Amendments to Regional Rural Banks (RRBs) Act, 1976

The Union Cabinet today gave its approval to the proposed amendments in the Regional Rural Banks (RRBs) Act, 1976 to enhance authorized and issued capital to strengthen their capital base. The term of the non official directors appointed by the Central Government is proposed to be fixed not exceeding two years. 

The proposed amendments will ensure financial stability of RRBs which will enable them to play a greater role in financial inclusion and meet the credit requirements of rural areas and the Boards of RRBs will be strengthened. 

Background 

Regional Rural Banks (RRBs) were established under Regional Rural Banks Act, 1976 (the RRB Act) to create an alternative channel to the `cooperative credit structure and to ensure sufficient institutional credit for the rural and agriculture sector. RRBs are jointly owned by the Government of India, the concerned State government and sponsor banks, with the issued capital shared in the proportion of 50 percent, 15 percent and 35 percent, respectively. As per provisions of the Regional Rural Banks Act, 1976 the authorized capital of each RRB is Rs. 5 crore and the issued capital is a maximum Rs. 1 crore. 

5 banks launch Aadhaar-linked bank account

Five banks, including SBI, ICICI Bank and Axis Bank,  launched Saral Money bank account product which allows customers to open an account using Aadhaar card as address as well as identity proof.

The RBI has recently directed banks to accept Aadhaar letter as the proof of both identity and address if the address provided by the account holder is the same as that on the Aadhaar card.

“Through a product like Aadhaar-enabled KYC (Know Your Customer), we are bringing down the cost of account and that makes a product lot more attractive. And it will definitely further the cause of financial inclusion,” Axis Bank Managing Director and CEO Shikha Sharma said during the launch of Saral Money’, which is jointly launched by Axis Bank, ICICI Bank, HDFC Bank, SBI and Indian Overseas Bank.

Customers would be able to open a Saral Money banking account by providing Aadhaar letter as the proof of identity and address at any of these banks and the BC (business correspondent) outlets.

“Both for address proof and identity, Aadhaar can be used. To me of course, all of us would change our process and will not require a separate address proof (for opening an account). We needed it because of the regulatory requirement,” Sharma said.

The Visa payment settlement-based Saral Money account would enable the customer to make purchases, send money or receive government disbursements at the existing ATMs, point of sale terminals and proposed micro ATMs.

The service targets currently enrolled 210 million Aadhaar holders. The UIDAI plans to bring 600 million people under Aadhaar fold by 2015.

The first phase of the Saral Money rollout will include Delhi and National Capital Region and others parts of the country would be covered by the end of next year.

“This initiative will not only help the financially undeserved to access formal banking processes, but will also serve as a forerunner for the inclusive applications which we hope to see emerge on the Aadhaar foundational platform,” UIDAI Chairman Nandan Nilekani said.

Visa Group Country Manager of India and South Asia Uttam Nayak said this payment solution specifically targets India’s financially excluded regions and will support cash transfer of subsidies, scholarships and other government disbursements.

RBI sets up supervisory bodies for SBI, ICICI Bank

The Reserve Bank of India (RBI)  set up two supervisory bodies for State Bank of India (SBI) and ICICI Bank to ensure compliance of global prudential norms and reduce supervisory overlap.

“The objective of establishing supervisory college is to deal with supervisory issues revolving around these banks and establish a cooperation mechanism for cross-border supervision,” RBI said in a statement.

Supervisory colleges have evolved the world over as an important component of effective supervisory oversight of an international banking group, it said.

This mechanism was developed with the aim of reducing supervisory overlap and filling in supervisory gaps for better supervisory co-operation enunciated in Basel II Framework.

The concept, it said, was enunciated in the Basel Committee for Banking Supervision (BCBS) October 2010 Document, “Good Practice Principles on Supervisory Colleges“.

Though India does not have any Systemically Important Banks (SIBs), with a view to benchmarking India with the best practices across the globe and in its capacity as the home country supervisor, the RBI decided to establish a supervisory college each for SBI and ICICI Bank. This is because both banks have vast expanse of overseas operations spreading across many supervisory jurisdictions.

For SBI there are nine host country supervisors. These are, Bangladesh Bank, Central Bank of Bahrain, National Bank of Belgium, Dubai Financial Services Authority, Financial Services Authority (London), Federal Financial Services Authority (BaFin), Bank of Mauritius, Nepal Rastra Bank and Monetary Authority of Singapore.

At the same time, ICICI Bank has seven host country supervisors including Central Bank of Bahrain, National Bank of Belgium, Financial Services Authority (London), Bank of Russia and Monetary Authority of Singapore.

RBI Deputy Deputy Governor K C Chakrabarty hoped the college, being a process and not a one—time forum, will become a key tool of consolidated supervision particularly considering the ever expanding footprint of Indian banks abroad.

Foreign National to Open Banks in India

As per the “Draft Guidelines for Licencing of New Banks in Private Sector” issued by the Reserve Bank of India (RBI) on 29.08.2011, only entities/groups in the private sector that are owned and controlled by residents shall be eligible to promote banks.

RBI has formulated the Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT) guidelines to be followed by banks, so as to prevent banks from being used, intentionally or unintentionally, by criminal elements for money-laundering or terrorist financing activities. KYC procedures also enables banks to know/understand their customers and their financial dealings better, which in-turn help them manage their risk prudently. Accordingly, all banks, including foreign banks, functioning in India have been advised to follow certain customer identification procedures for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority, i.e. Financial Intelligence Unit-India (FIU-IND). The banks are also required to ensure that a proper Board approved policy framework on KYC/AML/CFT is formulated and implemented by them in accordance with the extant legal and regulatory framework. 

21, 751 Village Grain Banks Sanctioned for 20 States

The Government has been sanctioned 21,751Village Grain Banks to 20 States. The Village Grain Banks Scheme provides safeguards against starvation during period of lean season or natural calamity, when marginalized food insecure households do not have sufficient resources to purchase rations. Such households in need of food grains, can borrow food grains from the Village Grain Banks set up within their villages to be subsequently returned to the Bank. The grain banks can be set up in food scarce areas like drought prone areas, hot and cold desert areas, tribal areas and the inaccessible hilly areas which remain cut off because of natural calamities like flood etc. About 30-40 Below Poverty Line/Antyodaya Anna Yojana families may form a grain bank. These villages are to be identified/notified by the concerned State Government/Union Territory Administration. Foodgrains are loaned to BPL families @ one quintal per family under Village Grain Bank Scheme, he added.

Banks may move to screen-based rate for MIBOR

Banks are likely to move to actual dealt rates on a trading platform to determine overnight interbank lending rates, as regulators worldwide push for more transparent systems in the wake of the Libor scandal, officials close to the plan said.

Some Indian bankers fear that the current polling system used to determine the Mumbai interbank offered rate (MIBOR) could be similarly vulnerable to manipulation.

"Traders are closely looking at whether it will be desirable to use traded data as a benchmark."

The moves in India parallel similar efforts by regulators from London to Singapore to reform the way benchmarks for interbank borrowing rates are fixed following the investigations into the rigging of the London interbank offered rate (Libor).

Libor and other similar benchmarks are used to price trillions of dollars worth of loans and derivative contracts.

In India, Reuters and the National Stock Exchange conduct separate polling, asking banks for their assessments MIBOR, which is used as a benchmark for interest rate swaps, overnight call money, collaterised borrowing and lending obligations (CBLO), floating rate bonds and short-term corporate loans.

The debt and money market body Fixed Income Money Market and Derivatives Association ( FIMMDA) is expected to make the final decision on a new system in a month, after sounding out banks and CCIL.

Private sector bank--YES Bank, one of the lenders currently participating in polling for MIBOR, would welcome a switch.

India to get banking information from Switzerland on liberal terms

In a development that will boost the fight against black money menace, Switzerland has agreed to provide details of secret bank accounts of individuals sought by India even on the basis of limited information.

Under a mutual agreement reached on April 20 between the two countries, Switzerland has agreed to give liberal interpretation to the provisions concerning identities of Indian citizens.

“... it is sufficient if the requesting state identifies the person by other means than by indicating the name and address of the person concerned, and indicates to the extent known, the name and address of any person believed to be in possession of the requested information,” a Finance Ministry release said on Monday.

Under the existing bilateral treaty, the requesting country has to compulsorily provide the name of the person under examination and the name of the foreign holder of the information. These are part of the identity requirements without which the information would not be shared by the other country.

“This was a restrictive provision and not in line with the international standards,” the release said.

The agreement was signed under the Double Taxation Avoidance Agreement (DTAA) between the two countries.

“This agreement is beneficial to India because it gives liberal interpretation to the identity requirements for exchange of information which India will be seeking from Switzerland and is in line with international standards,” the release said.

The pact would allow liberal interpretation of Article 26, concerning exchange of information.

“The conditions as clarified by Switzerland, will enable India to get information even if we have only limited details regarding the person having bank accounts in Switzerland,” the release said.

India had inked the pact with Switzerland to revise their bilateral taxation treaty in August 2010. The revised treaty was approved by Swiss Parliament on June 17 last year.

The new agreement was signed by Sanjay Kumar Mishra Joint Secretary (Foreign Tax & Tax Research division), Central Board of Direct Taxes (CBDT) and Juerg Giraudi, Head of Division of International Tax Affairs, Swiss Federal Department of Finance.

The Cabinet had earlier approved the mutual pact on March 23.

“... this mutual agreement will apply from the date on which the amending Protocol which was signed on August 30, 2010, has come into effect April 1, 2011,” the release said.

As per data from the Swiss National Bank, the total deposits of Indian individuals and companies in Swiss banks stood at about USD 2.5 billion at the end of 2010.

Nationalised banks to speed up processing of corporate loans

Indian companies can hope for a faster turnaround when they submit loan proposals to nationalised banks.

Nationalised banks have set up credit approval committees (CACs) at their respective head-offices to speed up decisions on loan requests from companies.

Realising that private sector and foreign banks have a competitive edge when it comes to decision making on loans, the Finance Ministry has pushed for a CAC in each of the 20 nationalised banks.

Punjab National Bank, Canara Bank, Bank of Baroda, and Bank of India, among others, are classified as ‘nationalised banks'. They are governed by the Banking Companies (Acquisition and Transfer of Undertakings) Act.

Until a few months back, large loan proposals could only be cleared in management committee meetings (MCMs) of the boards.

“The MCM is convened only once in 20-30 days. Presence of the bank chairman and managing director, executive directors, RBI nominee director, Finance Ministry representative and two other directors is a must in the meeting.

“Sometimes, this requirement leads to pile up of loan proposals for clearance,” said a senior banker.

However, things appear to be changing for the better following the constitution of CACs.

The CAC, comprising the chairman and managing director, executive directors, and chief general manager/general manager in-charge of credit, finance and risk management, can meet as and when loan proposals need to cleared, said a public sector bank official.

That loan approval mechanism has been put on the fast-track is underscored by the fact that the quorum for a meeting of the CAC is just three members. The meeting has to be attended by the CMD and one of the EDs.

In the case of Category ‘A' banks, with business of Rs 3-lakh crore or more, the CAC is empowered to take decisions on loan proposals up to Rs 400 crore. In the case of Category ‘B' banks, with business less than Rs 3-lakh crore, the CAC can take decisions on loan proposals up to Rs 250 crore. However, loans proposals exceeding the limits of the CAC will have to be cleared at the MCM.

Given the powers conferred on the CAC, companies will not have to wait for a month to hear from banks about the fate of their loan application. If there is merit in the proposal, the bank could clear it even in a day or two.

Introduction on Interst Free Banking

The Reserve Bank of India (RBI) has received references from the India Centre for Islamic Finance for introducing interest-free banking in the country in order to ensure inclusive growth with innovation in accordance with recommendations of the Raghuram Rajan Committee.

RBI has informed that in the current statutory and regulatory framework, it is not legally feasible for banks in India to undertake Islamic banking activities in India or for branches of Indian banks abroad to undertake Islamic banking outside India.

KVG Bank women form "Vanitha Spoorti"

The Karnataka Vikas Grameena Bank (KVG Bank), in an effort to expand the reach of financial inclusion by involving lady staff of the bank, has started a scheme entitled “Vanitha Spoorti.”

The scheme was launched by the bank on Thursday at Dharwad. Addressing the bank employees, Mr C Sambasiva Reddy, chairman of the bank, said “Women are joining the banking industry in large numbers today, their contribution in the progress cannot be denied. In this changing scenario, the role of women employees in any organisation is also vital especially in the business development as well as involvement in day to day operations.”

For forming “Vanitha Spoorti,” women employees of KVG Bank who are working in the branches of twin cities (Hubli-Dharwad) and head office have come forward on their own to form groups to conduct door to door campaigns, forming SHGs, canvassing for business and for recovery.

Rupee fall: The good, bad news

The fall of the rupee, driven by a slowdown of capital flows (not a reversal), not only represents good news on the export front (for some exporters, anyway, those who aren't forced to part with windfall gains in a buyer's market), it represents good news for import-substituting producers as well.

The fall vis-à-vis the yuan in particular, gives telecom equipment and power plant producers a greater degree of protection than that which they had so far been unsuccessfully lobbying for. Imports from China in these categories amounted to more than $25 billion in 2010-11 (60 per cent of total imports from China).

Capital flows

Other things remaining the same, capital flows into India will pick up, as will remittances, both because the rupee has fallen, and because it now seems to have stopped falling. Whether other things will in fact remain the same is another matter.

Debt servicing will cost more for those who have raised money abroad, whether or not they hedge, and diesel/LPG subsidies will put more pressure on the fiscal deficit.

Finally, there is the cosmetic angle: India will have to wait a little longer to become a $2 trillion economy.