower rates barely 24 hours after the Reserve Bank of India lowered its policy lending rate. The state-run lender cut its Base Rate, or minimum lending rate, to 10.50%, effective from April 20. This is lower than 10.75% base rate of Punjab National Bank, Bank of India, Bank of Baroda and Canara Bank. However, it is little higher than the base rate of 10% of State Bank of India. IDBI Bank's move follows a diktat from the finance ministry that banks should consider a reduction in lending rates to all productive sectors in response to the RBI's rate cut. Finance Secretary D. K. Mittal told several bank chiefs informally to cut lending rates even before the RBI lowered repo rate by a higher-than-expected 50 bps to 8% at its annual monetary policy review. On Tuesday, hours after the banking regulator announced a rate cut, chiefs of the three largest banks - SBI, HDFC Bank, and ICICI Bank - said they would lower lending rates only after cost of funds comes down. Canara Bank CMD S Raman told ET that cost of resources will have to decline for any cut in lending rates. "We are examining our resources portfolio. Our decision will also factor in the rates offered by competing instruments and competition from our peers."

SBT cuts deposit rates, eyes lending side too

State Bank of Travancore (SBT) has revised downwards the interest rates for domestic/NRO (non-resident ordinary) term deposits across various maturities. This is a prelude to cutting down lending rates ‘as early as in next 15 days,' a top official told Press on Wednesday. “Basically, we have been just lucky to find that our liquidity is quite comfortable to venture out in this manner,” the official said. The surprise cut in repo was a bonus. The bank has chosen to ‘go the distance' when others are only talking about a deposit rate cut. The base rate too will be reviewed very soon. “The only thing here is that we need to comply with RBI prescriptions to zero in on cost of funds. It will take slightly longer.” Meanwhile, the rate applicable for the 15 to 45-day bucket alone has been spared from any downward revision of deposit rates announced by the bank. For 46-90 days, the deposit rate is 7 per cent (8.50 earlier); 91-179 days, 7 per cent (8.50); 180 days to less than one year, 8 per cent (8.75); one year to less than two years, 9 per cent (9.50); 500 days, 9 per cent (9.50); two years to less than three years, 9 per cent (9.50); 1000 days, 9 per cent (9.50). The revised rates are effective from Thursday, an official spokesman said earlier in the day. The new deposit rates are applicable to all domestic/NRO term deposits of less than Rs 1 Cr. only.

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Oriental Bank of Commerce may cut interest rates further

The Oriental Bank of Commerce (OBC) is likely to go in for a simultaneous cut in deposit and lending rates following the 50 basis points cut in the repo rate on Tuesday, its Chairman and Managing Director, Mr. S. L. Bansal, has said. Only last week, ahead of the Reserve Bank of India's credit policy, OBC had gone in for some reduction in base rate and deposit rates in certain maturities. The base rate was reduced by 10 basis points to 10.65 per cent. “I am assuring you that our interest rates will further come downS.When? You will have to wait,” Mr. Bansal told Press here on Wednesday, a day after the RBI policy announcement. Terming the RBI's move to cut repo rate by 50 basis points as a “bold decision”, he said it “surprised” him. Mr. Bansal said that the focus of the bank this year would be to improve the retail business. As part of this effort, OBC is opening more retail-focused branches. At present, it has a network of 1,750 branches and 1,250 ATMs. Mr. S. C. Sinha, Executive Director, later indicated that the quantum of reduction in deposit and advance rates could be between 25 and 50 basis points. “It would certainly be not less than 25 basis points”. Meanwhile, Mr. Bansal said that the bank would in 2012-13 aim at a net interest margin of 3 per cent. Several public sector banks, including OBC, had faced some stress on their balance-sheets in 2011-12, primarily due to the slowdown in the economy. For 2012-13, OBC will target a deposit growth of 19 per cent and advances growth of 17 per cent, Mr. Bansal said. The growth rates in deposits (including bulk deposits) and advance in 2011-12 was 24 per cent and 19 per cent, respectively.

LVB to cut domestic term deposit rates

Lakshmi Vilas Bank has decided to effect a downward revision of 25 to 50 basis points in its domestic term deposit rates across various time slabs. The revised rates would be with effect from April 20. The bank has retained the rates at the existing levels for tenure up to 270 days. On deposits with a maturity period of 271 and 364 days, the bank has reduced the rate by 25 bps to 8.25 per cent. On 1-2 year deposits, the rate reduction is higher at 50 bps to 10 per cent. For the remaining three time buckets (2 to 3 years, 3 to 5 and beyond 5 years), the 25 bps cut is expected to impact only senior citizens. Senior citizens, who were hitherto getting 10.5 per cent on the 2-3 years term deposit, would get 10.25 per cent; deposits in the 3-5 year time bucket would earn 10 per cent and those beyond 5 years, 9.5 per cent.

WORKING RESULTS THIS WEEK

State Bank of Patiala business touches Rs 1,43,300 Cr. mark

The aggregate business of State Bank of Patiala has reached Rs 1,43,300 Cr. mark as business grew by over 19 per cent during 2011-12. The bank plans to open 70 new branches during 2012-13 of which 20 would be in Punjab and 10 each in Haryana and Himachal Pradesh and rest across the country. Last year the bank opened 51 new branches and now has a network of 1055 branches spread over 20 States and Union Territories. A. K. Basu, acting Managing Director, State Bank of Patiala releasing financial results told media persons here today that while total business had shown 19 per cent growth, the deposits recorded a growth of 17 per cent over last year. The personal segment accounted for a 24 per cent growth year on year basis. The gross credit posted a growth of over 23 per cent to cross the Rs 64000 Cr. mark. Basu said that “these growth rates are likely to be among the highest in the banking industry”. The net profit had risen by `Rs 143 Cr. to touch a level of `Rs 796 Cr. The higher volumes and better profits have resulted in a higher average business per employee of Rs 9.34 Cr. as against Rs 8.86 Cr. during the previous year and also higher net profit per employee of Rs 5.87 lakh as against Rs 5.20 lakh during the

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previous year. The capital adequacy ratio stood at 12.30 per cent as against a regulatory minimum of 9 per cent. About bank’s roadmap for the current fiscal, Basu said that focus would be on a mix of corporate, retail and personal banking. He claimed that bank’s car loans are the most competitively priced among all commercial banks and in housing loans the pricing is among the best in the industry. Inclusive growth is a major priority for the Bank. He said that recent initiative taken by the Bank towards fuller customer satisfaction include insurance linked Savings Bank accounts where free accidental death insurance of up to Rs 5.00 lakhs is available to the depositor. IndusInd Bank's Q4 net profit up 30%

IndusInd Bank on Thursday said its net profit for the quarter ended March 31 expanded 30 per cent to Rs 223 Cr. from Rs 172 Cr. a year ago, driven by higher fee income and rise in interest income from advances. The private sector lender’s net profit grew 39 per cent to Rs 803 Cr. during financial year 2011-12 (April-March). Net interest income, or the difference between interest income and interest expense, was Rs 464 Cr. during the quarter, up 20 per cent year-on-year. Net interest margin, however, narrowed 21 basis points from a year ago to 3.29 per cent in January-March, due to an increase in cost of deposits. Fee income surged 60 per cent during the three months to Rs 264 Cr. “The financial year 2011-12 has been a year of challenges — against a backdrop of weak global and a sluggish domestic market...We continue to emphasise on scale with profitability. Our branch expansion plan is on track and we will have 650-700 branches by 2014,” Romesh Sobti, managing director and chief executive, said in his post-earnings comments. The bank’s asset quality remained stable during the quarter. The gross non-performing asset ratio and the net non-performing asset ratio were 0.98 per cent and 0.27 per cent, respectively. The provision coverage ratio was at 72.7 per cent as of March-end. Advances during the year expanded 34 per cent to Rs 35,064 Cr. while deposits grew 23 per cent to Rs 42,362 Cr. The share of low-cost current account savings account deposits was 27.3 per cent of total deposits. The bank closed the year with a capital adequacy ratio of 13.85 per cent.

HDFC Bank Q4 net up 30%

HDFC Bank, the second-largest private sector lender in the country, on Wednesday said its net profit for the quarter ended March 31 expanded 30.4 per cent to Rs 1,453 Cr. from Rs 1,115 Cr. a year earlier. Lower provisions, higher fee income, and growth in interest income from advances aided the bank's earnings during the quarter. The lender’s net profit grew 31.6 per cent to Rs 5,167 Cr. during the financial year 2011-12 (April-March). Net interest income, or the difference between interest income and interest expense, was at Rs 3,388 Cr. during the quarter, up 19.3 per cent from a year ago. Net interest margin improved by 10 basis points sequentially but remained flat on a year-on-year basis at 4.2 per cent. “Going forward, we expect our margin to stay in the narrow range of 3.9-4.2 per cent,” Paresh Sukthankar, executive director at HDFC Bank, said in his post-earnings comments. The bank’s other income grew 18.8 per cent year-on-year driven by higher income from fees and commissions. Fee income was up 23.7 per cent aided by growth in transaction banking, cash management, trade, and merchant banking operations.

RBI THIS WEEK

Monetary Policy Statement 2012-13 (Complete test consisting of all 133 points on web site of RBI)

(Only introduction taken in this issue)

By Dr. D. Subbarao Governor

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Introduction

This Annual Policy for 2012-13 is set in a challenging macroeconomic environment. At the global level, concerns about a crisis have abated somewhat since the Third Quarter Review (TQR) in January 2012. The US economy continues to show signs of modest recovery. Large scale liquidity infusions by the European Central Bank (ECB) have significantly reduced stress in the global financial markets. However, recent developments, for example in Spain, indicate that the euro area sovereign debt problem will continue to weigh on the global economy. Growth risks have emerged in emerging and developing economies (EDEs). And, amidst all these, crude oil prices have risen by about 10 per cent since January and show signs of persisting at current levels.2. Domestically, the state of the economy is a matter of growing concern. Though inflation has moderated in recent months, it remains sticky and above the tolerance level, even as growth has slowed. Significantly, these trends are occurring in a situation in which concerns over the fiscal deficit, the current account deficit and deteriorating asset quality loom large. In this context, the challenge for monetary policy is to maintain its vigil on controlling inflation while being sensitive to risks to growth and other vulnerabilities.3. In the above context, this Statement should be read and understood together with the detailed review in Macroeconomic and Monetary Developments released yesterday by the Reserve Bank. 4. This Statement is organised in two parts. Part A covers Monetary Policy and is divided into four Sections: Section I provides an overview of global and domestic macroeconomic developments; Section II sets out the outlook and projections for domestic growth, inflation and monetary aggregates; Section III explains the stance of monetary policy; and Section IV specifies the monetary and liquidity measures. Part B covers developmental and regulatory policies and is organised into five sections: Financial Stability (Section I), Financial Markets (Section II), Credit Delivery and Financial Inclusion (Section III), Regulatory and Supervisory Measures for Commercial Banks (Section IV) and Institutional Developments (Section V).

RBI Working Paper Series : Asset Pricing Model for Inefficient Markets : Empirical Evidence from Indian Market

The Reserve Bank of India today placed on its website a Working Paper for the month of April 2012 titled “Asset Pricing Model for Inefficient Markets: empirical evidence from the Indian market”. The Working Paper has been written by Dr. Debasish Majumder. The paper provides a direction for incorporating market sentiments in the domain of standard models of asset pricing. The market sentiment is unobservable. However, it can be defined as the stationary departure of the market return from its fair value. This part of the market return is explained by the exuberance or pessimism by investors to certain information. Any autocorrelation that is observed in the market return might be the result of possible bullish/bearish responses by investors to market information. Often, Indian equity market returns are serially correlated for at least one lag. Unfortunately, ‘mispricing’ might be a common outcome of application of any familiar asset pricing models for these markets because these models ignore the qualitative aspects of human decision-making. To widen the applicability of these models ranging from an efficient to an inefficient market, the author proposed a transformation through which the original market would be transformed to a hypothetical market which is relatively efficient. The empirical study for Indian markets reveals that hypothetical market returns are, in general, not serially dependent and so meet the prerequisites of applying a standard asset-pricing model. Any conventional bond or stock pricing model could, therefore, be efficiently manipulated for those returns. The model is applicable for a ‘less than’ efficient market and, therefore, may be a useful addition in investors’ toolkits.

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Standing Liquidity Facilities for Banks and Primary Dealers

Please refer to the Monetary Policy Statement 2012-13 dated April 17, 2012, in terms of which the repo rate under the Liquidity Adjustment Facility (LAF) has been reduced by 50 basis points from 8.50 per cent to 8.00 per cent with immediate effect. 2. Accordingly, the Standing Liquidity Facilities provided to banks (export credit refinance) and Primary Dealers ( PDs) (collateralised liquidity support) from the Reserve Bank would be available at the revised repo rate, i.e., at 8.00 per cent with effect from April 17, 2012.

Know your Customer (KYC) Guidelines - Accounts of Proprietary Concerns

Please refer to our circulars DBOD. AML BC. No. 80/14.01.001/2009-10 dated March 26, 2010 and DBOD. AML.BC. No. 38 /14.01.001/2010 -11 dated August 31, 2010 regarding customer identification procedure for opening accounts of proprietary concerns. 2. On a review, it has been decided to include the following documents in the indicative list of required documents for opening accounts of proprietary concern:

i. The complete Income Tax return (not just the acknowledgement) in the name of the sole proprietor where the firm's income is reflected, duly authenticated/ acknowledged by the Income Tax Authorities.

ii. Utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern.

Section 24 of the Banking Regulation Act, 1949 – Maintenance of Statutory Liquidity Ratio (SLR) – Marginal Standing Facility (MSF)

Please refer to our circular DBOD.No.Ret.BC.No.92/12.02.001/2010-11 dated May 09, 2011 wherein it was advised that Scheduled Commercial Banks (SCBs) may borrow overnight up to 1 per cent of their respective Net Demand and Time Liabilities (NDTL) under the Marginal Standing Facility (MSF) Scheme. 2. As announced in the Reserve Bank of India's Annual Monetary Policy Statement 2012-13 on April 17, 2012, in order to provide greater liquidity cushion, it has been decided to raise the borrowing limit of SCBs under the MSF from 1 per cent to 2 per cent of their NDTL outstanding at the end of the second preceding fortnight with immediate effect. 3. Banks can continue to access overnight funds under the MSF against their excess SLR holding as advised in our circular FMD.No.65/01.18.001/11-12 dated December 21, 2011. 4. A copy of the relative notification DBOD No. Ret. BC.94 /12.02.001/2011-12 dated April 17, 2012 is enclosed.

Ref. DBOD. No.Ret.BC.94/12.02.001/2011-12

April 17, 2012

NOTIFICATION

In exercise of the powers conferred by sub-section (2A) of Section 24 of the Banking Regulation Act, 1949 (10 of 1949) as amended from time to time the Reserve Bank of India hereby notifies that para 2(ii) of the earlier Notification DBOD.No.Ret.BC.91/ 12.02.001/2010-11 dated May 09, 2011, stands modified as under: “Securities offered as collateral to the Reserve Bank of India for availing liquidity assistance from Marginal Standing Facility (MSF) up to two per cent of the total net demand and time liabilities in India carved out of the required SLR portfolio of the bank concerned”.

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ECS (Debit) mandate management procedure by the banks – adherence to Procedural Guidelines

Electronic Clearing Service (ECS), introduced by Reserve Bank of India in 1994 is now being widely used across many centres in the country for making and receiving bulk payments. The ECS (Debit) system was introduced with the objective of providing an alternative method for effecting payment transactions electronically in respect of the utility bill payments, insurance premia, card payments, loan repayments, etc., which would obviate the need for issuing and handling paper instruments such as cheques. This would also facilitate improved customer service by banks / companies / corporations / government departments, etc. that are collecting / receiving the payments. The ECS (Debit) Procedural Guidelines prescribes the procedure to be followed by the different stake holders in the process. The ECS (Debit) system works on the strength of the mandates given by the destination account holders to the User institution for effecting payment from their accounts. The destination bank branches can debit their customers’ account only on the basis of the mandates executed by them and the amount, time-limit, frequency etc. prescribed therein. Further, the account holder / customer is also entitled to withdraw the mandate / ECS Debit instructions from his / her bank without involvement of the User institution. The above safeguards have been put in place to ensure the smooth functioning of the system and also protect the interest of the customers. However, it is observed that the banks are not adhering to these instructions to the desired extent, thereby resulting in unsatisfactory customer service. In particular, it is found that banks are not accepting the withdrawal instructions from the customers as provided for under the guidelines. Accordingly, the banks are once again advised to adhere to the following instructions in the matter:

1. All the debit mandates executed by the customers authorizing debit in their accounts should be authenticated and stored by the destination banks. Any debit to customers’ accounts will be raised only on the basis of a valid mandate. If such mandates are not available on their record, banks are not authorised to effect such debits to the customers’ accounts.

2. The account holder may also be given the facility of putting an upper limit for each individual transaction in the mandate, and / or a time limit for operation of a particular ECS mandate (life of a mandate) by the end user / destination banker. The debit to a customer’s account has to be within this amount and time limits prescribed by the customer.

3. Any instructions on withdrawal of mandate by the customer will be accepted by the destination banks without necessitating the customer to obtain the prior concurrence / approval for withdrawal from the beneficiary user institution and will be treated equal to a “Stop Payment” instruction in the cheque clearing system. After receipt of such instructions for mandate withdrawal, no debit in the account will be permitted. In view of the possibility of multiple mandates in one account, the banks should be careful to record the withdrawal of the correct mandate.

Printing of MICR Code and IFSC Code on Passbook/Statement of Account

As you are aware, the MICR code is necessary for all Electronic Clearing Service (ECS – Credit and Debit) transactions. Similarly, the IFSC code is a pre-requisite for NEFT and RTGS transactions. 2. Currently, the MICR code is available on the cheque leaf along with the IFSC code of the branch. On a review it has been decided that this information should also be made available in the passbook / statement of account of the account holders. 3. Banks are accordingly advised to take necessary steps to provide this information as indicated above in all passbook / statement of account to their account holders. 4. Please acknowledge receipt and furnish an action taken report within 15 days of receipt of the circular.

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IMF THIS WEEK

India to seek quota reforms at IMF

Issues related to global economy and international financial architecture are expected to be the focus of Finance Minister Pranab Mukherjee during his 4-day visit here starting today to attend the annual spring meeting of the International Monetary Fund and World Bank. Mukherjee has a hectic schedule which includes not only attending the meetings of the IMF and the World Bank, but also those of other important groupings such as G-20, G-24 and Brics, besides holding a series of bilateral meetings. “During these meetings, the Finance Minister would be highlighting issues related to global economy, international financial architecture and cooperation on issues related to international taxation, besides expedition of action on setting up of Brics new developmental bank,” an official said ahead of the meeting. At the IMF, India is expected to link announcement of additional resources to the IMF to the implementation of 2012 quota reform, officials said. Mukherjee is expected to kick-off his official meetings here with bilateral with the South Korean Finance Minister and the US Treasury Secretary Timothy Geithner on Thursday. The same day he is scheduled to attend the Finance Ministers meetings of Brics (Brazil, Russia, India, China and South Africa) countries. Besides, he would chair a meeting of the G-24 countries. Later, Mukherjee will speak on “Global Economy and Framework” in the first session of G-20 Finance Ministers and Central Bank Governors’ meeting. India and Canada are currently co-chairing the working group on global framework.

IMF welcomes $34 bn in new pledges

WASHINGTON: IMF director Christine Lagarde has welcomed pledges from Switzerland, Poland and other countries to provide some $34 billion in additional funding for the world lender. Lagarde, in separate statements late Wednesday, singled out Switzerland and Poland for increasing their contributions, hailing their "enduring support for the spirit of multilateralism." "Ensuring the Fund has sufficient resources to tackle crises and to promote global economic stability is in the interests of all our members," she said. The IMF statement said "Switzerland and other countries" had pledged $26 billion of increased funding while Poland had agreed to provide $8 billion. "This brings to about $320 billion the commitments received so far. I am, (of) course, very encouraged by this strong demonstration of support for the Fund, and I look forward to further commitments from our broader membership." In a Frankfurt Allgemeine Zeitung interview published this week, Lagarde revealed that the International Monetary Fund is seeking some $400 billion for expanding its crisis intervention "firepower." That was sharply lower than the original target of $500 billion. Last week Lagarde said the Fund was lowering its target, citing a slight easing of financial tensions, both globally and in the eurozone. The largest contributions thus far have come from the eurozone, which has pledged some $200 billion, and Japan, which pledged $60 billion.

IMF raises global growth forecast for first time since early 2011

The International Monetary Fund (IMF) raised its global growth forecast for the first time in more than a year, with the US boosting the outlook while recent improvements remain “very fragile.” The world economy will expand 3.5 per cent this year, compared with a January projection of 3.3 per cent, the Washington-based IMF said on Tuesday in its World Economic Outlook. It sees growth of 4.1 per cent in 2013, up from four per cent. It raised its forecasts for the US to gains of 2.1 per cent this year and 2.4 per cent in 2013. The report reflects IMF’s view that the euro area, while still facing an economic downturn and the “hard to quantify” potential risk of a country’s default, has stabilised since last year. The euro area economy is projected to decline by 0.3 per cent this year, an improvement from the 0.5 per cent in IMF’s previous forecast. China is projected to grow 8.2 per cent and Japan two per

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cent this year. “For the last six months the world economy has been on what is best described as a roller-coaster,” IMF chief economist Olivier Blanchard said at a briefing in Washington on Tuesday. After European governments took measures to reassure markets, “an uneasy calm remains. One has the feeling that at any moment things could well get very bad again. ”The IMF last raised its quarterly projection for world growth in January 2011, when it increased the forecast to 4.4 per cent for that year from 4.2 per cent. IMF’s projections for the US are below the median forecasts of 2.3 per cent growth this year and 2.5 percent in 2013. “Improved activity in the United States during the second half of 2011 and better policies in the euro area in response to its deepening economic crisis have reduced the threat of a sharp global slowdown,” IMF said in a summary of the report. “Weak recovery will likely resume in the major advanced economies, and activity is expected to remain relatively solid in most emerging and developing economies. However, the recent improvements are very fragile.”

Poland commits $8 billion to IMF resources: Christine Lagarde

WASHINGTON: The head of the International Monetary Fund said on Wednesday Poland had committed $8 billion in additional financing resources to the global lender ahead of a meeting of finance chiefs in Washington over the weekend. "This is part of a concerted action among important creditors to ensure the Fund has sufficient resources to tackle the crisis and to promote global economic stability," IMF Managing Director Christine Lagarde said in a statement.

IMF suggests reforms, inflation check to resume India's high growth

The International Monetary Fund (IMF) has suggested reinvigoration of structural reforms, including development of infrastructure, fiscal consolidation and controlling of inflation to bring India's growth back to potential and ensure its inclusiveness. In the assessment of IMF Executive Board, which concluded 2012 Article IV Consultation with India last month, sound macroeconomic policies and fundamentals enabled India to weather well the global economic crisis. Nevertheless, economic growth has slowed below trend in the last year due to cyclical and structural factors, and while inflation has come down, it is still high. Some directors noted that it is difficult to attribute the current slowdown to structural factors. Downside risks prevail in light of the uncertain global environment, supply constraints and elevated funding costs. A major challenge will be to bring growth back to potential and ensure its inclusiveness, while further lowering inflation, IMF said, noting the directors underscored that this will require a reinvigoration of structural reforms and fiscal consolidation. Directors encouraged continued vigilance against inflation, IMF said. "They agreed that policy rates should be kept unchanged until inflation is clearly on a downward trend, given the uncertain outlook for growth." They encouraged the Reserve Bank of India to stand ready to raise policy rates if inflation starts to rise again, while it could consider cutting rates if the inflation momentum clearly eases. Stressing that fiscal consolidation is crucial to crowd in private investment and lower inflationary expectations, the IMF directors supported the planned reorientation of expenditure toward infrastructure and the social sectors, and highlighted the need to rationalise fuel and fertiliser subsidies and improve public expenditure management. They encouraged tax reform, especially the introduction of the goods and services tax.

Directors considered the flexible exchange rate regime to be an important buffer against external shocks, and supported the policy of intervening in the foreign exchange market only to contain volatility and to prevent disruptive movements. They welcomed the authorities' moves toward further trade and gradual capital account liberalisation. IMF directors also underscored the importance of structural reform to raise public and private investment and boost inclusive growth. Continuing to develop infrastructure, which in turn requires facilitating

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land acquisition and mining, would ensure that India's growth potential remains intact, they said.

IMF cuts India's growth forecast for 2012 to 6.9%

NEW DELHI: The International Monetary Fund (IMF) on Tuesday lowered India's growth forecast for 2012 to 6.9%, from 7% earlier, citing policy inertia and slower growth in the rest of the world. "In some economies, such as India, domestic factors also contributed to the slowdown, as a deterioration in business sentiment weakened investment and policy tightening raised borrowing costs," the IMF said in its latest World Economic Outlook. India is now expected to grow at a slower pace this calendar year than the 7.2% it clocked in 2011. The IMF, however, kept India's growth forecast for 2013 unchanged at 7.3%. The report said India needs to tighten more on the fiscal policy front as it has little room for maneuverability. "A number of economies in emerging Asia have room to make policy more supportive of economic activity (a notable exception is India), given favourable debt dynamics," the IMF said, adding that more tightening than currently projected appears necessary in India. The government recently projected a fiscal deficit of 5.1% of GDP for 2012-13. The report noted that there was need to tackle policy uncertainty and supply bottlenecks in the near term to ensure that potential growth does not decline. Potential growth is the maximal rate of growth a country can achieve without fanning inflationary pressures. The IMF said that further support from monetary authorities is limited as there is little room for further easing due to underlying inflationary pressures.

India needs to tighten fiscal policy: IMF

WASHINGTON: With the notable exception of India, a number of economies in emerging Asia have room to make policy more supportive of economic activity, given favourable debt dynamics, the International Monetary Fund (IMF) said Tuesday. Among G20 economies, more tightening than currently projected appears necessary in Argentina, India, Russia, and Turkey, it said in its half yearly World Economic Outlook (WEO) released ahead of this week's World Bank-IMF spring meetings. In a highly uncertain global environment, managing volatile capital inflows could be another policy challenge for many emerging market economies, the WEO said. Some economies have already started using macro prudential measures designed to manage capital inflows, such as taxes on certain inflows, minimum holding periods, and currency-specific requirements. For example, Brazil and India rolled back the level of such taxes and restrictions as capital flows slackened. Activity across Asia slowed during the last quarter of 2011, reflecting both external and domestic developments; the WEO said noting the effect of spillovers from Europe can be seen in the weakness of Asia's exports to that region. In some economies, such as India, domestic factors also contributed to the slowdown, as a deterioration in business sentiment weakened investment and policy tightening raised borrowing costs. Many Asian economies could advance their plans to boost social safety nets and increase investment in infrastructure if another round of fiscal stimulus is warranted, WEO said. However, fiscal consolidation remains a priority in India and Japan, to anchor confidence and rebuild room to meet future challenges.

INTERNATIONAL NEWS IN INDIAN CONTEXT

Jaimini Bhagwati: The opportunity cost of no BRICS bank

The fourth Brazil-Russia-India-China-South Africa (BRICS) summit took place in Delhi on March 29. Among the decisions announced, the following were aimed at enhancing trade and foreign investment:

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• an agreement to promote the use of national currencies in inter-member trade; • finance ministers of member nations to examine the feasibility of setting up a BRICS

development bank (BDB).

It is crucial to promote intra-BRICS trade, including in national currencies, since consumption in G7 countries – the foremost driver of international trade – has lost steam. However, this article is about the proposal to set up a BDB to fund infrastructure and development projects in BRICS and other developing countries. The coverage of the Delhi summit in the international media was limited; it was mainly about differences across BRICS countries and why it would be difficult for them to work together. An effective riposte would be to set up an efficient BDB promptly. The BRICS countries are members of the World Bank and also of regional banks such as the Inter-American Development Bank, African Development Bank, Asian Development Bank and the European Bank for Reconstruction and Development. According to some, the effort should be to improve existing multilateral banks rather than set up additional institutions. The principal flaw with this line of reasoning is that the World Bank and regional development banks were set up by G7 countries. And, as majority shareholders, they decide who heads these institutions. Also, their priorities determine lending to emerging economies, as well as the thrust of development studies.

The president of the World Bank was in New Delhi on April 2, 2012. While endorsing the BDB proposal, he implicitly said, “I am enough of an economist that I am not a monopolist.” Separately, in a letter to the Financial Times dated April 5, 2012, Mattia Romani, Nicholas Stern and Joseph Stiglitz expressed explicit support saying such a bank “could play a strong role in rebalancing the world economy by channeling hard-earned savings in emerging markets and developing countries to more productive uses than funding housing bubbles in rich countries”. Compared with the G7, BRICS countries have relatively low per capita income, although the dispersion within the group is considerable. Therefore, initially the BDB could confine its lending to the five BRICS governments and their public sector firms backed by sovereign guarantees. This would be similar to lending by the International Bank for Reconstruction and Development (IBRD), the dominant group within the World Bank, which only lends against central government guarantees. It could be argued that the BDB should lend less to BRICS and more to the least developed countries (LDCs). However, loans to LDCs would be much riskier.

Bank of America reports lower Q1 profit

Bank of America Corp on Thursday reported a drop in first-quarter profits as the second-largest U.S. bank took accounting charges related to its debt. Bank of America said net income was $653 million, or 3 cents a share, in the quarter, compared with $2.05 billion, or 17 cents per share, in the same period a year earlier.

Korean Woori Bank opens first India branch in Chennai

CHENNAI: Seoul-headquartered, South Korean Government-owned Woori Bank has opened its maiden India branch in Chennai with a capital of $35 million. Mr. Soon Woo Lee, president and CEO of the bank, told ET via a translator, "We will provide assistance to Korean companies that have entered the market ahead of us. Once that is done, we will focus on localisation, accommodating the needs of the India companies and customers." He said the bank was on the verge of starting operations in 2007 but had to put it off after the global financial crisis struck. Chennai houses more than 170 Korean companies, including big names such as Hyundai Motors, Lotte and Samsung. Apart from this, many local Indian vendors in Chennai are working together with Korean companies. The number of Koreans in Chennai has also doubled in the last three years. It has gone up to 4,000 from 1,500. A lot of

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Korean shops and restaurants have also emerged in and around Sriperumbudur, the industrial hub.

Banks grow despite Obama's bid to end too-big-to-fail idea

Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the credit crisis. Five banks — JPMorgan Chase (JPM), Bank of America, Citigroup, Wells Fargo and Goldman Sachs — held $8.5 trillion in assets at the end of 2011, equal to 56 per cent of the US economy, according to the Federal Reserve. Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 per cent of US output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did during the 2008 crunch.

“Market participants believe that nothing has changed, that too-big-to-fail is fully intact,” said Gary Stern, former president of the Federal Reserve Bank of Minneapolis. That spectre is eroding faith in Obama’s pledge that taxpayer-funded bailouts are a thing of the past. It is also exposing him to criticism from Federal Reserve officials, Republicans and Occupy Wall Street supporters, who see the concentration of bank power as a threat to economic stability. As weaker firms collapsed or were acquired, a handful of financial giants emerged from the crisis and have thrived. Since then, JPMorgan, Goldman Sachs and Wells Fargo have continued to swell thanks to internal growth and acquisitions from European banks shedding assets amid the euro crisis.

‘Few Massive Firms’: The industry’s evolution defies the president’s January 2010 call to “prevent the further consolidation of our financial system.” Embracing new limits on banks’ trading operations, Obama said then that taxpayers wouldn’t be well “served by a financial system that comprises just a few massive firms.” Simon Johnson, a former chief economist of the International Monetary Fund, blames a “lack of leadership at Treasury and the White House” for the failure to fulfill that promise. “It’d be safer to break them up,” he said. The Obama administration rejects the criticism, citing new safeguards to head off further turmoil in the banking system. Treasury Secretary Timothy Geithner says the U.S. “financial system is significantly stronger than it was before the crisis.” He credits a flurry of new regulations, including tougher capital and liquidity requirements that limit risk-taking by the biggest banks, authority to take over failing big institutions, and prohibitions on the largest banks acquiring competitors.

FirstRand bank enters into retail, commercial banking operations in India

MUMBAI: South Africa-based financial services group, FirstRand Bank today entered into retail and commercial banking operations in India with opening of a branch in the city. The bank has its presence in the country for last three years and deals in investment and corporate banking space. "We are excited to start retail and commercial banking in India, which represents the first new market outside of Africa for these operations. We see India as an exciting business opportunity and this expansion is key to our ling-term growth strategy," Chief Executive Officer of FirstRand Ltd, Sizwe Nxasana told reporters here. He also said that the branch would help in facilitating greater economic, trade and investment flows between two countries. The bank is also hopeful of introducing some of the technology based products in the country in the near future.

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JP Morgan bets on transaction banking in Africa; plans to add 50 new staff in Nigeria

JOHANNESBURG: JPMorgan Chase & Co is pushing transaction banking in Africa and plans to add 50 new staff in Nigeria over the next five years, as it targets growing demand for trade finance from African firms, its head for the region said on Thursday. John Coulter, JPMorgan's senior country officer for sub-Saharan Africa, also told the Reuters Africa Investment Summit the U.S. bank was aiming to roll out a full branch in Nigeria, with local currency capabilities, by the end of 2013. While some international lenders have attempted to crack the African market by pushing investment banking, Coulter said there was still limited demand for such services, given the emerging state of local capital markets. "A strategy that focuses on Africa from a pure investment banking perspective, for JPMorgan, is not the approach to follow. We have got the capital and the capability as a bank to extract more from an African wallet," he said in an interview at Reuters offices in Johannesburg. "A company in Kenya or a bank in Ghana needs trade finance lines, credit lines to help them grow their business, project finance, infrastructure support and the corresponding banking lines." As part of that focus, JP Morgan plans to expand its presence in Nigeria to 60 people over the next five years from 10 now, he said. The bank is also in discussions with the central banks in both Kenya and Ghana to open representative offices in those countries, he said.

Australia's l Australian bank Westpac to open branch in Mumbai

Leading bank Westpac today said it will open its first branch in India to increase commercial and wholesale banking business in the region after having received clearance from the Reserve Bank of India. Having operated a representative office in the country for the past five years, Westpac announced that it has received in-principle approval for a foreign banking licence to operate in India. The Indian licence allows the bank to now carry out rupee-denominated transactions. The bank's first branch in India will open in Mumbai, Group Executive, Westpac Institutional Bank, Rob Whitfield was quoted by local media reports here. "India is Australia's fifth largest trading partner and fourth largest export market so it is a very important market for our customers," Whitfield said in a statement. He said that extending presence in India through Mumbai branch will position the bank to support Australian customers with their trade and investment activities in India, and Indian customers with their increasing trade and investment flows with Australia. "It will also help deepen investment flows with one of our major strategic trading partners, particularly in the energy, natural resources and agribusiness sectors...," Whitfield said.

Tata Capital ties up with Japan's CTLC for equipment leasing business

MUMBAI: Tata Capital today said it has entered into a partnership with Japanese leasing business company Century Tokyo Leasing Corporation (CTLC) for collaboration in the equipment leasing business market. The Tata group company has signed a letter of intent with the Japanese firm and will benefit from the CTLC's strong technical know-how in the equipment leasing space, it said in a statement issued here. The company claimed the equipment leasing market is a Rs 20,000 Cr. opportunity expanding at up to 30 percent annually and is likely to benefit as the investments on infrastructure increase.

India signs taxation, consular agreements with the UAE

ABU DHABI: India and UAE today signed agreements to amend the double taxation avoidance treaty that will pave the way for greater sharing of tax related information between the two countries and also agreed to set up a joint committee to look after consular issues. The amendments to the treaty was signed during India-UAE Joint Commission meeting, presided over by External Affairs Minister S M Krishna and his UAE counterpart, Sheikh

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Abdullah bin Zayed Al Nahyan here. The meeting was preceded by one-on-one talks between the two ministers and followed by delegation-level talks. With the avoidance of double taxation treaty been amended, the article on exchange of information has been updated to bring it at par with internationally accepted standards. Now the banking information as well as any information without any domestic tax interest can be shared between the two countries. Addressing a joint press conference with Sheikh Abdullah following the meeting, Krishna said India and UAE have a productive and long lasting relationship. Calling energy security as a priority area, he said India looks forward to the UAE for meeting its growing energy requirements. He called for enhanced co-operation between the two countries in energy sector. At today's meeting, it was also decided that a Joint Committee will be also set up to look after consular relations.

WORLD BANK THIS WEEK

IFC invests $6.5 million in Bangalore-based Snowman Logistics

BANGALORE: IFC, a member of the World Bank Group, is providing USD 6.5 million to cold chain logistics solutions provider Snowman Logistics to support expansion of latter's division for efficient storage of farm products. IFC invested USD 5 million in the city-headquartered company in 2009 to expand efficient storage facilities across India. "The additional investment will support Snowman's capital needs during the company's strategic growth phase, helping it become more efficient and expand in existing and new locations in India", Snowman said in a statement. Snowman CEO Ravi Kannan said: "The current expansion will help Snowman to emerge as a market leader by taking advantage of current and potential growth in the retail and food sector in India. "IFC's investment in Snowman will help lower overall logistics costs and reduce wastage associated with Snowman's clients, most of which are in the agriculture and food sector," said Anita M George, IFC Director for Infrastructure in Asia. Snowman provides cold chain services for a variety of products, including, processed foods and pulps, sea foods, meat, ice creams, and dairy products. Snowman's temperature-controlled storage infrastructure is currently spread across 16 facilities in Mumbai, Chennai, Bangalore, Hyderabad, Kochi, Kolkata, Ludhiana and Visakhapatnam, the statement added.

India overtakes Japan to become third-largest economy in purchasing power parity

NEW DELHI: Its economy may be in the grips of a slowdown, its polity paralysed and markets morose, but all this hasn't prevented India from overtaking Japan to become the world's third-largest economy in purchasing power terms. Data just released by the International Monetary Fund (IMF) shows that India's gross domestic product in purchasing power parity (PPP) terms stood at $4.46 trillion in 2011, marginally higher than Japan's $4.44 trillion, making it the third-biggest economy after the United States and China. India's share in world GDP in terms of PPP, a measure of relative consumer prices across countries, stood at 5.65% in 2011 against Japan's 5.63%, with the gap expected to widen significantly by 2017. In five years, the IMF estimates the share of India's GDP in PPP terms would grow to 8.09% compared with 4.8% for Japan. Economists said India's move up the league table was a reminder of the boundless potential the country offered, despite the prevailing mood of pessimism. "This basically turns the spotlight back on the tremendous opportunity India's growth story has even under the given conditions. If India plays its cards correctly through policy measures we can actually achieve much more in the next 5-10 years," said Saugata Bhattacharya, chief economist with Axis Bank. Added Samiran Chakraborty, chief economist with Standard Chartered India: "This shows that India is no longer an emerging economy. It has already emerged. But beyond that there are not many conclusions one can take from the data." The PPP system allows GDP comparisons to be made by asking how much money would be needed to purchase the same goods and

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services in two countries and using that to calculate an implicit foreign exchange rate. Under this method, a dollar should be able to buy the same amount of goods anywhere in the world and exchange rates should adjust accordingly. It also strips away distortions that come with market exchange rates, which are often volatile, affected by political and financial factors that do not lead to immediate changes in income and tend to understate the standard of living in poor countries.

India could lose World Bank soft loans; Middle-income tag to make it ineligible for IDA funding

NEW DELHI: World Bank has informally told India that its rapidly-growing economy may soon make it ineligible for soft loans, prompting the government to lobby for concessional lending for a few more years. India stands to lose over $2 billion in low-interest funds for many of its welfare schemes, besides missing out on social initiatives spearheaded by the Washington-based lender over the previous decade. "We expect India to move into the middle income category of countries in the next two years. This will mean that the IDA ( International Development Association) funding India got last year was the last cycle of such funding for the country," said a senior World Bank official. The bank lends to developing countries under two arms - IDA and International Bank of Reconstruction and Development (IBRD). IDA funds are highly concessional or interest-free loans and grants aimed at improving living conditions of the poorest.

India is currently a blend country: IBRD funds infrastructure projects in middle-income and creditworthy low-income countries at interest rates higher than those provided by IDA but lower than those offered by other commercial lending agencies. India is currently classified as a "blend" country - defined as one in transition from lower middle-income to middle-income - and is creditworthy for lending from both IDA and IBRD. In 2010, India's per capita national income stood at $1,330, which is higher than the operational eligibility cutoff of $1,175 per capita income. The finance ministry, which is lobbying with the bank, has argued that though per capita income has risen, India has the highest number of poor and should, therefore, continue to get IDA support, an official said. According to official estimates, India has more than 350 million people below the poverty line.

Last July, the World Bank board approved $1 billion for the National Rural Livelihood Mission (NRLM) - an ambitious livelihood guarantee scheme launched in 2011 under the rural development ministry. The bank is helping 13 poorest Indian states in building institutional systems before the scheme is scaled up at a national level in the next three-five years. "We tried hard to get the funding for NRLM as we knew that getting IDA funding will not be possible after this. There is a huge demand for concessional lending from poorer countries, particularly in Africa," the official said. IDA is one of the largest sources of assistance for the world's 81 poorest countries, of which 39 are in Africa. The bank is keen on extending funding to other poor countries in the region by cutting down on support to the ones that have progressed.

World Bank wants effective social safety nets

WASHINGTON: Three out of five people in developing countries lack effective social safety net coverage as they struggle to forge ahead through global financial volatility and food and fuel price hikes, the World Bank said. "If you wait until crisis to put the social safety net in place, it's too late," said the World Bank president Robert Zoellick, ahead of the Spring Meetings of the IMF and World Bank scheduled to kick off April 20. "We are living in a very uncertain world. In 2007 when I came here most people didn't expect food crisis, then fuel crisis, then financial crisis. If you don't prepare, it is the vulnerable that suffer the most." Zoellick also noted that expanding cost-effective safety nets can transform people's lives and

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provide a foundation for inclusive growth without busting budgets, and it can also overcome poverty and promote economic opportunity and gender equality, reported Xinhua.

BASLE THIS WEEK

Final norms on implementation of Basel III by April-end: RBI

MUMBAI: The Reserve Bank today said it will come out with the final guidelines on implementation of new global risk mechanism, Basel III capital regulations by end of the month. "It is proposed to issue the final guidelines on the implementation of Basel III capital regulations by end-April 2012," RBI said in its annual credit policy for 2012-13. Last year, RBI issued draft guidelines on implementation of Basel III capital regulations envisaging that the equity capital of a bank should not be less than 5.5 per cent of risk-weighted loans. The guidelines provide a roadmap for smooth implementation of Basel III capital regulations in a phased manner. "The RBI is also in the process of estimating, on the basis of data collected from banks, the likely impact of the proposed Basel III norms on banks' capital position and leverage," it said. It is proposed that the implementation period of minimum capital requirements and deductions from Common Equity will begin from January 1, 2013 and be fully implemented as on March 31, 2017, it said. However, it said, the capital conservation buffer requirement is proposed to be implemented between March 31, 2014 and March 31, 2017. Besides, the RBI has asked banks to bring down interest variation on term deposits irrespective of the amount. The RBI has stipulated that banks should not discriminate in the matter of interest rate paid on deposits, except in respect of fixed deposit schemes specifically meant for resident Indian senior citizens and single term deposits of Rs 15 lakh and above. However, it is observed that there are wide variations in banks' retail and bulk deposits rates, making it unfair to retail depositors, it said. Further, banks are offering significantly different rates on deposits with very little difference in maturities. This suggests inadequate liquidity management system and inadequate pricing methodologies.

FINMIN

OPENING REMARKS OF THE FINANCE MINISTER SHRI PRANAB MUKHERJEE AT THE G-24 PRESS CONFERENCE IN WASHINGTON

D.C. The G24 Ministers met today and discussed the Global Economy, Reform of International Financial Institutions and Infrastructure Financing and Sustainable Development. We had frank and fruitful discussions amongst ourselves, including a brief interaction with the MD of the IMF and the World Bank President. As part of the initiative to enhance the role and effectiveness of the Group, we also had a briefing on the G20 under the Mexican Presidency. Our communiqué shows that despite the diversity of the Group, we can find common ground. On the global economy, we remain concerned about the fragility of the recovery. Recent policy actions have reduced threats from the Euro area, but downside risks remain high, including from high and uncertain oil prices. The subdued global growth has adverse impact on growth in many emerging markets and developing countries. We believe that immediate and concerted actions are needed to restore confidence and boost growth. We will focus on job creation and on effective and affordable social safety nets that protect the poor and vulnerable. We call for the timely and full delivery of the ODA commitments to LICs. On management of capital flows, we have strong reservations on the integrated approach proposed by the IMF staff and insist

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that policy makers must have the flexibility to adopt policies that they consider appropriate to deal with capital flows. We also call for actions to mitigate excess volatility in commodity prices, both for food and energy, which is undermining growth. On the International Financial Institutions, we stress that the forward-looking commitments on IMF quota and governance reform must be met on a full and timely basis. We welcome ongoing efforts to ensure that the IMF has the necessary resources to play its role, but it should remain a quota based institution. We are concerned that World Bank lending is projected to decline at this crucial juncture because of constrained financial capacity. We therefore call for new solutions to bolster the financial capacity of the Bank and IFC. We also urge the Bank to improve its responsiveness through more flexible and innovative policies and instruments. We ask the Bank to remain engaged with Middle Income Countries and to scale up resources and technical assistance for the developmental needs of MENA countries in transition. We recognize for the 1st time in the history of the Bank that there was an open process for the selection of the President and that 2 outstanding candidates from developing countries were presented. We congratulate Dr Jim Kim on his selection and extend our support to him. We believe that to realize our growth potential, a substantial increase in investment in infrastructure is required. We call on efforts to strengthen the existing architecture of global, regional and national institutions and to enhance PPPs and private sector involvement. We also look forward to the outcome of the review called for by BRICS Leaders to explore the feasibility and viability of a new Development Bank for mobilizing resources for infrastructure and sustainable development projects in emerging markets and developing countries.

21.04.2012

BY VASANT PONKSHE

MANAGER

MAHABANK, PUNE

MOBILE 9422319827

R J Shridharan Alok Khare S. S. Shisodia S. Nagarajan

Chairman, AIBOA. Vice Chairman, AIBOA. President, AIBOA. General Secretary, AIBOA