RBI'S POLICY RATE CUT WILL EASE PRESSURE ON BANKS' LOAN QUALITY: MOODY'S

The RBI's move to ease the monetary policy and provide greater access to liquidity are credit positive as they support banks at a time of increasing loan quality and liquidity pressures, said Moody's.

The global credit rating agency observed that the recent 50 basis points cut in the policy repo rate will ease pressure on banks' loan quality, benefiting public sector banks the most.

Referring to the earlier phase of extended tightening trend, Moody's said it posed risks to the loan quality by pushing banks to increase lending rates, thereby moderating demand and impeding corporate borrowers' ability to repay their loans.

This effectively resulted in increasing non-performing loans (NPL) and restructured loans, which has culminated in an increased ratio of NPLs to total loans.

RESTRUCTURED PORTFOLIO

Moody's said the restructured portfolio of banks jumped from Rs 1,06,900 crore as on March-end 2011 to Rs 1,82,700 crore as on December-end 2011. The restructured loans to gross NPLs ratio jumped from 2.66 per cent as on March-end 2011 to 4.40 per cent as on December-end 2011.

The gross NPLs to gross loans ratio rose from 2.35 per cent as on March-end 2011 to 2.80 per cent as on December-end 2011.

Doubling the amount of liquidity available to banks at the central bank's discount window to 2 per cent of deposits will ease pressure on banks, which have had to pay higher rates to obtain liquidity. This indicates that the RBI is proactively supporting banks, said Moody's.

In the short term, this greater access to liquidity will help banks to steady their borrowing rates and interest margins.

Moody's said public sector banks, despite their higher proportion of NPL and restructured loans, do not face the liquidity pressures of private sector banks because of their strong deposit franchise.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3346207.ece

SBI, 4 MORE BANKS CUT INTEREST RATES

Led by SBI, five more banks today cut interest rates on loans and deposits upto one per cent, following reduction in the short-term policy rates by Reserve Bank last week.

While banks have tweaked rates differently, the net effect is that depositors lose more than the gains accruing to borrowers resulting in widening of the banks' margins.

Country's largest lender State Bank of India (SBI) slashed interest rates upto one per cent on fixed deposits of all but one maturity.

With these changes, the peak rate on SBI fixed deposits would come down to 9 per cent per annum, from tomorrow.

On the other hand, it has reduced interest rates marginally by about 0.25 per cent, that too only on car loans.

SBI Chairman Pratip Chaudhuri said that the bank may not go in for cut in the minimum (base) lending rate. "Our base rate is already one of the lowest in the industry," he told CNBC TV18.

Other banks, including Allahabad Bank, United Bank of India and Kotak Mahindra Bank have reduced the base rate by upto 0.25 per cent.

SBI's base rate stands at 10 per cent. It is the benchmark rate below which a bank cannot lend.

Lakshmi Vilas Bank reduced its FD rates on select maturities by 0.25 per cent.

Following the RBI's decision to cut key interest rate by 0.5 per cent to 8 per cent in its annual credit policy ICICI Bank, IDBI Bank and Punjab National Bank have already announced reduction in both lending and deposit rates.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sbi-4-more-banks-cut-interest-rates/articleshow/12840599.cms

SBI CUTS FIXED DEPOSIT RATES BY UP TO 1%

Country's largest lender State Bank of India (SBI) today slashed interest rates on fixed deposits by up to 1 per cent across various maturities, a move that may prompt other lenders to follow the suit.

The bank, however, has ruled out cut in benchmark lending rate saying the bank is offering one of the lowest rates in the industry.

The base rate or minimum lending rate of SBI stands at 10 per cent. Base rate is the benchmark rate below which a bank cannot lend.

As regards deposit rates, SBI in a statement said, "The bank has decided to revise its retail term deposit rates across various tenors with reduction ranging from 0.25 per cent to 1 per cent."

The bank, however, has raised interest rate on 180 days fixed deposits scheme from existing 7 per cent from to 7.25 per cent.

The new rates would be effective from April 24, it said. Giving details SBI Chief General Manager (financial control) Sunil Pant said the bank has reduced interest rates on fixed deposits with maturity between 7-179 days by 0.75 per cent to 7.25 per cent. 

For term deposits with maturity between 181 days to less than 1 year, the new interest rate will be 0.5 per cent lower than the existing 8 per cent, he said.

At the same time, fixed deposits between 1-3 years maturity will earn 0.5 per cent lower return at 9 per cent from existing 9.5 per cent, he said.

Following the RBI's decision to cut key interest rate by 0.5 per cent to 8 per cent in its annual credit policy last week, several banks including ICICI Bank, IDBI Bank and Punjab National Bank reduced both lending and deposit rates.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sbi-cuts-fixed-deposit-rates-by-up-to-1/articleshow/12838784.cms

PUBLIC SECTOR BANKS MAY CUT LENDING RATES FOR RETAIL BORROWERS, NO RELIEF FOR OTHERS

Several state-run lenders from Allahabad Bank to Union Bank of India may reduce lending rates on retail or SME loans to a higher extent and avoid cutting lending rates uniformly across the board, as the government wants them to focus more on these customer segments.

Top executives with these banks said they are weighing various options and a clearer picture will emerge in the next couple of days.

The government - the biggest owner of state-run lenders - wants bank chief executives to review lending rates with specific focus on retail customersbecause for many of them, retail loans are costlier than even that of private lenders.

Finance secretary DK Mittal had raised this issue at a meeting with top bankers days before Reserve Bank of India's annual policy statement. "We are examining all possibilities.

As we like to grow our retail lending business, we may go for reducing lending rates for certain borrower segments," Uco Bank chairman and managing director Arun Kaul told ET. "But I am not ruling out abase rate cut."

Base rate is the minimum lending rate and banks fix varied spreads over base rate for different loan products, depending on the cost and marketing focus.

Union Bank of India, which aims to double its retail loan share in the next 3-4 years, may follow a similar strategy. "Making retail loans cheaper makes sense as we plan to grow our retail book," the bank's new head Debabrata Sarkar said. Union Bank's retail loans account for just about 10% of total advances.

These banks will have the option of reducing the base rate marginally and then tweak the spread over the benchmark rate to pass on the benefit to specific customer segments.

Banking analysts said State Bank of India, which has the lowest base rate at 10% among government banks since August last year, does not have much headroom to reduce it. "I don't expect SBI to reduce base rate," a senior executive of a competing bank said. "Deposit rates are still high.

Banks would prefer to realign their deposit rates with the market scenario before taking the rate cut call," CARE Ratings managing director and chief executive DR Dogra said.

Following the government order on lending rates, at least five state-run lenders have reduced the base rate with Bank of Baroda announcing a 25-basis point cut in the base rate to 10.50% on Friday.

IDBI Bank was the first to make a 25 basis-point base rate cut, Punjab National Bank and Syndicate Bank followed suit. All these three have a base rate at 10.5% now. Bank of Maharashtra cut its base rate by a mere 10 bps to 10.50% to match them.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/public-sector-banks-may-cut-lending-rates-for-retail-borrowers-no-relief-for-others/articleshow/12769928.cms

BANKS BOW TO GOVERNMENT; ICICI BANK, PNB CUT LENDING RATES, OTHERS TO FOLLOW SUIT

ICICI Bank and Punjab National Bank took the lead among major lenders in lowering deposit and lending rates by 25 bps, which will not only reduce monthly payments on home and car loans but also cheer policymakers.

But Bank of Maharashtra's decision to bring down its benchmark rate by just 10 basis points to 10.5% probably reflects the reality - that few believe market rates will trend down and deposit growth will be sufficient for future rate cuts. A basis point is 0.01 percentage point.

Bankers, who were unwilling to commit on rate cuts the day the Reserve Bank of India surprised with a 50-basis-point cut in benchmark interest rates, are now falling in line partly due to moral suasion, say experts.

"While there is government pressure on public banks to reduce rates, private banks like ICICI Bank or others will follow suit under competitive pressure," said PK Choudhury, vice-chairman and group CEO at rating company ICRA. "Otherwise, they will lose quality customers. Everybody will take baby steps and look at the reaction of competitors."

ICICI Bank's so-called base rate, the rate below which it can't lend, is now at 9.75%. Punjab National Bank's base rate falls to 10.5% after the cut.

IDBI Bank made the first move on Wednesday and others such as Union Bank of India and State Bank of India are likely to follow.

"With the easing of systemic liquidity, we have already seen some correction in wholesale deposit rates," said Chanda Kochhar, managing director and chief executive officer at ICICI Bank. "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."

Rates in the overnight call money market are down to 8.25%, from 8.75% before the policy rate cut, and three-month certificates of deposits are being sold at 9.2%, compared with 10.5% before the policy. Banks are still borrowing more than 1,00,000 crore a day from the RBI, reflecting tight liquidity.

The banks' action follows a letter from DK Mittal, secretary, financial services, at the finance ministry, to chairmen of state-owned banks to reduce interest rates.

RBI Governor Duvvuri Subbarao was also vocal that banks should pass on the benefits of his action to customers as lenders in the past profited from the central bank's largesse.

"One of the considerations between a milder policy rate action and what you consider a more decisive action is the impact it will have on transmission," Subbarao said Wednesday after the rate cut. "We wanted to send a stronger signal."

ICICI Bank's revised rates would be effective from April 23 and PNB's from May 1.

Following the revision, ICICI Bank's rate on home loans below Rs 30 lakh will be 10.25%, little cheaper than its rivals HDFC and SBI as both are charging 10.50%.

However, in case of big-ticket home loans above Rs 75 lakh, ICICI Bank's new rate at 11.25% will continue to be higher than HDFC and SBI's 11%.

While most banks will lower rates, at least to be seen as responding to policy measures, there could be a hit on profitability of some banks.

"Cost of deposits varies between banks and base rate calculations also take parameters like overhead cost into consideration," said MR Nayak, executive director at Allahabad Bank. "We will examine all these parameters before taking a decision on base rate. We are also watching what others are doing."

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-bow-to-government-icici-bank-pnb-cut-lending-rates-others-to-follow-suit/articleshow/12738096.cms

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 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.

Authorisation and settlement of loans over phone

Ranjit Mehta, a 67-year-old pensioner, was offered a personal loan by his credit card company and he accepted it - all over the phone and e-mail. No documents, no agreements and no signatures. The trouble started once he closed the loan after two years.

"When I called them up and told them that I wanted to clear the loan, they were fine with it. They also told me that no interest would be charged. Later, they demanded money on the grounds that the loan was not foreclosed. They said I should have asked for foreclosure and paid a penalty of 3%." 

"The most important terms and conditions applicable to a loan product are mentioned in the sanction letter. In fact, it is obligatory on the part of the bank to give a sanction letter and get an acknowledgement from the applicant as a token of acceptance of the terms before disbursing the loan amount," points out VN Kulkarni, chief counsellor with the Bank of India-backed Abhay Credit Counselling Centre.

In the absence of a written agreement, seek clarification from the bank and approach the Banking Ombudsman if the bank refuses to give you a fair treatment. Better still, avoid accepting such loan offers over the phone.

Non-dispensation of money from ATM

Complaints of account getting debited despite the ATM not dispensing the cash are not rare. However, it can be a hassle when banks refuse to acknowledge the error immediately. To deter banks from delaying reimbursing the customers, the RBI has issued a series of directives regarding this matter.

Banks are required to pay a compensation of 100 per day to such customers if the bank fails to resolve the issue within seven days of the complaint being lodged. That is, provided you file the complaint within 30 days of the incomplete transaction.

Adverse reporting to CIBIL

The Banking Ombudsman report cites a resolved complaint where the bank reported the borrower as 'defaulter' with CIBIL in spite of full and final settlement.

As a result of the adverse CIBIL report, due to the bank's error, the complainant could not obtain a home loan. Also, the bank did not respond to the complainant's enquiries. Ultimately, the Banking Ombudsman instructed the bank to rectify the mistake and compensate the customer. 

Remember, banks, as per their own code of commitment, are under obligation to update borrowers' records with credit information companies ( CIC) as soon as possible.

The Code states that if the account of a borrower is regularised after having been in default, the information will be passed on to the CICs in the subsequent monthly report. Therefore, ensure that you don't back down if the bank refuses to set your repayment record straight.

Finally, as is the case with all banking-related grievances, you can always knock on the doors of the Banking Ombudsman if you feel your complaint has not been addressed to your satisfaction.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/how-to-redress-your-banking-grievances/articleshow/12723518.cms?curpg=2

CENTRE TURNING DICTATOR? GOVERNMENT ORDERS PSU BANKS TO CUT RATES IMMEDIATELY

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

"We had expected DTC to kick in, it would have been a level playing field for bank deposits and other competing instruments." Deposit growth fell to a seven-year low of about 13% while loans grew 19%, pressuring banks to offer more for funds. Slow deposits growth is also leading to an-time-high loans-to-deposit ratio, a measure of demand-supply for funds, of over 75%.

"Market rates have moved up even as RBI's policy stance was to keep rates stable," says Morgan Stanley's Chetan Ahya. "Indeed, we believe banks will struggle to pass on this easing in the form of cut in lending/deposit rates unless there is systemic improvement in liquidity conditions measured by loan-deposit ratios. For a systemic improvement in loan-deposit ratio, deposit growth would need to be higher than credit growth."

The direction is likely to add fuel to the ongoing debate on whether the government is ignoring the interests of minority shareholders in public sector companies in its zeal to revive the slump in private investments. 

The Children's Investment Fund, an investor, is opposed to the state directive to Coal India to sigh fuel supply agreements that will compromise its profitability. The monopoly miner is being forced to sell fuel at lower than international market rates.

"I told state-run bank chairmen to revisit the lending rates as in some retail segments, their rates are higher than even private banks," Mittal told ET. "So, they are losing customers. There is a need for lowering of lending rates and bankers have already agreed upon." 

But the profitability of banks, as measured by net interest margin, is still one of the highest with some banks having an NIM of more than 4%, considered high by global standards.

This allows banks to sacrifice some profitability to play a role in reviving growth.

"Direct monitoring is ideally not a good practice," said Robin Roy, associate director for financial services at PwC India. "But in a system where monetary policy transmission is weak and where certain important sectors are starved from institutional credit, it has to be a push phenomenon."

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/centre-turning-dictator-government-orders-psu-banks-to-cut-rates-immediately/articleshow/12723038.cms?curpg=2

AIBOC CIRCULAR NO. 42 DATED 19.04.2012

AIBOC issued its circular No. 42 dated 19.04.2012 on All India Banks Pensioners and Retirees Confederation. We are placing the same here for our readers.

CIRCULAR NO.42                                                       DATE: 19.04.2012

TO ALL AFFILIATES /MEMBERS:

ALL INDIA BANKS PENSIONERS AND RETIREES CONFEDERATION - CONSTITUTION OF AD-HOC COMMITTEE

Please refer to our Circular No.33 dated 20th March, 2012.  We are happy to inform all the Pensioners and Retirees members of the Confederation that an ad hoc committee consisting of the following members was constituted at the Historic Foundation Conference of the All India Banks’ Pensioners’ And Retirees’ Confederation held at Nagpur on 17th March 2012.  The details are as follows:-

Joint Convenors:

Com.S.R.Sengupta                             Bank of India, Kolkata

Com.Shantha Raju                              State Bank of India, Bangalore

Members of the Ad-hoc Committee:

S/Shri.

Saravanamuthu                                State Bank of India, Chennai                

B.P.Bajpai                                         State Bank of India, Lucknow

S.Nagaraj                                         Bank of India, Bangalore

A.K.Motayed                                     Bank of India, Bhubaneshwar

K.N.Aggarwal                                   Bank of India, Bihar

S.H.Shukla                                        Bank of India, Maharashtra

D.Sengupta                                         Bank of India, Jharkand

Ravi Jain                                             Bank of India, Delhi

P.S.L.M.Haragopal                             Punjab National Bank, Hyderabad

R.Narayanan                                       Punjab National Bank, Punjab

P.K.Malhotra                                      Punjab National Bank

Kalyan Kr.Sengupta                           Central Bank of India

N.K.Pareek                                         Central Bank of India

A.K.Nagar                                          Central Bank of India

Ravi Krishna                                       UCO Bank, Bangalore

D.Chanda                                            UCO Bank, Kolkata

Rampal                                                UCO Bank, Jaipur

Venkatachalam                                   UCO Bank, Mumbai

N.C.Patel                                            Union Bank of India, Gujarat

K.Padmabhan                                     Union Bank of India, Kerala

S.Bagchi                                              Union Bank of India, Kolkata

K,Annathurai                                      Union Bank of India

K.P.Roy                                              Allahabad Bank

Vishwabandhu Bhattacharya              Allahabad Bank 

T.A.Vaidyanathan                              Allahabad Bank, Mumbai

R.Kuppuswamy                                  Indian Bank

A.X.George                                        Indian Bank

B.N.Barathan                                      Indian Bank

Suryanarayana Murthy                        Indian Bank

Venkataraju. H.                                   Indian Bank

Nandan Joshi                                     Maharashtra

N.Udayakumar                                   Chennai

T.Jagannatha Hegde                           Vijaya Bank

Jayaram Shetty                                    Vijaya Bank

Shivaram Alva                                    Vijay Bank

Krishnaraja Bhat                                 Vijaya Bank

Dilip Bhandara                                    Bank of Baroda

M.S.Chandar Shekar                           Bank of Baroda

Subrato Dasgupta                               United Bank of India

Tarunesh Chatarjee                             United Bank of India

Dipak Kumar Basu                             United Bank of India

K.V.Acharya                                       Indian Overseas Bank

S.B.C.Karunakaran                             Indian Overseas Bank

M.R.Gopinatha Rao                            Indian Overseas Bank

K.S.Rengarajan                                   Indian Overseas Bank

J.B.L.Rathore                                      State Bank of Bikaner and Jaipur

Amarsingh                                           State Bank of Patiala

B.N.Srikantaiah                                  State Bank of Mysore

T.Balakrishnan                                    State Bank of Travancore

R.Chanbdrashekaran                           State Bank of Travancore

K.B.Ballur                                           Canara Bank, Bangalore

K.Chandrashekar                                Canara Bank Bangalore

Gangadhar Yadav                               Syndicate Bank, Hyderabad

P.S.Agarwal                                        Syndicate, Akola

N.T.Hegde                                          Syndicate Bank, Bangalore

K.N.Haldar                                         Andhra Bank, Kolakata

Nandan Joshi                                      Corporation Bank, Maharashtra

N.Uday Kumar                                   Corporation Bank, Chennai

K.G.Vijayakumar                                Federal Bank

V.Kailasnath                                       Federal Bank

P.S,Nandakumar                                 H.D.F.C.Bank

K.O.Devassy                                       Dhanalakshmi Bank

R.Srinivasan                                        Dhanalakshmi Bank

K.Selvaraj                                           Lakshmi Vilas Bank

Swaminathan                                     Lakshmi Vilas bank

D.Ramaiah                                          Karur Vysya Bank

Balavenkataraman                             Karur Vysya Bank

Vinayaka Rao                                     State Bank of Hyderabad

K.M.Shastry                                        State Bank of Hyderabad

As decided earlier, adhoc committee members have to mobilize the Pensioners and Retirees Bank wise and to seek affiliation with AIBPARC at the earliest. Our Convenor and Joint Convenor will co-ordinate the activity.

The list has been prepared on the basis of information collected at the foundation conference. We request our other affiliates to sponsor names for adhoc committee and to co-ordinate with the activity.

With greetings,

Sd/-

(G.D. NADAF)

GENERAL SECRETARY

RBI CUTS BANK RATE TO 9 PER CENT

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.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-cuts-bank-rate-to-9-per-cent/articleshow/12720798.cms

REPO RATE CUT BY 50 BPS, BUT BANKS RELUCTANT TO PASS ON BENEFIT IMMEDIATELY

Reserve Bank of India Governor Duvvuri Subbarao fired the bazooka from his arsenal to revive flagging economic growth with a 50-basis-point cut in interest rates, but said he will not hesitate to raise rates again if price pressures revive.

The unexpectedly steep reduction - the markets had expected a 25-basis-point cut - coming in the wake of a growing clamour from government officials and businessmen to cut rates, even though demand pressures persist, raised questions whether the governor is risking his credibility.

Subbarao, a former finance secretary, had for much of the past year ignored markets and advice from an internal panel to reduce rates, resulting in howls of pain from business but burnishing the central bank's inflation-fighting credentials.

The governor, in an interview to ET, described the decision as a "professional judgement" guided entirely by the numbers on growth and inflation. "I don't think you should read us by what people are expecting us to do, or should read us by whether we deliberately want to surprise the market. That's a professional judgement. We have taken into account both growth and inflation dynamics."

Tuesday's reduction in lending rates, the first in three years, was widely welcomed by businessmen and hailed by the finance minister.

"The growth which has weakened in past months should now improve. The monetary policy announcement should help in investment revival and contribute to strengthening of business sentiments," Finance Minister Pranab Mukherjee said in Delhi.

In interviews after the presentation of the Union Budget, finance ministry officials had been increasingly strident in their calls for a change in monetary policy.

Earlier Tuesday morning, addressing a meeting of the Confederation of Indian Industry, Mukherjee said they could expect some "good news" as the RBI was likely to soften its monetary policy in about "half an hour", though he did not disclose details. This was around 10:38 am. The minister's words were somewhat unusual as news of the rate cut was embargoed till the official announcement at 11 am.

The RBI also boosted liquidity measures by doubling banks' borrowing limit under the so-called Marginal Standing Facility to 2% of their demand and time deposits.

This could smoothen money market movements and help the government's borrowing programme.

The rate cut is aimed at boosting investments, but many expressed doubts on whether corporates and individuals will benefit immediately as banks are reluctant to commit to lower borrowing costs immediately. 

"Both deposit and lending rates will come down, though it may take a while," said Aditya Puri, CEO at HDFC Bank. 

"If government spending comes in, leading to an increased money supply and consequent velocity into the banking system, we do expect that deposits will grow." 

When that happens, yes, there will be enough money. Bankers will be brave. In the interim, it may lead to blood pressure rather than bravery," Puri added.

The central bank also sought to help the consumer by abolishing prepayment charges on home loans after banks failed to do so despite persuasion, and bringing in more transparency in interest rates on deposits.

Subbarao cut repo rate - the rate at which it lends to banks - by 50 basis points, double of what the market expected, to 8%. 

Reverse repo - the rate it pays banks when they deposit surplus funds - fell to 7% and the penal rate of interest on borrowings by banks under MSF dropped by the same amount to 9%. The RBI kept some power dry by leaving the cash reserve ratio untouched at 4.75%.

"Expectations are that pricing power of corporates is quite limited so they may not be able to pass on the increase in input prices as they were able to do for much of the past oneand-a half years," Subbarao said.

"Therefore, supply shocks or adjustment in administered prices may not transmit to generalised inflation. But if our calculations go wrong, our policy prescriptions will have to be different.'' The finance minister vowed to step up the fight against inflation. "Food and primary inflation have shown signs of hardening.

This is a cause for some concern. We intent to continuously monitor the situation and take the required steps to manage short-term supply constraint for those food items that contribute to inflation. We will do everything possible to maintain price stability." The benchmark Sensex rose 1.2% to 17,358.

The yield on the 8.79% bonds due November 2021 fell 12 basis points to 8.34%, the lowest since March 14. The rupee climbed 0.4% to 51.48 to the US dollar. "It has merged a couple of 'baby steps' into today's move and will possibly stay on hold for a while," said Siddhartha Sanyal, economist at Barclays.

"We believe the central bank will examine the scope for further monetary easing on a case-by-case basis in the coming months, with a bias towards not cutting repo rate further in the next one to two policy meetings."

Gross domestic product may expand 7.3% this fiscal compared with the baseline projection of 7% last year, Subbarao said. Inflation will probably be at 6.5% by March 2013. He forecast bank deposits to grow 16% and commercial credit 17%.

But the government's fiscal position, borrowings of a record Rs 4.8 lakh crore, and suppressed inflation in the form of lower petroleum product and coal prices could throw a wrench in the works. "Large borrowings have the potential to crowd out credit to the private sector," said Subbarao.

"Crowding out of the more productive private credit demand will become more critical if there is fiscal slippage." But the liquidity-boosting measures may possibly take care of the market conditions despite huge borrowings by the government.

"The surprise was the increase in MSF to 2%, which clearly is an effort to cap borrowing costs within the corridor of 8-9% and not let temporary factors due to frictional liquidity lead to unintended tightness in inter-bank markets," said B Prasanna, managing director and CEO at ICICI Securities Primary Dealership Ltd. The generous rate cut and liquidity-boosting measures may push up prices again, even as high interest rates have failed to completely tame prices so far.

The central bank has been missing the inflationary forecast for many years. Its desired level of 4-4.5% and long-term target of 3% in line with international standards may remain a dream. "The RBI was clearly itchier to cut policy rates more than expected, but the 50-basis-point cut may have been a bit too premature and aggressive," said Leif Eskesen, regional economist at HSBC.

SOURCE: http://economictimes.indiatimes.com/news/economy/policy/repo-rate-cut-by-50-bps-but-banks-reluctant-to-pass-on-benefit-immediately/articleshow/12709398.cms

RBI LOOKING INTO WINDOW-DRESSING BY BANKS

Year-end window-dressing is the norm in public sector banks. Figures pertaining to deposits and loans are inflated to show ‘growth'. This is done by the simple expedient of taking on more deposits and lending more for a very short period, around the balance-sheet date of March 31. After the books are closed both deposits and loans are returned and status quo returns.

Fiscal 2012 was no different. Although one thought it could have been.

A couple of weeks ago, the Finance Ministry had let it be known that annual deposit and loan growth would no longer be considered for performance appraisal of the top brass of public sector banks.

Banks and the Finance Ministry have a memorandum of understanding that lays down various parameters against which performance is benchmarked. If banks meet their targets, bank chairmen become entitled to a bonus. This has often led to a chase for ‘growth'.

Take a look at what happened this year. Credit growth had dropped to 15.4 per cent in February 2012 from 22 per cent at the beginning of the last fiscal. But in March this year, it picked up suddenly. Loans given by the banking system show a jump of Rs 3 lakh crore in that month.

The latest numbers show that credit has grown 19.3 per cent in the last fiscal — much above the indicative projections made by the RBI even a few months ago.

Asked about this, the RBI Governor, Dr D. Subbarao, said: “We do get information on credit growth and we do have a handle on the issue. It has come to our notice that there has been a sudden spurt in credit in February and, more importantly, in March. We don't yet have granular data.” He did not say what would happen after the RBI gets the numbers.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3328902.ece

ACCOUNT OPENING: I-T RETURN, UTILITY BILLS MUST FOR FIRMS, SAYS RBI

Banks should seek the complete income-tax return and utility bills in the name of proprietary firms for opening their accounts, according to the RBI.

The indicative list of required documents for opening accounts of firms now include: the complete income-tax return (not just the acknowledgement) in the name of the sole proprietor and utility bills such as electricity, water, and landline telephone bills in the name of the proprietary firm, said a Reserve Bank of India notification.

The IT return should reflect the firm’s income, duly authenticated/ acknowledged by the Income Tax Authorities.

In August 2010, a RBI notification on Know Your Customer guidelines for opening accounts of proprietary concerns said banks could also accept any registration/ licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority/Department.

Banks may also accept Importer Exporter Code issued to the proprietary concern by the office of the Directorate-General of Foreign Trade as an identity document for opening of bank account.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/article3327906.ece

RBI'S MONETARY POLICY REVIEW: ONUS OF CHECKING FAKE CURRENCY NOTES ON BANKS

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.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbis-monetary-policy-review-onus-of-checking-fake-currency-notes-on-banks/articleshow/12710974.cms