BANKING FINANCE A LEADING MONTHLY JOURNAL ON BANKING & FINANCE VOL. XXV NO. 11 NOVEMBER 2012 ISSN - 0971- 4498
Editorial
Editor Ram Gopal Agarwala, B.Com., L.L.B., F.C.A.
Associate Editor Dr. Rakesh Agarwal M.Com. (BIM), A.C.A., L.L.B., F.I.I.I., P.G.J.M.C., M.B.A. Ph.D
Assistant Editor Shyam Agarwal, B.Com.(Hons.), F.I.I.I.
Advisors Dr. P. Malyadri Mr. Umesh Jindal Dr. B. K. Jha Mr Sourav Chandra
Resident Editor K. L. Madhok, New Delhi V. K. Agarwal, Agra S. Chattoraj, Pune
Head Office 25, Baranashi Ghosh Street, Kolkata - 700 007, India Phone : 033-2269 6035/ 3294 3723/ 4007 8428 Fax : 91-33-2273 6612 E-mail : insurance@bimabazaar.com Website : www.bimabazaar.com
Customer Help Line For non receipts/any other query please contact E-mail : nonreceipt@bimabazaar.com Phone : 033-4007 8378 / 2218 4184 Fax : 91-33-2273 6612 Single Copy ` 65/Anual Subscription ` 750/- (Ordinary Mail) ` 1050/- (Regd) Foreign air mail US$ 100 3 years subscription ` 1500/5 years subscription ` 2250/All the payment must be made by DD favouring BANKING FINANCE payable at Kolkata, India. Please do not make any cash payment for journal/books to any person representing BANKING FINANCE and we shall not be responsible for the cash payments. The contents of this journal are copyright of BANKING FINANCE whose permission is necessary for reproduction in whole or in part. The views expressed by contributors or reviewers in this journal do not necessarily reflect the opinion of BANKING FINANCE and the journal can not be held responsible for them. All disputes subject to Kolkata jurisdiction only. Published by Sushil Kumar Agarwala, & Printed by Janta Printing Works at 25, Baranashi Ghosh Street, Kolkata700 007.
Recent report proves that the overall productivity of the Public Sector Banks has arisen in competition to the private players in banking sector. Govt. of India as well as RBI are favouring to make reach of the banks in the rural areas of the country to mobilize their investment / savings as well as to provide them cheap loans to the local artisans to promote self-employment. Banks not only may act as bankers but also as service providers in the areas of literacy, social responsibility and the trustee of the rural folk to save them from the money snatchers- namely Kabuliwala like people. Service tax is the priority of the Govt. which is causing indirect rise in inflation and in due course although service tax will be first line of income for the Govt. of India but only at the cost of the 'Aam Admi'. Direct taxes e.g. Income Tax, Sales Tax (VAT) etc will get reduced whereas service tax, excise and custom duty like taxes will be on the rise. India has huge resources of alternative energy e.g. Solar, Bio-gas, Hydel and so on apart from Nuclear Energy which is the talk of today. Govt. of India is taking step in the right direction of alternative source of energy which requires little modifications as per the requirement of the country. Drinking water for the masses is a great problem and research has shown that sea water can be converted as drinking water at a very low cost. Apart from water resource management and drip harvesting for agriculture purposes can be broadly utilized. The Editorial Team wishes a very happy and prosperous "Dussera" and "Diwali" for the subscribers, readers, authors, advertisers and all related with the publication. Banking Finance, November 2012
3
Contents 03
Articles
EDITORIAL
14
News
05
Social Audit- A Vital Tool For Reporting Corporate Image by Dr. L. N. Koui & Sumit Agarwal We know that an audit is an examination of accounting records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they relate.
Banking News HDFC Bank's fee structure IDBI branches, ATMs on Google maps SBI has Rs.80,000 cr surplus liquidity, says Chaudhuri
21
SBI chief calls for abolition of CRR SBI opens two more branches in South Africa
by Dr B K Mukhopadhyay So, the Asian Development Bank lowered the growth forecast for India to 6.5 per cent for the current fiscal, from the earlier 7 per cent projection, on the back of subdued demand and high inflation.
S. K. Kalra has taken over as ED of Andhra Bank
more......
08
RBI News Centralized KYC only after issuance of unique customer identification : RBI RBI asks banks to issue multi-city cheques sans fees
25
RBI most known among regulators : Survey
more......
Legal Cases
Will mobile companies leave the banking business to banks? by Mr. Sandeep Bhardwaj Mobile Banking has become a key delivery channel for a growing number of financial institutions. Many banking institutions have implemented at least one mobile solution.
Tweak laws to allow Islamic banking : RBI
10
India's Economy: Not all gloom and doom
Features
Give compensation for cheque delays Unregistered document not valid for arbitration : Court Mineral water liable toe excise duty : Tribunal
29
RBI’s Second Quarter Review of Annual Policy (FY13) - A Perspective
31
Can HUFs lower your tax liability?
32
Group your savings accounts to enjoy benefits
33
Private sector needs CAG-type watchdog
35
Branch Banking - Basic Savings Bank Deposit Account
41
Profile
Ex parte consumer court order quashed
more......
11
News Roundup SEBI free to act against Sahara : SC Credit cards outstanding rises again 60 crore Aadhaar cards by 2014 : Prime Minister Raghuram Rajan appointed as chief economic adviser Impart coaching in Naxal Areas : Finmin to PSBs Taximan may reduce TDS-related paperwork for assesses
more...... 4
Banking Finance, November 2012
News
Banking HDFC Bank's fee structure
Private sector lender HDFC Bank will double the fees charged on cash payments made towards credit card bills to Rs.100 soon. The bank currently charges a processing fee of Rs.50 for every credit card repayment made in cash at its branches and ATMs.
UBI launches "online application" facility for retail loans United Bank of India has been continuously makings efforts to embrace technology to improve the why people do banking. In continuation of the same the bank has launched the online loan application facility for home loans, vehicle loans, education loans and loan against property.
Acquittal no relief for SBI manager Even if a criminal court acquits a bank employee accused of serious fraud, the disciplinary proceedings against him can be conducted and action can be taken against him on the same set of facts, the Supreme Court held in the case, Avinash Bhosale vs. Union of India. A senior manager of State Bank of India was accused of fraudulent transactions to the tune of Rs.1 crore. The criminal court acquitted him for want of evidence. But that cannot be ground for rejecting the finding of the disciplinary authority of the bank. The conduct of the criminal trial was in the hands of the proceeding agency. Having registered the First Information Report, the bank had little or no role to play, apart from rendering assistance to the prosecuting agencies,.
IDBI branches, ATMs on Google maps Customers of IDBI Bank can now search for the nearest branch of ATM on Google maps. Customers can now locate
998 branches and 1,592 ATMs of the bank across India and the United Arab Emirates. Customers can also get to know facilities available within the branch and direction on how to reach the particular branch (map and milestone description).
Standard Chartered Bank to pay fine The State Consumer Commission has dismissed a Standard Chartered Bank's plea against a district forum order to it to pay Rs.2.97 lakh to a loanee for seizing her car for nonpayment of a meager sum of Rs.30,000 and selling it despite subsequent payment of all dues by her.
Interest rates need to be reduced State Bank of India (SBI) recently said it expected RBI to bring down interest rate in the upcoming monetary policy review to boost the industrial activity. SBI if RBI faced technical problem in bringing down interest rates, then it could reduce cash reserve ratio so banks could get more funds for disbursement,.
Allahabad Bank chief Shubhalakshmi Panse has taken over as the new chairperson and managing director of Allahabad Bank.
O. P. Bhatt on StanChart Board Former chairman of SBI, O.P. Bhatt, has been appointed as an independent nonexecutive director on the board of Standard Chartered Plc. Bhatt is the first executive from the public sector on the board of a multinational bank.
SBI Q1 surges 136% bad loans pull shares down State Bank of India posted a second-straight surge in quarterly net profit on strong loans growth beating street expectations, but a rise in bad loans pulled its shares down. Net profit rose 136 per cent to Rs.3,751 crore from Rs.1,584 Banking Finance, November 2012
5
crore a year earlier. SBI shares were down 4.5 per cent recently.
UBI Inks MoU with NSIC United Bank of India (UBI) has signed a memorandum of understanding (MoU) with National Small Industries Corporation Ltd (NSIC) to further increase it exposure in the MSME sector. The recent rate announced by the UBI to the tune of 0.5% to 4% to the existing and new MSME relationships is expected to help the sector in reducing the funding cost.
SBI has Rs.80,000 cr surplus liquidity, says Chaudhuri State Bank of India (SBI), India's largest bank, had excess liquidity to the tune of Rs.70,000 - 80,000 crore, said Chairman Pratip Chaudhury. He said the bank was investing the surplus liquidity in commercial paper of companies, certificates of deposit issued by other banks and government bills, depending on the kind of return. SBI had about Rs.11,000 crore worth of funds invested in commercial paper, he added. SBI holds 5 - 5.5 per cent of statutory liquidity ratio (SLR) over and above the mandated level of 23 per cent by the Reserve Bank of India (RBI). "In the first five months, deposits have grown eight per cent," he said. Loan growth has lagged at four per cent in the same period. He said the bank might clock 29022 per cent growth in automobile and home loanes as disbursements are expected to pick up in the second half of FY 13. SBI recently cut its basic rate and benchmark prime lending rate by 25 basis points(bps) each to boost credit growth,.
which these institutions are operating, they would pretty much like to keep operations under their control. Most of these banks have water tight SLAs (Service Level Agreements) with their clients and they would not like that to get compromised at any level at this juncture," said senior executive with a financial advisory services firm in India. The US Senate's Permanent Subcommittee on Investigations also recently pointed out major lapses in the work of HSBC's Indian staff.
Over 41,000 posts vacant in nationalised banks As many as 41,146 posts, including of officers, were lying vacant in 19 nationalised banks at the end of March 2012, the Union Government said recently. There were vacancies for as many as 20,785 officers and 12,695 clerical level costs as on March 31, 2012, Minister of State for Finance Namo Narain Meena said in a written reply in the Rajya Sabha. Also there was vacancy for 7,666 subordinate staff he added. Meena said banks undertake recruitment of staff to fill vacancies on ongoing basis as per their requirement. "At present, there is no proposal to revive Banking Service Recruitments Board as recruitment is done by individual banks on an ongoing basis," he added. As per the details given by the minister, maximum number of officer level posts were vacant in UCO Bank (3,747) followed by Central Bank of India (2,854) Bank of India (2,802) and Punjab & Sind Bank (2,500).
SBI chief calls for abolition of CRR Third party outsourcing to get tougher for banks With global operations of most major financial firms under the scanner a post the Standard Chartered case, IT industry observers in India are of the view that captives will continue to be the dominant form of operation for these firms in India. "It is unlikely that banks operating in India would outsource their operations to third parties in the current environment. In the present regulatory environment under 6
Banking Finance, November 2012
State Bank of India chairman Pratip Chaudhury made a strong pitch for the abolition of cash reserve ratio (CRR) saying that keeping required funds with the Reserve Bank without any interest was costing that banking system about Rs,21,000 crore. RBI should either do away with CRR or compensate the banks for the losses incurred as the banking system was not earning any interest on it, Chaudhuri told reporters on the sidelines of Ficci Banking Conclave in Kolkata.
"CRR does not help anybody and it is unfairly put on the banks. Why is CRR not applied to insurance and other companies who are mobilising deposits from the public? He asked, CRR, he said, should be phased out within a reasonable time-frame." Phasing out of CRR would release scarce capital resources which will help the banks in reducing rates for the industry". Banks are required to keep 4.75 per cent of the deposit with the RBI.
S. Viswanathan is new MD of SBI The Centre has appointed S. Viswanathan as Managing Director of State Bank of India. Prior to his elevation, he was Deputy Managing Director (Mid-Corporate) at India's largest bank. The appointment takes effect from the date of his taking charge till April 30, 2014, that is the date of his attaining superannuation or until further order, whichever is earlier.
Canara Bank's new retail loan scheme Canara Bank has introduced a retail loan scheme for salaried and non-salaries individual for purchase of consumer durables. Under the scheme customers can get loans up to Rs.1 lakh at 14.50 per cent interest and repayable in 36 installments, the bank said in a statement in Bangalore. The bank would hypothecate the durables purchased as security and would not charge processing fees till January 31.
Banks asset quality is healthier now : Kamath While the central bank is wary of increase in debt recast by banks and has proposed stringent norms for such activities, K. V. Kamath, chairman of India's largest private lender ICICI Bank Ltd, said banks' asset quality was healthier now than what it was 10 years ago. "The stress in restructured assets in India is very small compared to what it was earlier. Though there is lot of talk abut the quality of assets, today, it is healthier than what it was 10 years ago," Kamath said, who is the Chairman of the country's second largest information technology services firm Infosys Ltd.
SBI opens two more branches in South Africa State Bank of India has opened two more branches in South Africa, one in Chatsworth and the other in Laudium (Pretoria). India's largest bank already has five branches in South Africa - Johannesburg, Durban, Cape Town, Port Elizabeth and Lenasia. SBI, with its own ATM card and Internet banking facility, is the first and only international bank to start retail operations in South Africa, the bank said in a statement.
K. R. Kamath is new Chairman of Indian Banks Association K. R. Kamath, Chairman and Managing Director Punjab National Bank, has been appointed as Chairman of the Indian Banks' Association (IBA). The PNB chief will take over the mantle of the IBA Chairmanship on October 1.a The IBA's managing committee also appointed T. M. Bhasin, CMD,Indian Bank as Deputy Chairman. The other Deputy Chairpersons are Bhaskar Sen, CMD,United Bank of India, and Chanda Kochhar,MD and CEO, ICICI Bank. Pratip Chaudhuri, chairman, State Bank of India is the Honorary Secretary of the association.
Satish Kumar Kalra has taken over as ED of Andhra Bank On 5th October, 2012 at Mumbai, Kalra joined the banking industry in 1981 as probationary Officer in Allahabad bank and worked in various capacities. Prior to joining Andhra Bank as ED, he was GM, handling the Treasury Operations of Allahabad Bank at Mumbai.
The Ministry of Finance, Government of India have, vide their Notification dated October 01,2012, Appointed Tilak Raj Bajalia as Deputy Managing Director of Small Industries Development Bank of India (SIDBI). Prior to taking up the assignment Bajalia was the ED of IDBI Ltd. Banking Finance, November 2012
7
News
Reserve Bank of India
Centralized KYC only after issuance of unique customer identification : RBI
with the nomenclature no frills account and making the basic banking facilities available in a more uniform manner across the banking system, it has been decided to modify the guidelines on opening of basic banking 'nofrills' accounts," the RBI said in a circular to the scheduled commercial banks.
Setting up of a centralised KYC (know your customer) registry for the entire financial sector will be possible only after implementation of the unique customer identification code (UCIC), RBI Executive Director G. Padmanabhan said recently.
The central bank had introduced "no-frills" accounts in 2005 to provide basic banking facilities to the poor and promote financial inclusion. The amount could be maintained without or with very low minimum balance. The RBI has asked the banks to convert the existing "no-frills" accounts into basic savings bank deposit accounts,.
"Once the UCUC is implemented across banks and FIs, if would be feasible to move towards a centralized KYC registry, which will eliminate duplication of efforts and refine the KYC AML (anti-money ,laundering) and CFT (combating of financial terrorism) verifications across the financial system," he said addressing a banking event recently in Mumbai.
RBI to pay Rs.16,010 cr dividend The board of Reserve Bank of India recently approved a transfer of surplus amounting to Rs.16,010 crore to the government for the accounting year ended June against Rs,.15,009 crore to 2010-11, RBI follows July-June accounting year.
RBI asks banks to issue multi-city cheques sans Banks told to review activity levels of rural fees accounts With a view to improving customer services and speeding Government has asked public sector banks (PSBS) to review the level of activity in rural accounts which were opened under the financial inclusion drive. State owned banks were recently asked to ensure one account per family in the country to facilitate direct transfer of subsidy under 32 central schemes,.
Uniformity in basic banking The RBI recently asked banks to drop the "no-frills" tag from the basic savings accounts as the nomenclature has become a stigma. It has asked banks to provide zerobalance facility in basic banks accounts along with ATMcum-debit cards without any extra charge. "With a view to doing away with the stigma associated 8
Banking Finance, November 2012
up fund transfer the Reserve Bank of India asked all CBS (Core Banking Solutions) enabled banks to issue multi-city cheques to all eligible customers and refrain from levying clearing charges on them. "‌. All CBS-enabled banks are hereby advised to issue only payable at par/multi-city CTS 2010 Standard cheques to all eligible customers,"RBI said in a notification. A payable par or 'multi-city' cheque of a bank can be cleared by any branch of the same bank in the country. The process has significantly reduced outstation cheque clearance time. The notification has also directed the banks not to levy any charge for clearance of such multi-city cheques.
RBI cuts CRR releases Rs.17,000 cr into the market Retail customers counting on a rate cut may feel let down with the Reserve Bank of India leaving interest rates unchanged. The people who are cheering are the bankers, who stand to benefit from the 0.25 percentage point reduction in cash reserve ratio (CRR) to 4.5% announced recently. CRR is the share of deposits that banks need to maintain with the RBI Recent cut is expected to free up to Rs.17,000 crore of cash that the banks would have otherwise needed to maintain with the central bank. "Given the comfortable liquidity and the recent reduction in deposit rates by banks interest rates in general could be expected to trend downwards gradually', said Chanda Kochhar, managing director and chief executive officer, ICICI Bank. For now, though, interest rates on home and auto loans are unlikely to come down as the banks eye the cost at which they get their funds,. "If the funding cost of banks gets lower, we may see banks cutting base rates," said Kajal a Gandhi, banking analyst at ICICI Securities. "Right now this is unlikely, banks will wait till their funding cost comes down significantly." In the past, banks have responded by cutting rates when they have got additional liquidity from RBI measures. On July 31, the RBI had lowered the statutory liquidity ration (SLR) - the proportion of bank deposits that need to be invested in government bonds by 1 percentage point, which released about Rs.60,000 crore for the banks.
RBI most known among regulators : Survey The Reserve Bank is the most known regulator followed by electricity and telecom sectoral watchdogs CERC and TRAI, says a latest study by CUTS International. "Awareness regarding regulatory bodies is limited to recognition of their names and knowledge about their basic mandate," according to the study prepared by NGO CUTS International with support of the Consumer Affairs Ministry. Region-wise, the awareness regarding regulatory agencies is highest in the north and the west, it said.
Direct, Indirect benefits The study also observed that "about 74 per cent of those who know these regulatory agencies have reported benefiting directly or indirectly from their regulations, while the remaining 26 per cent respondents do not agree to this.")
Tweak laws to allow Islamic banking : RBI The Reserve Bank of India (RBI) has written to the government to "restructure" or "amend" the laws to allow Islamic banking in India. Speaking at a local event, RBI governor D. Subbarao said : "Islamic banking is allowed in many parts of the world, but the Banking Regulation Act of India does not conform to Islamic banking because it allows banks to borrow from the deposit money with the RBI on interest. But we are in correspondence with the government on how our laws can be restructured or amended so that they are in conformity with Islamic banking." The RBI governor's statement comes on the back of a rising clamour to allow Islamic banking in India, which would fetch billions of dollars in investments from countries in the Middle East,. Islamic banking is an interest-free system that is allowed in many developed economies, including European markets like France, Germany and the UK.
RBI to introduce inflation-indexed bonds soon To protect the returns of investors from the vagaries of inflation, the Reserve Bank of India plans to introduce inflation-indexed bonds (HBs), said a top central bank official. The principal on the IIBs will be indexed to inflation and the coupon will be calculated on the indexed principal. H. R. Khan, Deputy Governor, RBI explained that the capital (principal) will be adjusted (to inflation) and investors will earn interest on the enhanced capital based on the reference rate. "This (IIBs) is being discussed between the joint group of the RBI and the government. It will be notified soon" said Khan at a capital market summit organized by FICCI. IIBs will benefit both the issues and investor, For the issuer the uncertainty premium goes, so they can raise the capital in a cost effective manner and for the investor it is a hedge against inflation, said Khan. Banking Finance, November 2012
9
News
Legal Case
Give compensation for cheque delays In a big relief to the bank customers, the Reserve Bank of India (RBI) recently asked banks to compensate them for delay in clearance of local cheques. Banks as per the RBI directive, will have to pay the compensation at savings bank interest rate in absence of a specified rate for delayed clearance of local cheques.
Unregistered document not valid for arbitration : Court If a document is required to be registered and stamped but it is not, the arbitration agreement springing out of it cannot be enforced. In Naina Thakkar vs. Annapurna Builders, the apex court found that the lease deed between the petitioner and the Respondent-builder for five years was not registered, even though it was required by the Transfer of Property Act to be mandatorily registered, much less stamped adequately as required by the Indian Stamp Act. It was merely written on Rs.100 non-judicial stamp paper. The trial court rightly rejected the plea for invocation of the arbitration clause between the two parties in as much as the lease agreement, which formed the basis for the arbitration clause, was not properly registered and stamped.
duty or not held the Customs Excise and Service tax appellate tribunal South Zonal Bench, Bangalore. In VBC Industries and Hindustan Coca-Cola Beverages Pvt Ltd. v. Commissioner of Customs & Central Excise (Appeals) Visakhapatnam, the issue revolved around demands of duty on 'treated water' brought from the appellants' factories to their own vending outlets where the water was converted to aerated water through addition of syrup and the finished product was marketed. The process of filtration, purification, labeling etc to be sure are deemed to be manufacture in terms of the relevant chapter notes but the Tribunal was not swayed by this. Instead, what weighed with it was the fact that the water thus treated was not for sale in the market but for own consumption at various other location. The Tribunal quoted with approval another tribunal judgment on similar facts where it had drawn a careful distinction between packaged/mineral water and treated water. The former involved value addition in the form of minerals being added, thus resulting in a different commercial product known to the market as mineral water whereas there was evidently no market for treated water with water remaining water, post processing.
Ex parte consumer court order quashed The Supreme Court pointed out that courts and collectors had the right, nay the duty,to impound the documents not adequately stamped. In the alternative at the parties to make good of the deficiency. Failure to make good the deficiency, the apex court said, gave the trial court the right to treat the arbitration agreement itself as non est.
Mineral water liable toe excise duty : Tribunal Water treated for impurities so as to make it potable does not involve transformation of water into a different commercial product known to the market, the litmus test applied for determining whether a product is liable to excise 10
Banking Finance, November 2012
The Supreme Court recently set aside the ruling of the National Consumer Commission in a dispute between Kanpur Development Authority and a successful bidder of a plot because the order against it was passed without hearing him. He had moved the UP Consumer Commission alleging deficiency in service and it had issued notice to the authority, but the notice was not served on it. The commission, however, passed an ex pare order against the authority. It appealed to the national commission without success. But the Supreme Court found that no notice was served and therefore asked the national commission to find out whether the notice was properly served.
News
Roundup
SEBI free to act against Sahara : SC The Supreme Court said that SEBI was at liberty to take action against the Sahara group for non-compliance of its directions on furnishing details of its investors from whom Rs.24,000 crore was raised.
Paying tax soon to be a fundamental duty Pay tax not just to relax, as the Income Tax department says, but also to contribute to nation building as part of our soon-to-be fundamental duty. The finance ministry plans to propose that paying tax be made a fundamental duty, hoping the move will increase compliance in a country where less than 3% pay tax. A cabinet note could be moved soon.
Credit cards outstanding rises again Credit cards outstanding in the country have risen for sixth consecutive month, according to the Reserve Bank of India's monthly bulletin. Number of outstanding cards stood at 18.24 million in August, rising from 18.15 million. However, amount spent decreased from Rs.9.874 crore to Rs.9,584 crore.
60 crore Aadhaar cards by 2014 : Prime Minister To mark the launch of the Aadhaar-enabled direct cash transfer system, Congress president Sonia Gandhi, recently handed card number 21 crore to a resident of Kurawar village, in Udaipur district of Rajasthan. Prime Minister Manmohan Singh said 60 crore people would get the benefit of the Aadhaar card by 2014,.
Railways income from freight up 25% The railways have posted over 235% growth in the first six months of the ongoing fiscal from freight traffic. It generated Rs.39,888.95 crore from freight traffic during Aril-September 2012, compared with Rs.31,802.31 crore during the corresponding period last year, registering an increase of 25.43% a Railways note issued recently.
Sebi looks at policy to prevent flash crashes India's capital market regulator is working towards drawing up a framework for the annulment of trades recently flash crash of the Nifty due to erroneous orders by a broker. U. K. Sinha, chairman of the Securities and Exchange Board of India (Sebi) , said the regulator prefers risk management to spend when it comes to trading on the stock exchanges,. "I think we will work on a policy on trade annulment. It will take some time. We have already set up a group, which is looking at various aspects," Sinha said recently,.
Raghuram Rajan appointed as chief economic adviser Raghuram DG. Rajan, a former International Monetary fund chief economist and currently Chicago University professor famed for his perceptive warnings about the global financial crisis of 2008, is set to take over as India's new chief economic adviser.
8% growth not easy, but possible : PM Prime Minister Manmohan Singh recently said the governments endeavour to achieve 8% annual growth will not be an easy task, even though it is not unattainable. At the combined commanders' conference, Singh said India needs an aggregate growth rate of 8% per annum to create new job opportunities. "It is not unattainable if we make determined efforts to increase our investment rate to 3738% as was the case three years ago,"Singh said. Banking Finance, November 2012
11
Exports decline Exports contracted for the fifth month in a row by10.75 per cent to 23.89 billion, widening the trade deficit in September on the back of increased imports. The trade gap grew to $18.08 billion from $13.19 billion in September last year.
market segments. Marks regulator Sebi (Securities and Exchange Board of India) recently decided to frame exclusive regulations for Investment Advisers, after consulting other regulators like RBI, IRDA and PFRDA as also comments received from the public on a concept paper disseminated for this purpose.
Business confidence up since August :Assocham Impart coaching in Naxal Areas : Finmin to PSBs survey India Inc's business confidence has shown a marked improvement since August, with the industry gauging that there was no political threat to the government which would complete its full tenure, an Assocham survey indicated. CEOS' views The survey covered 245 chief executive officers across sectors between September 25 and October 5. Almost 72 per cent of the respondents felt that the GDP growth in 2012-13 a would not be below 6 per cent and 90 per cent felt that there was no political threat to the UPA Government. Slew of reforms The corporate optimism followed the Government announcing a slew of decisions including foreign direct investment in multi-brand retail, hike in diesel prices, liberalization in capital market rules, return of foreign institutional investors to the Indian market and resultant recovery in the rupee.
UN report sees India growth dipping to 5.9% India which is seen as leading growth in South and South West Asia, is likely to "become the second largest economy by 2040", but in the near term India's growth is likely to slow down even further to 5.9 per cent in 2011-12, said a report released by United Nation (UN) agency recently. On a more optimistic note, the report by the UN Economic and Social Commission for Asia and the Pacific (ESCAP) noted, "There are indications that the sub-region (South and South West Asia) is turning the corner and is likely to do better in 2013, with the Indian economy projected by grow at 6.8 per cent in 2013-14.
Investment advisers to require CIBIL accredit report for Sebi nod Investment advisers will need to have a good credit report card and satisfactory research capacity to get permission to provide advised to investors in stocks and other capital 12
Banking Finance, November 2012
The finance ministry has asked state run banks to provide coaching to youth in the naxal affected areas and in J & K to help them clear banking services exams. Apart finding job for youth, the finance ministry hopes this will address the issue of short age of banking staff as well. In a directive to state-run banks and the Indian Bank Association (IBA), the finance ministry has asked them to offer coaching programmes and in left wing affected areas and some districts of J & K.
Fed chief defends stimulus measures The head of the US Federal Reserve recently defended the central bank's monetary easing measures after criticism that stimulus was to blame for destabilizing capital flows around the world. Ben Bernanke said the trillion of dollars that the Fed has pumped into the world's biggest economy in recent years were not only aimed at stocking growth at home, but also helping the wider global economy recover. "The Federal Reserve is providing additional monetary accommodation to achieve is dual mandate of maximum employment and price stability," Bernanke said in prepared remarks at the annual meetings of the International Monetary Fund and World Bank in Tokyo.
SEBI allows aadhaar letter as address proof Aadhaar letter issued by Unique Identification Authority of India is now admissible as proof of address, said SEBI. This was stated in a circular issued recently to exchanges AMFI and regulated intermediaries. The Aadhaar letter will be added to the list of documents admissible as proof of address for uniform KYC requirement. In another circular, SEBI directed all listed companies to obtain authentication SCORES (SEBI Complaints Redress System) by September 14.
Taximan may reduce TDS-related paperwork for assesses If your income is not taxable and you are getting interest
income, then you may get some relief from the paperwork for non-deduction of tax at source. According to a highly placed government source, CBDT is to examine the possibility of getting Form 15G/15H once in a life time from very senior citizens (80 years and above) and once in 3-5 years from other depositors."
Govt to set up working group to check cyber crimes' spend Rs.300 cr on security The Government said it would invest Rs.300 crore on cyber security this year. It is looking at constituting a joint working group (JWG) which will also rope in private players, to check the menace of growing cyber crimes in the country. "There were around 20,000 incidents of cyber crime till now this year and they have been growing. Last year, there were around 13,500 cases," J. Satyanarana, Secretary, Department of Electronics and Information Technology (DEIT) told reporters New Delhi recently. The country needs at least 5 lakh experts to protect cyberspace as against a few thousands currently working in the space. To start with four pilot projects have been identified including setting up of a testing lab, conducting a test audit, study of vulnerabilities and establishment of a multi-disciplinary centre of excellence.
Merge Sebi, IRDA, PFRD FMC into single agency Suggesting far-reaching legislative reforms in the financial sector, a government appointed panel recently said key regulations like Sebi, IRDA, PFRDA and FMC should be merged into a unified financial agency (UFA). The Financial Sector Legislative Reforms Commission, headed by former justice B. N.Srikrishna, has also suggested setting up of a financial redressal agency (FRA)to address consumer complaints against companies across the financial sector:The Approach Paper, on which the Commission will seek comments from the stake holders, underlined the need for establishing an independent debt management office (DMO) and a financial sector appellate tribunal to hear appeals against regulators.
"These changes will alter the Indian financial landscape from eight financial regulatory agencies to seven," said the Paper which will form the basis of the report of the Commission which was set up in March 2011 to re-write the legislations affecting the financial markets in the country.
UBS slashes jobs in bold investment bank restructuring UBS is cutting 10,000 jobs in its investment bank and is essentially exiting the fixed income business as part of a brutal restructuring to slash costs and refocus on core businesses that include advisory, equities and foreign exchange under Andrea Orcel, who has been appointed chief executive officer of the investment bank. The restructuring, announced on Tuesday, came as the bank reported a headline net loss of SFr2.2 billion, which included SFr3.1 billion impairment losses related to goodwill and non-financial assets, in third quarter of the year, with profit before tax across its divisions of SFr1.6 billion - beating analysts' consensus of SFr1.45 billion. In the investment bank alone, UBS reported a strong set of quarterly numbers, with its fixed income currencies and commodities business generating clean revenues of SFr1.21 billion - up 18% quarter on quarter - while clean equity revenues climbed 8% over the period to SFr787 million. In sum, investment banking revenues rose 3% to SFr339 million, although UBS's cost income ratio remains particularly high at 88%.
Union Bank buys Smartstreet Union Bank, a subsidiary of UnionBanCal in the US, has purchased Atlantabased Smartstreet, a division of PNC Bank which offers banking services to homeowners associations (HOA) and community association management companies. The acquired entity currently trades as a division of Union Bank, but maintains its brand in the homeowner association market. Initially inked with PNC Bank in April this year, the acquisition will enable the lender to use Smartstreet's strong base of core deposits, its sizable and well HOA banking franchise. HOA Industry manager and senior vice president Mark Reider said, "Providing financial services to companies that manage homeowners associations and other community associations is a core segment for Union Bank's Global Treasury Management division." Having nearly $1bn in deposits, the acquired company serves almost 450 management companies and 15,000 associations in 37 states. Banking Finance, November 2012
13
SOCIAL AUDIT- A VITAL TOOL FOR REPORTING CORPORATE IMAGE
Dr. L. N. KOLI Associate Professor
Sumit Agarwal Research Scholar Deptt. Accountancy & Law, Faculty of Commerce Dayalbagh Educational Institute, Deemed University, AGRA We know that an audit is an examination of accounting records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they relate. In some instances it may be necessary to ascertain whether the transactions themselves are supported by authority. Social Audit is a reform tool aimed at strengthening accountability and transparency in the implementation of projects and policies. The process of evaluating a firm's various operating procedures, code of conduct, and other factors to determine its effect on a society. The goal is to identify what, if any, actions of the firm have impacted the society in some way. A social audit may be initiated by a firm that is seeking to improve its cohesiveness or improve its image within the society. If the 14
Banking Finance, November 2012
results are positive, they may be released to the public. The paper highlights the concepts, principles, components of social audit in the form of CSR. Keywords: Social Audit, Social Responsibility, Social benefits, Social Cost, Code of Conduct and Corporate Sector.
corporate sector should do business and earn money in ways that fulfill the expectations of the society. A corporate sector is permitted by society to carry on industrial or commercial activities and thereby earn profit. But it is obligatory on part of the corporate sector not to do anything that is undesirable from society's point of view. Supplying good quality goods, creating healthy working conditions, honestly paying taxes prevention/installing pollution devices in the factory and sincerely attending to customer grievances are examples of socially desirable practices which improve the image of enterprises.
A
Social Responsibility of corporate sector refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and value of our society. Whereas it is the responsibility of every corporate sector's company to act in a socially desirable manner the concept of Corporate Social
"
Responsibility (CSR), used particularly with reference to a company, has recently gained popularly.
evaluate, measures, and report their impact on the immediate social environment." Ahmed Balkaoui
"Corporate social responsibility must not be defined by tax planning strategies alone. Rather, it should be defined within the framework of a corporate philosophy, which factors the need of community and the regions in which a corporate entity functions"
"
- Dr. Manmohan Singh
Corporate is viewed as a comprehensive set of policies, practices and programmes that are integrated into business operations, supply claims and decision making process throughout the company, wherever the company does business and includes responsibility for current and past actions as well as future impact. In the era of corporate social responsibility, where corporations are often expected not just to deliver value to consumers and shareholders but also to meet environmental and social standards deemed desirable by some vocal members of the general public, social audits can help companies create, improve and maintain a positive public relations image. Good public relation is key because the way a company is perceived will usually have an impact on its bottom line. Corporate Social Responsiveness
"Social Audit as the process whereby an enterprise measures and reports on its performance in meeting its declared social, community or environmental objectives." Turnbull
"Social Audit, as a commitment to systematic assessment of and activities on some meaningful, definable domain of the company's activities that have social impact." Bauer and Fenn Jr.
Social Audit involves social accountability, which is a process by which accountability is exacted from accountability holders through direct or indirect citizen action and engagement. It provides the strongest and indisputable direct evidence for inputs, processes, financial and physical reporting, compliance verification, assurance against misuse, fraud and misappropriation, and utilization of resources and assets. Social Audit is a reform tool aimed at strengthening accountability and transparency in the implementation of projects and policies.
Social Obligations Social Audit
Policies
Programmes
Practices
Decision Making Process
Social Goal
Social Obligations
CSR Social Image
"Social Audit as systematic attempt to identify, analyze, measure, evaluate and monitor the effect of an organization's operations on society."
Social Cost
Social Benefits
The process of evaluating a firm's various operating procedures, code of conduct, and other factors to determine its effect on a society.
Blake, Fredrick and Myers
"Social audit much like the financial audit is an identification and examination of the activities of the firm in order to assess,
The goal is to identify what, if any, actions of the firm have impacted the society in some way. A social audit may be initiated by a firm that is seeking to improve its cohesiveness or improve its image within the society. If the results are positive, they may be released to the public. For Banking Finance, November 2012
15
example, if a factory is believed to have a negative impact, the company may have a social audit conducted to identify actions that actually benefit the society.
Origin of Social Audit The word 'audit' is derived from Latin, which means 'to hear'. In ancient times, emperors used to recruit persons designated as auditors to get feedback about the activities undertaken by the kings in their kingdoms. These auditors used to go to public places to listen to citizens opinions on various matters, like behaviour of employees, incidence of tax, image of local officials etc. Social audit in India came when the central government issued manufacturing and other companies (auditor's report) order in 1975 and when it is implemented as social audit by company law board by the introduction of section 227(4A) of the companies Act, 1956, it becomes compulsory for the company auditor to give report on several additional matters of social importance. A number of audit experts described these steps by the central government as the introduction of social audit in India. But it is not at all a social audit, as social audit is not an audit for expressing auditor's opinion on the matters on internal control, propriety and compliance. However, this can be considered a right step in keeping the companies aware of their social responsibility and accountability to the society. In India Tata Iron and Steel Company Ltd. has been pioneer in this direction by issuing their first 'social audit document' way back in July 1980. The document details out the company's efforts towards the welfare of the local community in the form of provisions for roads, hospital, housing, markets, clubs, etc. The Concepts of Social Audit are adopting by various corporate sector like: 4 Hindustan Petroleum Corporation Limited (HPCL) 4 Bharat Petroleum Corporation Limited (BPCL) 4 Cairn India Ltd. 4 Indian Oil Corporation Ltd. 4 ONGC 4 BHEL 4 BEL 4 SAIL 4 GAIL 4 MMTC 4 TVS 4 ITC 16
Banking Finance, November 2012
4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
HUL Ambuja Cement Asian Paints Cipla ICICI Bank State Bank of India Reliance Communications Limited Infosys Computer Ltd. Tata Motors Mahindra and Mahindra Arvind Mills Escorts Dabur India Ltd. Bajaj Auto Godrej Hero Moto Corp DCM Sriram Ashok Leyland Ballarpur Industries Kinetic Group Ranbaxy Wipro Eicher
Social Auditor Which person do social audit called social auditor. Social Auditor is a 'best friend' (specially for an outsider) who periodically checks 'the books' and asks probing questions to help the company reflect systematically on the effectiveness of its internal operations as well as on its wider external impact. An experienced Social Auditor may help a corporate sector clarify its objectives, indicators, actions plans, and recording and accounting procedures. The qualification of social audit is not prescribed by any law in India, but as per MACARO Act 1988 and CARO-2003, the qualification of social audit should be CA.
Users of Social Audit Though this Social Audit toolkit is prepared specifically for government departments, the same can be used by private enterprises as well as the civil society. Social Audit is a tool through which government departments can plan, manage and measure non-financial activities and monitor both internal and external consequences of the departments' social and commercial operations. Social Audit is an independent evaluation of the performance of a company as it relates to the attainment of its social goals. It is an instrument of social accountability of a company.
Process of Social Auditing The social auditing process requires an intermittent clear time commitment from a key person within the company. The social auditor liaises with others in the company and designs, coordinates, analyses and documents the information collected during the process. The social audit entails an individualized process and individualized outcomes for each firm, as it requires the careful consideration of the unique issues that face a particular company. Process of social auditing are as follows: 4 Setting the goal/objects of the audit: First of all company sets the goal and aim of the social audit on the basis of SWOT analysis. 4 Securing the commitment: Social auditor is securing the commitment of the firm's board of directors. Issue related to Social Audit Report
Setting the Goal/Objects of the Audit
Verification of Social Cost and Benefits Analysis and Findings Collecting relevant Information from the fields
Securing the Commitment Structuring a Audit Committee
Process of Social Auditing
Identifies Tools or Methods for Checking and Testing
Setting scope of the social audit process Reviews Define Organization's Social priorities and Opportunities
4 Structuring a Audit committee: This process is establishing a committee to oversee the audit process. 4 Setting scope of the Social audit process: This social audit process involve scope of the audit process (including important subject matter areas) determine by the audit committee, or an outside consultant
4 Collecting relevant Information from the Fields: This process involves collecting relevant information for each designated subject matter area. Collection techniques might include examination of internal and external documents, observation of the data-collection process, and confirmation of information in the company's accounting records. Social audits typically include interviews and focus groups with stakeholders to gain an understanding of their perceptions of the company. 4 Analysis and Findings: This process compares the company's internal perceptions to those discovered during the stakeholder assessment stage and then summarizes these findings. This analysis may also include benchmarking, or comparing performance of company in designated subject matter areas to other company standards. 4 Verification of Social Cost and Benefit: Verification offers a measure of assurance that the company has reported its social performance fairly and honestly as well as an assessment of its social and environmental reporting systems. The process of verifying the results of an audit should involve standard procedures that control the reliability and validity of the information. 4 Issue Related to Social Audit Report: The final process in the auditing process is issuing the social audit report.
Types of Social Audit According to Fredrick, Myers and Blake social audit have six types which are as follows: 4 Social Performance Audit: Social Performance auditing is an assessment of the activities of an organisation to see if the resources are being managed with due regard for economy, efficiency and
4 Reviews: This process include review of the company's policies, goals, objectives, strategic objectives and current mission statement. 4 Define company's social priorities and Opportunities: In this process social auditor defines the company's social priorities. These should be articulated as a set of measurable parameters or performance indicators. 4 Identifies Tools or Methods for Checking and Testings: In this process social auditor identifies the tools or methods that can be employed to measure the firm's achievement of social objectives. Banking Finance, November 2012
17
Social Cost Social cost is defined as a sum of the private cost and external costs. The actual investment for raw materials to build power plant is called private cost and the implication of the plant on humans, animal life and environment are called externalities. This cost when applied for a product or item can help the analysts if the product is beneficial for society or not. If the externalities are negative, then social costs is greater than private cost. Some example of social cost are as follows: 4 Pollution l Air pollution, e.g., smoky factory chimneys. l Soil pollution, especially by farm chemicals l Water pollution, e.g., rainwater run-off containing farming pesticides and fertilizers. l Noise pollution. 4 Road Accident 4 Bribes 4 Corruption effectiveness and accountability requirements are being met reasonably. 4 Social Balance Sheet and Income Statement: In this audit, the social information is presented in a conventional financial statement format, i.e., income statement or statement of financial position. 4 Macro-micro Social Indicator Audit: In this audit a comparative study between performance of company (Micro indicators) and national policies (Macro indicators) is made. 4 Constituency Group Attitudes Audit: In this audit, the preference and attitudes of various constituencies (like employees, creditors, suppliers and customers) are identified and measured and the firm's performance is evaluated against the criteria developed of each group. 4 Government Mandated Audits: This type of audit is conducted by authorized government agencies to study a firms' performance in area of social concern. The focus of agencies that conduct this audit is environment protection and equal employment opportunity. 4 Social Process or Program Management Audit: This type of audit aims at assessing the effectiveness of select organizational programs that are considered to have a significant social impact.
Components of Social Audit Social Audit contains two component first is a social cost and another is social benefit: 18
Banking Finance, November 2012
4 Encourage Crime, e.g., If liquor store open in neighborhood. 4 Adulteration 4 Lower Quality Product 4 High Price 4 Poor Factory System 4 Plant installs machinery that increases output and reduces employment 4 Slum Housing 4 Traffic Congestion 4 Acid Rain 4 Global Warming 4 Ozone Depletion Social Benefits Social benefits are benefits from goods and services that the companies producing the goods and services cannot charge for. The increase in the welfare of a society that is derived from a particular course of action. Some social benefits, such as greater social justice, cannot easily be quantified. Examples of social benefits include: 4 Increased education 4 Renewable energy 4 Health campaign 4 Medical Facilities 4 Community Development 4 Employee Volunteerism
4 Increase Rain Water Harvesting System 4 Reduction of wastages. 4 Reduction in corruption. 4 Awareness among people. 4 Free museums and art galleries that can encourage the poor and uneducated to widen their horizons, educate themselves, and generally improve. 4 Promotes integrity and a sense of community among people. 4 Improves the standard of governance. 4 Labour training in firms 4 The provision of playing fields at or near schools so that the health and sporting skills of the children improves. Principles of Social Audit Social Audit has some principle which are as follows: 4 The audit must be repeated at regular intervals. Changing stakeholder expectations must be taken into account. 4 The company publishes its social performance in an accessible report. In this report the company also gives account of the methodology used for social accounting. 4 The results of an audit are comparable to the results of previous years and other databases. Examples are the results of others company, statutory standards, or social requirements. 4 The extent to which stakeholders are free and able to participates in the dialogue which is the foundation for the assessment of company's performance. 4 The company's internal report is verified by an independent expert. Verification pertains to the correctness of the data the organization supplied. 4 All information relevant to stakeholders on the company's performance is or will become available.
4 Continuous improvement concerns the recognized and verified steps to improve performance. 4 The audit is not separate, but must be integrated into the Company's systems and structures. Benefits of Social Audit to Corporate Sector A social audit can complement an Company's annual financial audit by providing clear and succinct information on performance against social objectives. Some benefits of social audit are as follows: 4 Social auditing provides an assessment of the impact of an company's non-financial objectives through systematically and regularly monitoring its performance and the views of its stakeholders. 4 Social audit provides data for comparing effectiveness of the different types of programs. 4 Social audit provides cost data on social programs so that management can relate the data to budgets, available resources, company objectives and projected benefits of programs. 4 It is intended to help users understand and assess the strengths and weaknesses, successes and failures of a programme or service, with an aim to make improvements. 4 Social audit enables the company to take close look at itself and understand how far the company has lived up to its social objectives. 4 A social audit may be initiated by a firm that is seeking to improve its cohesiveness or improve its image within the society. If the results are positive, they may be released to the public. 4 Social auditing serving as a management tool, social audits can be used for marketing, promotion and advocacy purposes.
Some Cases of Social Audit in Indian Corporate Sectors A Case of Cipla Cipla launched the first-ever painless, non-invasive and radiation-free breast scanning technology called the 'No Touch Breast Scan' (NTBS) for detecting breast cancer at an early stage. The Company had recently announced a breakthrough price reduction on select cancer drugs towards its commitment to make medicines affordable and accessible, particularly to cancer patients. The Cipla Palliative Care and Training Centre in Pune continues to provide care to terminally-ill cancer patients Banking Finance, November 2012
19
and their families. As of date, the Centre has provided comfort and solace to more than 7,700 patients. In addition, the Company continues to support several community welfare, health and educational activities, essentially in communities surrounding the Company's factories both directly and through its charitable trusts, by providing healthcare education, improvement of community infrastructure, scholarships, etc. A Case of Reliance Communication Reliance communication continue to strive for sustainability in their operations by promoting the integration of CSR into their business strategy as well as their everyday functioning. During the year under review, Reliance Communication focused on 6 core areas namely environment, community development, education, women's empowerment, social awareness and health. A Case of Ranbaxy Laboratories Limited All equipment and infrastructure for environmental management was in conformity with regulatory standards throughout the year. The Dewas site saw the up-gradation of the Effluent Treatment Plant, the installation of Multi Effect Evaporators and Agitated Thin Film Driers. A number of Innovative 'Green Technologies' like the Heat Pump, the Refrigeration Chiller (with total Heat Recovery System), Variable Refrigerant Volume (VRV) System, were deployed in recent projects at their Baddi Dosage Form (DF) site, in Himachal Pradesh. These have also been instrumental in reducing the load on the Effluent Treatment Plant. A case of Hero Moto Corp Hero Moto Corp has always remained committed to clean environment, though its environment friendly products and use of clean manufacturing processes. The green aspect of the business has been kept active with its energy managers continuously focusing on identifying new green initiatives. During the year, Hero Moto Corp enabled some of its key energy management processes. The Company has introduced an Energy Management System (EMS) which captures data from the Machines for monitoring energy consumption and the data links to SAP. The system helps in strategizing to adapt to new-age energy norms and improves speed and accuracy of processes.
Conclusion In the last we can say social audit is a new concept and has emerged out of the growing awareness of the responsibility of the business towards the society. In the 20
Banking Finance, November 2012
changing socio-economic scenario, the social audit has assumed a special significance. In fact society now demands something more from the auditing profession. Apart from expecting the traditional services from audit, i.e. ensuring reliability and fairness of accounts, the society now requires audit to become social oriental for safeguarding the interest of various elements of the society. So, social audit is play very crucial role for creating image of corporate sector in public. Reference: Various Sources
PremierWest Bank plans to merge with AmericanWest Bank AmericanWest Bank has signed a definitive agreement with PremierWest Bank, pursuant to which the former will acquire the latter to create a larger banking unit to tap business opportunities in the Pacific Northwest and California region. Subject to regulatory approval and customary closing conditions, the deal will be executed in the first half of 2013, through a merger of PremierWest Bancorp with an affiliate of the acquirer. According to terms of the merger deal, PremierWest Bancorp shareholders will receive cash consideration of $1.65 per common share, or nearly $16.6m in aggregate on completion of transaction. AmericanWest Bank chairman and CEO Scott Kisting said, "This merger will bring together two like-minded community banks that complement one another in terms of geography, products, community engagement and the importance we place on outstanding customer service." In connection with the deal, Lane Powell served as legal counsel, while DA Davidson & Co acted as financial advisor and issued a fairness opinion to PremierWest Bancorp's board of directors. As of 2 July 2012, the acquirer bank had total assets of $2.4bn, while the bank being acquired had total assets of $1.2bn as of 30 September. AmericanWest Bank is a business-focused community bank delivering commercial and small business banking, mortgage lending, treasury management products as well as a range of personal banking products.
INDIA'S ECONOMY: NOT ALL GLOOM AND DOOM
Dr B K Mukhopadhyay Management Economist, Department of Business Administration, Gauhati University, Guwahati
So, the Asian Development Bank lowered the growth forecast for India to 6.5 per cent for the current fiscal, from the earlier 7 per cent projection, on the back of subdued demand and high inflation. Accordingly, "India's economy is now expected to grow by 6.5 per cent in 2012, down from the previous forecast of 7 per cent.
Not only for India, but ADB has cut its growth forecasts for developing Asia also to 6.6 per cent for 2012 citing economic problems in the Euro zone and its impact on global demand. It had projected a 6.9 per cent growth for the region earlier. The decline in growth forecast for developing Asia was mainly on account of lower growth in India and China. hat about others' assessments? While Standard & Poor's (S&P) lowered its outlook on India's ratings from stable to negative, owing to concern on fiscal consolidation, reforms and external conditions, Moody's Investors Service retained its stable outlook.
W
India's outlook is clouded by a combination of high inflation and poor demand, both externally and internally……the weakness in the economy was reflected in declining business confidence, slow credit growth and subdued sales of automobile sector……With persistently high inflation, monetary policy has little room to counter the slowdown in economic growth...high inflation and trade deficit make it difficult to ease monetary policy to stimulate demand".
Moody's confirms: India's credit parameters are on a par with other countries that have Baa3 ratings (lowest in investment grade). However, it said government finances were the weakest aspect of the country's macroeconomic profile - 'the Indian government's propensity for high fiscal deficits is a long-standing credit weakness that is exacerbated during times of lower growth and high commodity prices.
The Manila-based multilateral lender has also lowered the India's growth forecast for 2013 to 7.3 per cent, from the 7.5 per cent projection made in April.
This propensity is factored into our ratings. We also factor in two characteristics that support the sovereign credit profile: India's high domestic savings rate and the long Banking Finance, November 2012
21
average maturity profile of government debt'. India's overall forecast credit metrics remain within the range compatible with those of other countries rated Baa3'. It has very rightly been pointed out that while India's GDP (gross domestic product) growth, as well as its balance of payments position have both deteriorated in recent months, when viewed from a global perspective, it is clear these trends are not unique to India. However, Standard & Poor's (S&P) asked the about the rationale behind the Government' optimism that economic growth would rise to 7.6 per cent this financial year, against 6.9 in 2011-12. It also asked about its plans to rein fiscal deficit.
What is then the exact position? Is it all bad? Let us find out the answer from practical point of view. Assocham's latest observations are very realistic and a timely one. "India may not yet be heading towards a balance of payment crisis, but the macro-economic situation of the country is worsening by the day calling for almost emergent steps to ensure that no further damage is done to the economy," accordingly. It has been a combination of flip-flop on domestic policies and the global uncertainties arising mainly from the troubled euro-zone which played a spoilsport for the Indian economy, it said rightly. Truly, 'breaking out of scams, one after the other, resorting to taxation policies which are perceived to be unfriendly to the global investors, political compulsions of the government in not pursuing the economic reforms are the major factors which have led to a worrying state of economy, which was booming till two years ago'. Though India's economic growth slowed to 5.3 percent in the March 2012 quarter [slowest in nine years] its trends still compared favorably. It has been rightly assessed that compared to many other places, India is doing better in terms of growth and global investors were looking at the long term prospects and wide market in Asia's third largest economy. It is a fact that the worst concern has been coming from a huge uncertainty on the rupee value and its free fall. Confidence is naturally going down [Rupee has depreciated by over 13 per cent since early March 2012 and has even touched the low of Rs 56.38]. Among others, automobile, tourism, steel, oil, gems and 22
Banking Finance, November 2012
jewellery, real estate are facing the trouble emanating from rising dollar and weakening rupee. The reality: while cost of raw material imports has gone up significantly with rupee weakening, inflation is raising its ugly head and wooing the industry, bankers and policy makers. This, in turn, would be catastrophic and depress the demand in the manufacturing sector [by far the largest employment source next to agriculture and services]. It has been a fact that some major problems if not tackled in time may lead to further worsen the situation. Unemployment problem continues to raise its ugly heads and all of the efforts made by the Government have been inadequate. The unemployment rate at all India level stood at 3.8 per cent while in rural and urban areas it was 3.4 per cent and 5 per cent, respectively. India's unemployment rate stood at 3.8 per cent last fiscal, with Daman and Diu and Gujarat topping the list of least unemployed among states and UTs. Though it has been claimed that the unemployment level is much better than that of other countries like US, Spain and South Africa. The latest report for the year 2011-12, released by Labour Bureau (under India's Ministry of Labour and Employment) reflects that Daman and Diu and Gujarat had unemployment rates of 0.6 per cent and 1 per cent, respectively. Chhattisgarh and Rajasthan stood at 3rd and 4th position in the list. Punjab performed better in providing employment than states like Haryana, Delhi and Maharashtra during last financial year [unemployment rate in Punjab stood at 1.8 per cent, the fifth lowest at all India level amongst states and UTs]. Haryana and Union Territory of Chandigarh recorded unemployment rates of 3.2 per cent and 2.8 per cent, respectively, and secured 13th and 9th position, respectively, at all India level during the period. It is a fact that industrial sector has been not in satisfactory level in the recent past in spite of the fact that India is now regarded as one of the top 20 industrially advanced economies. What is the going now? For the first two months of the current fiscal, April-May, the industrial growth is sharply lower at 0.8 per cent, compared to 5.7 per cent in the yearago period. The manufacturing sector [constituting over 75 per cent of the index -IIP], did not perform well as it grew a meager 2.5 per cent, as against 6.3 per cent in May 2011. Capital goods output declined 7.7 per cent in May, as
against a growth of 6.2 per cent in the same month last year. Growth in factory output, [measured by the Index of Industrial Production (IIP)], was 6.2 per cent in May 2011. Industrial production growth rate slowed to 2.4 per cent in May, 2012 due to contraction in capital goods and mining output, coupled with poor show by manufacturing sector, indicating persistent slowdown that, in turn, may prompt RBI to cut lending interest rate once again. While mining output contracted, power generation witnessed a slower growth and consumer non-durables segment output growth remained flat it was consumer durables production that showed a faster growth rate. In all, 12 of the 22 industry groups in the manufacturing sector have shown positive growth during May as compared to the same month a year ago. Agriculture sector has not been able to come up to the expectation level not only in India, but in the entire developing world also - without denying the fact that changes have been there over time. Importance has not been practically and adequately given effect to. But the fact remains that till now heavy dependence on this sector has been there. The odds continue to exist and time passes on. One of the most worries in such economies has been that the high use of chemicals and machinery in agriculture is putting farmers at high risk. Compared with people in other industries, farmers faced an alarming rate of work accidents. A very recent survey [Vietnam origin] showed that nearly 90 per cent of farmers do not know how to use machinery properly and 28.4 per cent do not have a proper understanding on the use of electricity. Authorities also generally fail to control the quality of imported or selfmodified farm machinery. In addition, most of the machinery sold has few instructions on how it should be used, especially imported multi-function machinery. Out of every 100,000 people working in the sector, 799 had electricity-related accidents and 856 had accidents relating to machines. About 20,000 people are injured on farms each year - 1,500 of them fatal. Moreover, just 19.3 per cent of farmers are aware of the harm that can be caused by chemicals they use every day. More than 70 per cent of farmers buy chemical products without knowing their origin or composition and 94 per cent of them use the chemical without proper instructions. About 29.4 per cent do not know how to spray pesticides
safely. It is heartening to note that there were training courses to help farmers improve their understanding and skills about labour safety. The Japanese Government will fund a project to improve labour safety in high-risk industries in Viet Nam including agriculture. However, while many followed instructions at the beginning, they often reverted to unsafe routines, declaring that protective equipment was inconvenient. At present, in Vietnam there are about 22 million people working in agriculture, accounting for more than 52 per cent of the total workforce and contributing 20 per cent of GDP. So, all is not well in the developing world so far as the farm sector is concerned. Next: trends in the current account deficit come to the fore. The direction of global oil prices would affect the import bill, and global growth would affect export growth. Though in the near term, the current account deficit is expected to remain above 3 per cent [of GDP], yet the ratio could fall as global and domestic growth recovers. It could also go down if oil prices do not rise significantly. Till now the latter is on the downhill and economies like India, South Korea [high consumer having nil production] stand to gain as the heavy dependence continues to be there. Fiscal front calls for careful handling. India's external debt with original maturity periods of less than one year is about 20 per cent of the total external debt. Even with the decline in reserves [as has been the latest trend] official foreign exchange reserves are adequate to cover the economy's short-term, as well as the currently maturing long-term foreign currency debt and deposit obligations over the next year. In fact, the situation has been turning to be tougher over time especially for the entire developing block to ensure a smooth flow. Global economy was slowing and the situation could get worse because Europe was not doing enough to fix its debt crisis. What is more, not only India but the developing economies as a whole have been facing rough weather due to rising tendency in the arena of protectionism. The IMF Chief rightly opined that signs of increased protectionism amid deteriorating global economic conditions were "alarming", and warned such measures affect everyone. The latest report by the WTO (World Trade Organization) is quite alarming because there is a rise of protectionism. Banking Finance, November 2012
23
Yes, no country is immune from the effects of protectionism. WTO Director General Pascal Lamy warned that an increase in protectionist policies across the world's 20 major economies had hit 4.0 per cent of the group's trade. Still, in spite of the deteriorating external situation it is definitely heartening that major global companies consider India their third most favoured destination [next to China and the United States], and investment inflows could increase by more than 20 percent both this year and next, as per a recent U.N. report. Some 179 global companies from the manufacturing, services and primary sectors were surveyed between February and May, on their favoured investment destinations for 2012 to 2014. And then what about the FDI flow?? Worldwide FDI flows exceeded the pre-financial crisis average in 2011, reaching around $1.5 trillion, despite turmoil in the global economy, and is projected around $1.6 trillion this year. Foreign direct investment (FDI) flows into India leapt 30 percent to nearly $32 billion in 2011, though held back by slow pace of reforms, it still remains a long way down the league table of FDI recipients. China drew $124 billion last year, while Brazil attracted nearly $67 billion and Russia $53 billion. The FDI inflows into India can go up by 20-25 percent this year and by about 20 percent next year, if the present trend continues, according to United Nations Economic and Social Commission for Asia and the Pacific [World Investment Report 2012]. It added 'FDI growth seems to be keeping its momentum in 2012, referring to furniture maker IKEA and Coca Cola's (KO.N) recent announcements to pump nearly $5 billion combined into India over the long term'. Obvious enough, the Singapore Prime Minister is not wrong when he very recently opined that India's business environment is "complicated for investors who want policy stability‌.. When investors take a decision they want stability and "they want to have reliable partner. They look at the prospect and possibilities. That's the way all businesses happen." Again, some global industry associations and investors have expressed apprehensions over business environment in India following announcement of controversial General Anti-Avoidance Tax Rules (GAAR). Besides, retrospective tax as in the case of Vodafone has also added to uncertainty among some investors. 24
Banking Finance, November 2012
Clearly, global companies are sitting on hefty cash reserves and waiting for the euro zone situation to stabilize before investing. It is rightly being viewed that corporate investors look at long term prospects and recent controversies over retroactive tax proposals broadly aimed at taxing companies like Vodafone (VOD.L), or proposed general anti-tax avoidance rules (GAAR) would not hurt India's prospects as an investment destination.
Finally, can we ignore the continuing global facts? Around 12 percent of the world's population uses 85 percent of its water, and these 12 percent do not live in the developing World. Approximately 790 million people in the developing world are still chronically undernourished - almost two-thirds of whom reside in Asia and the Pacific. Across the world, 1.3 billion people live on less than one dollar a day; 3 billion live on fewer than two dollars a day; 1.3 billion have no access to clean water; 3 billion have no access to sanitation; 2 billion have no access to electricity. The GDP (Gross Domestic Product) of the poorest 48 nations (i.e. a quarter of the world's countries) is less than the wealth of the world's three richest people combined. The poorer the country, the more likely it is that debts repayments are being extracted directly from people who neither contracted the loans nor virtually received any of the money. Moody's assessment clearly reflects that: assuming a normal monsoon, stabilizing domestic inflation and a gradual global recovery, GDP growth could return to seven per cent levels. However, a return to levels above eight per cent requires policy action to ease supply constraints and buoy investor sentiment, as well as a sustainably benign environment of moderating capital costs. Yes, it would be difficult to meet the deficit target without a reduction in subsidy spending, which would require a revision in fuel prices. In addition, meeting the deficit target would be helped by a recovery in corporate profit growth, since corporate taxes are an important component of government revenue. India's reform contributed to growth and at this juncture reforms need to continue to achieve high growth and reduce poverty. The future is not gloom and doom. These developing economies have lots of latent talent, resources that would certainly emerge over time at a greater pace, provided the policies that would be framed must not be myopic in nature.
WILL MOBILE COMPANIES LEAVE THE BANKING BUSINESS TO BANKS?
retail banking. It is understood that all aspects of financial institutions benefit from the convenience and stickiness of mobile banking. As per the Report (dated: 03 Aug 2011) of the Committee on Customer Service in Banks, Customers all over the country have expressed satisfaction at online payment facilities created by the various utility holders and other service providers through the bank platforms.
Mr. Sandeep Bhardwaj Research Officer State Bank Academy, Gurgaon
obile Banking has become a key delivery channel for a growing number of financial institutions. Many banking institutions have implemented at least one mobile solution. It seems that even those who have not implemented a mobile banking solution have a strategy, or at least an opinion, on this approach.
M
Most of the mobile banking implementations have been related to
The committee felt that the Mobile banking coupled with digitisation of records can revolutionise everyday life for the vast majority. Economically weaker section shall be brought into the banking system by combining No Frills Account / Micro Finance / Government subsidies and payments, with the help of mobile banking. The success factors for mobile banking in Micro Finance depend upon mass customer adoption, utility of mobile service for cash-in and cash-out transactions, inter-operability of service providers like banks / Micro Finance Institutions / Mobile Network Operators and Mobile Application Providers using sophisticated technology.
I. A SNAPSHOT ABOUT INDIAN MARKET India has around 930 million+ mobile subscribers, 308+ million Debit & Credit cards, 97,000+ bank branches, and 99,000+ ATMs. As per voicendata.ciol.com (May 2012), Of the households without a bank account, 42 percent have at least one mobile phone. Banking Finance, November 2012
25
domestic remittances. The Centre for Microfinance has put out a report which says that if all the money that is currently routed through informal couriers were to be done via bank transfers at the regular three per cent charge, migrants would save nearly Rs.1,000 crore.
In India, Mobile banking could be a game changer and while we have been hearing of this for quite sometime, it's also important to note that very recently, transaction limit for mobile wallet card was increased to INR 50K and as per latest report by BCG, Mobile banking in India is set to generate fee-based income of Rs 20,250 crore over the next five years, mainly driven by lower transaction cost, favourable regulatory environment and UID project.
On various occasions, RBI has been directing the banks to cover unbanked villages through branches/ Mobile Vans/other modes; no-frill accounts opened including through BC-ICT; Kisan Credit Cards (KCC) and General Credit Cards (GCC); and other specific products designed by them to cater to the financially excluded segments.
By 2015, $350 billion in payment and banking transactions could flow through mobile phones, compared with about $235 billion of total credit- and debit-card transactions today. This forecast is based on a recent analysis conducted by The Boston Consulting Group and depends on the willingness of banks, telecom operators, regulators, and consumers collectively to embrace this form of payment.
Keeping in view the constraints of time & capital, Banks are finding it easier to ride on the already built mobile network for covering the un-banked areas.
II. THE CHALLENGES FOR BANKS IN INDIA a.
Financial Inclusion India has about 100-120 million migrant workers and as per recent study by the Centre for Micro Finance (CMF), only 22% of India's migrant labourers have bank accounts, this is because many do not have identification or "official" residency.
b.
Innovator's Dilemma The major function of banks had been and is to provide banking operations support. For which, at different instances banks had been riding with different delivery channels like Rural Melas, Mobile Banking Vans, Self Help Groups and Gram Sabhas etc.
This makes saving money difficult, and having access to other facilities like money transfer to villages back home through banks, available to only 1/3 of the migrants, instead most have to rely on informal networks like friends, families, hawala couriers or bus drivers etc., making it prone to, not just risky but also time-intensive and expensive.
With the new vibrant entrant in banking i.e Information Technology, banking has gone through a sea change in last decade. Banks are finding it difficult to innovate without the help of Information Technology and are largely dependent on this Industry for new products and innovation. Therefore, the Innovators' role has now majorly shifted from banks to IT industry including Mobile & Network companies.
According to UNDP (United Nation Development Programme), migrants contribute 10 per cent of India's GDP. This implies a total market of Rs.102,000 crore of
The innovator's dilemma says that the incumbents become lazy, and focus upon features and functional enhancements rather than interference. The new entrant comes in with an offer that the incumbent sees as no threat and can be ignored. It is ignored because the focus is on the wrong thing in the incumbent's view and the new entrant is not focusing on the evolution of the current system based upon feature and function, but is trying to do something completely different. In many cases, they are offering a cut-down offer that is incredibly cheap and easy. That's what mobile carriers and handset manufacturers are doing with payments and remittances overtime, with banking.
26
Banking Finance, November 2012
III. RECENT MARRIAGES Almost all the big companies in mobile industry in India & abroad, are gearing up heavily to get into core mainstream finance, for which they foster marriage with any financial institution or bank. There had been many interesting tieups announced recently: a. The tie-up of Microsoft, Near-field communication services (NFC), Skype and Nokia is most talked about for its link between payments and mobile. Google is hiring payments people and Apple's 200 million credit card holders on iTunes are a potential game-changer in the Industry. b.
c.
In India, Mobile Money Services is the much talked about Nokia Money Project that was approved by RBI. Officially launched by Yes Bank, powered by Nokia and Obopay, this service provides end to end solutions in mobile banking. They shall provide two kinds of accounts on the basis of the usage. The first called "Easy pay" is for basic services like recharging the phone account and paying utility bills. The second one called "Easy Send" allows one to send money to recipients who also have a similar account. A joint venture of Idea, Tata, HSBC and Etisalat is proposing to make remittances from UAE to Kerala (India) faster and convenient. Mobile phone service provider Idea Cellular has launched a pilot with Indian telecommunication firm Tata Communications, Mobile operator Etisalat and HSBC India for a mobile phone based money remittance service to its subscribers in India. The service enables Indian expatriates in UAE to transfer money to their families based in India through Etisalat's mobile remittance service with Tata Communications being the central hub for the service. HSBC India will be the banking channel for the funds transfer and disbursement in India with Mashreq being the banking partner in the UAE. The money transfer service will be enabled on the India-UAE corridor and will cover the large Indian NRI community residing in the UAE.
d.
Corporation Bank, Tata Teleservices and PayMate have joined hands to launch "Green Money Transfer" through Tata PCOs. PayMate promotes that It's not a bank account that an individual from the hinterland really needs, but a mechanism to enable him to pay for goods and services.
e.
Mumbai-based FINO (Financial Information Network and Operation Ltd) reinforces the perception that transfer of money from urban to rural via mobile banking is a business which can only grow bigger. With over 50 million customer base and a force of
31000 transaction points in 427 districts across 26 states, FINO is lauding to garner a bigger market share, with the help of its 22 Banks as banking partners and 14 Government Partners remitting money through FINO. f.
BSNL has tied up with India Post to start the mobile money transfer service. The service will use a mobile to send a message to the post office where money is to be received, which will in turn handover the money to the beneficiary instantly. This will be implemented in selected states like Kerala, Bihar, New Delhi and Punjab.
g.
Bill Gates visited the Uttam Nagar, New Delhi situated mobile banking project of Eko, in November 2008, and granted a fund of $1.78 million from Consultative Group to Assist the Poor (CGAP) Technology Program which is housed within the World Bank and co-funded by Bill & Melinda Gates Foundation. Today, Eko provides a multi-modal (USSD, SMS, IVR and Application) approach to perform a transaction, hence the service works across all phones i.e. lowest to most sophisticated handsets. It has created a transaction platform called 'SimpliBank'. It has done Rs.750 crore worth of transactions since launch; daily transactions average around Rs.10 crore, of which Rs.3 lakh worth of transfers happen via the 130,000-odd customers EKO sourced as a banking correspondent for SBI. It also acts as a banking correspondent for ICICI bank.
h.
With 'SBI Mini Savings Bank Account', it has allowed account holders to carry out financial transactions like deposit and withdrawal from their accounts through their mobile phones at various SBI Eko Customer Banking Finance, November 2012
27
Service Points, like local grocery stores, stationery stores, petrol pumps, PCOs and pharmaceutical shops in far flung villages of Bihar and Jharkhand and Delhi, where the low-wage people rarely have access to a banking system. i.
j.
Airtel had partnered with State Bank of India to announce a joint venture to offer customers a similar service. Back then, SBI had stated that both the companies were to invest Rs 100 crore in the business and this tie-up was supposed to be an exclusive one with the bank. However, this joint venture fell through in December 2011, after the Reserve Bank of India (RBI) was reportedly apprehensive about letting a telecom operator enter the banking space through equity participation. Later, Airtel has announced a partnership with Axis Bank, launching 'Airtel Money Super Account powered by Axis Bank', which will essentially offer no-frills accounts with the Bank on Airtel's mobile platform. Infosys, is the technology partner for the launch and has deployed its WalletEdge and Finacle Digital Commerce solutions. Currently, Airtel has a prepaid payment system license which allows users to deposit cash into "Airtel Money", but they can only use it for payments there after. Because prepaid payment instruments are a closed loop system, they cannot withdraw cash, without a tie-up with a bank.
Concern Point for the Banks Sometime back, telecommunications company O2 ran a series of ads in the UK to launch its card services in partnership with Royal Bank of Scotland subsidiary NatWest. Two years later, O2 has announced that it is moving into a fully fledged wireless payments service in the UK, licensed by the regulatory authority and managed by bankers. I think that the banks must take these developments seriously. As soon the mobile carriers and mobile handset manufacturers shall learn the business of banking, do we really think that they will bequeath the banking business to the banks?
Conclusion Nowadays, at almost all banking and payments' workshops/ conferences, lengthy discussions are made on Mobile banking. The banks talk about a mobile payments system which is cost effective and can cover the unbanked areas. Close work with mobile carriers, handset manufacturers, 28
Banking Finance, November 2012
retailers, merchants and payment groups is going on a faster pace. Yet, many banks do not see this as a threat of the nonbanks. The threat specially comes from the mobile service providers, who see this opportunity as a large market for their growth horizontally. Many mobile service providing companies have tied-up or are in talks with the major banks in India to go for this business opportunity. At the moment, the marriage of the banks and the mobile companies is a marriage of just convenience. Once the mobile companies graduate in handling financial transactions, we would be seeing a lot of divorce cases in this segment more from their side. It may be said this way that in case of the partner in the joint venture finds it more lucrative with larger benefits, they would not mind killing the other partner. Internationally, the best example of this is M-PESA Vodafone's mobile phone based money transfer service and Kenyan mobile network operator - Safaricom. It is well known that M-PESA has been a great success in Kenya that it has become a bank itself, threatening all the banking entities in Kenya. An IT head in one of the major Indian Bank in Kenya commented that It is high time for the banks to think & decide that whether they really look forward for Mobile companies for offering Mobile banking or do they want to develop their own delivery channel/ platform. It should be noticed that SBI has called off two muchhyped initiatives-a joint venture with Bharti Airtel Ltd for mobile banking services, and another with US-based Visa Inc. and Elavon Inc. to build point-of-sale terminals across India. The objective was to build the bank's own network. Point-of-sale terminals are devices used to swipe credit and debit cards for electronic payments. Now, SBI had planned to set up 600,000 such terminals in five years across the country, by its own. I shall close this paper with the quote that the Banking needs shall always be there, for which the banks may or may not be there. Now, it is for the banks to decide that whether they want get foster married to a mobile company or do they want to evolve a better integrated & reliable mobile delivery system by their own. References : Various Sources
RBI’S SECOND QUARTER REVIEW OF ANNUAL POLICY (FY13) - A PERSPECTIVE Salient Points 4 Monetary Measures: l Repo rate maintained at 8%.Consequently the reverse repo and the MSF (Marginal Standing Facility) rate remain unchanged at 7% and 9% respectively l No change in SLR and Bank rate (9%) l CRR has been cut by 25 bps to 4.25% (from Nov 3rd) – releases around Rs.17,500 crs into the system. 4 While the liquidity situation was comfortable in the July-Sept quarter, government’s cash balances and seasonal demand led to liquidity tightening in October. 4 GDP growth: FY13 estimate has been lowered to 5.8% from 6.5% projected earlier. 4 Inflation: Headline inflation, as measured byWPI, is now expected to be 7.5% (earlier 7%). 4 Money Supply and Credit Growth:M3 and non-food credit growth projections lowered to 14% and 16%. 4 Prudential Norms: Has increased the provision for restructured loans to 2.75% from 2%. The related comments indicate a concern about NPA levels and unhedged derivative/forex exposure – RBI will be issuing separate guidelines to monitor the same. At the last policy review, the central bank made it clear that it was concerned about inflation and twin deficits, and the lack of progress on subsidies and fiscal consolidation.The government had over the last few months addressed some of these concerns through new reforms, hike in diesel prices, relief to the power sector and more importantly, a fiscal consolidation roadmap.
RBI has reiterated its concerns about inflation due to increased pass-through of global commodity prices, but has also acknowledged that growth risks are increasing. On the inflation front, it expects slower growth along with rupee strengthening and weakness in global commodity prices to reduce pressures. But it expects supply-side issues along with rising wages (rural/urban) to exert cost pressures. In addition, the central bank expects subsidy rationalization to result in higher prices on items that were hitherto underpriced. Apart from the increased global risks, it expects GDP growth to slow further due to moderation in investment / consumption, confidence levels and decline in export competitiveness. As a result, it left key interest rates unchanged and announced a CRR cut to support liquidity. However, given the growth risks, it has indicated a bias towards monetary
As a result, there were increased expectations of an interest rate cut. However, RBI appears to have felt that these measures, while positive, will take some time to come into effect and focused on inflation/deficits. Banking Finance, November 2012
29
easing in the coming quarters, depending on the growthinflation dynamic.
Markets Indian bond yields moved up as a section of market was expecting a cut in repo rates. Yesterday's close
Today's close
1-year T-bill yield
7.87%
7.97%
5-year Gilt yield
8.08%
8.14%
10-year Gilt yield
8.13%
8.18%
5-year Corporate Bonds (AAA)
8.91%
8.95%
Equity markets fell and banking sector stocks were amongst the top losers, due to the absence of a rate cut and PSU banks came under pressure due to the increased provisioning. Select Equity Indices
(% change since yesterday's close)
BSE Sensex
-1.10
S&P CNX Nifty
-1.19
S&P CNX 500
-1.14
BSE Auto
-1.37
BSE Bankex
-2.35
CNX PSU Bank
-4.06
BSE Realty
-2.28
In India, while there has been no change in benchmark rates, one needs to keep in mind that market rates have moved down over the last two quarters (3 month CP/CD rates have declined by around 250/240 bps since March 2012). In that sense, the economy has already witnessed easing, due to various cuts in CRR/SLR as well as the 50 bps cut in repo rate earlier this year and hence pressure from borrowing costs has already eased. While the fiscal consolidation roadmap announced by the government was a positive move (fiscal deficit to be reduced to 3% of GDP by FY17), there were no specific details announced and until this becomes an act, it will only be a roadmap. Interestingly, the projection for FY 13 is pegged at 5.3% of GDP, which would suggest only a marginal spillover from the earlier projection of 5.1%. On the corporate front, the provisioning measures are a positive step and we need to monitor the developments related to the unhedged exposure to forex and derivatives. This environment clearly underlines the need to focus on bottom up stock picking based on fundamentals.
Outlook
RBI has clearly indicated that it is monitoring the headwinds to growth and based on the evolution of the inflation-growth dynamic, it is likely to ease benchmark rates in the coming quarters. Hence, yields are unlikely to move significantly from these levels over the coming months. Developments on the policy, inflation and global fronts will weigh on the g-sec curve.
Globally, central banks in developed and developing economies have started to ease rates (or boost liquidity) to counter slowing economic growth. While there is some uncertainty about the fiscal and policy issues in US/ Europe, broadly the consensus expectations are that interest rates will remain at lower levels. This stance along with easy liquidity could neutralise to an extent, the benefits of any potential fall in global commodity prices due to slowing demand.
Our portfolios are well positioned to take advantage of these market conditions and advise investors to retain focus on funds focused on corporate bonds. Given the macroeconomic challenges, the possibility of interest rates moving down is higher and spreads between corporate/ gilts should compress further. Open end funds with their active management will continue to be better positioned to take advantage of these market conditions.
Exim Bank's New Study Reports Dr. Kaushik Basu, Chief Economic Advisor, Government of India, Ministry of Finance, presented the Exim Bank International Economic Development Research Annual (IEDRA) Award 2011 to Dr. Brijesh Pazhayathodi for his doctoral dissertation titled,. "Exports of Services and Offshore Outsourcing. An Empirical Investigation in the Indian Context." The winner was announced by Mr. T. C. A Ranganathan, CMD Exim Bank. 30
Banking Finance, November 2012
Can
HUFs lower
your TAX LIABILITY? I am sure many
of you must have wondered whether it is possible for you to have a Hindu Undivided Family (HUF) as a separate taxable entity to lower your income tax liability, but could not go ahead because you were not clear as to what is an HUF and how one can go about it. As the name itself suggests, an HUF is a family of Hindus. Therefore, you have to be a Hindu too be eligible to have an HUF. Even Buddhists, Jains and Sikhs are regarded as Hindus and accordingly can have HUFs.
Members of HUF How many members should the family have in order to be considered in HUF? Normally, the family would consist of a male, his wife, three generations of male descendants, their wives and unmarried daughters of the top three generations. The male members were regarded as coparceners, while the females were regarded as members. The Hindu Succession Act has been amended a few years ago, whereby all daughters are also regarded as coparceners, irrespective of whether they are married or not. Therefore, today all members of an HUF would be coparceners, except the wives, who would be merely members of the family. The difference between a coparcener and a member is that a coparcener can demand partition of an HUF by distribution of its property among its coparceners. On such partition, only coparceners have a share in the property, though other members are entitled to receive maintenance from the HUF. The senior most coparcener would be the karta (manager) of the family.
taxed in the hands of the sole coparcener. Thus, normally a husband and wife would not be taxed as an HUF, except where the funds have been received by the husband on partition of a larger HUF (an HUF of his forefathers). However, today, a husband, wife and son or daughter would constitute an HUF for tax purposes. The HUF is already in existence, though it may not have any funds and therefore no income.
What is the benefit of HUF for tax purposes? An HUF is regarded as a separate taxable entity, different from its members. The rates of tax applicable to an HUF are the same as those applicable to individuals - the slab rates of 10%, 20% and 30%. Therefore, if an HUF has income of Rs.10 lakh, it would pay income tax of Rs.1.3 lakh, whereas if the same income were added to the income of the individual who is in the higher tax slab, he would have paid a tax of 30% on such income, which comes to Rs.3 lakh. If the income is derived by the HUF, there is a tax saving of Rs.1.7 lakh.
Is it so simple? If it is so simple, why are more people not filing separate returns for their HUFs showing such separate income and paying tax at lower rates? What you need to keep in mind is that tax laws do not permit you to divert your own income to the HUF. For instance, your salary income is taxable in your own hands and cannot be taxed as income of an HUF. Only the income attributable to funds invested of the HUF itself or the income from business carried on by an HUF is taxable as the income of HUF.
How does one build up funds of HUF? Who can use it for tax purposes? There needs to be at least two members, one of whom is a coparcener, to constitute a family under Hindu law, but for tax purposes, unless a family consists of at least two coparceners, it is not taxed as an HUF, but its income is
If a member of the HUF converts his own personal savings into HUF funds, the clubbing provisions apply and there is no tax advantage. Continued on page 34 Banking Finance, November 2012
31
ou and your spouse have a savings account in the same bank. You are also thinking of opening an account there for your daughter. Did you know that all three can be clubbed together under a 'Family/Group Savings Account'?
Y
Clubbing does not mean merging all these accounts into one. It simply means that bank will identify the accounts of your family members with a common family 'ID'. By doing so you could be entitled to several benefits such as lower charges on certain transactions, discounts, flexibility in maintenance of minimum balance and so on. At the same time, each account holder in the group can continue to operate their accounts as they always did. Foreign banks such as Standard Chartered and Deutsche and a handful for local bank such as HDFC, ICICI, DCB, YES Bank and IDBI bank offer this facility.
Who's Allowed Typically parents, in-laws, spouses siblings, grandparents, children and grandchildren are included in the list of eligible family members. By filling up a simple form requiring for a group savings account, all eligible accounts can be grouped. These accounts can be clubbed even if they are held in different branches of the same bank, in different towns. While at least two accounts are needed to form a group, usually, about for to six accounts can be clubbed. Some banks also allow non-resident accounts to be counted in. All group accounts will be assigned a common user/customer id. The family members can identify a specific person as the primary member. His/ her user id could be common for the group.
Five benefits One of the most important advantages of holding group savings bank accounts is the flexibility in the maintenance of minimum/average balance. Take the 'aXcell Plus' savings account of Standard Chartered for instance. While a quarterly average balance of Rs.25,000 is required for each account when held independently, grouping your family's aXcell Plus accounts means that it is enough if this Rs.25,000 is held across all the accounts in the group. Considering that banks charge a few hundreds for nonmaintenance of minimum balance, this helps circumvent the charges. Besides, when you fail to maintain the required balance for all accounts put together, the penalty is charged only in the primary account or in some cases to the account with the highest balance. Two, a derived benefit from this flexibility is that it is easier to hold an updgraded account as a group than as an individual. For example, if you want to open an ICICI Bank 'Gold Privilege
32
Banking Finance, November 2012
Group your SAVINGS ACCOUNTS to enjoy benefits Savings Account' individually, the minimum monthly merger balance (MAB) is Rs.50,000. But if you form a 'Gold Privilege Family', the required family MAB is Rs.1 lakh. This implies that if there are four accounts clubbed, then this Rs.1 lakh can be spread across all four in any combination. At the same time, all members can get privilege access/priority treatment at all branches and in customer care. The third sweetener is the concession or waiver on some transaction charges and discounts on bank products. For example, HDFC Bank's family savings group offers a Gold Debit Card at a 50 per cent discount to all applicants for the lifetime of the group, a 50 per cent discount on locker rent for the year of allotment, and 3-4.5 per cent discount on its Mudra Gold bars. Demand draft charges for the family account holders are waived up to Rs.50,000 an account a month. Fourth is the facility to sweep from one account to another inside the group, provided by some banks. If you hold 'Super Savings Family Account' with IDBI Bank, it comes with a family fund transfer facility. Under this, balances will be swept automatically from one family account to another in case there is a shortfall. This would come in handy when, say, you have issued a cheque but your account does not have sufficient balance to honour the cheque. Finally, although you will have a common customer id, banks that we spoke to assure that your privacy will not be compromised. This is because you will access your account online using your own password. SMSs regarding transactions of one-time passwords will also come to your individual mobile numbers (if you have provided them) even if it is a part of the group account.
Conditions A point to be noted is that banks allow only certain types of accounts to be grouped. For example, under what ICICI Bank calls as the 'Savings Family', only a regular SB account, or a 'Life Plus Senior Citizen', 'Young Star' or 'Advantage Woman' accounts can be grouped. HDFC Bank does not provide the family feature to the 'Savings Max' account holders. Some banks may not allow salary accounts to be clubbed. (BL)
Private sector needs CAGtype WATCHDOG
T
oday's economic world has become far more complex with the distinction between private and public sector getting blurred.
There are a range of investors from pubic institutions to sovereign wealth funds, in a large private sector company.Then there is also a rowing need for public private partnerships (PPPs) in infrastructure and socially relevant sectors., This transformation, as well as growing incidence of corruption and misuse of public money,calls for introducing relevant changes in the laws and regulations governing the industrial sector. Since the public sector is already subject to public accountability and scrutiny, the same needs to be extended to the private se3ctor. Besides promoting good governance ethics, pubic accountability would also ensure judicious use of public funds,thus ushering in efficiency and higher growth.
More Oversight Good corporate governance ethics, including transparency, credibility and due diligence are more important today than ever before.Large sums of public money have been invested in corporate houses through stock markets. The apprehension of such vast sums of public money being used extravagant and conspicuous expenditure by the owners of private corporate houses is no longer unfounded. Also, it has been observed that corruption is not a function of ownership. Rather, it is common to both public and private sectors. This makes a case for introducing greater accountability and strong checks and balances. Since the public sector is subject to CAG scrutiny, Parliamentary accountability and Right to Information (RTI) Act, there is a strong case for applying the same to the private sector.
PPP Model Governments across the globe have been entering into a wide array of arrangements with the private sector to utilise its capacities in developing and operating some of key public services. For implementation pf projects, public money, assets, and critical functions are transferred to private hands through privatization, or the public private partnership (PPP)model. However, such a transfer needs proper checks and balances taking into consideration costs and benefits as well as risks and opportunities, lest it results in futures and unmet social needs. Public regulations and accountability would still be relevant for unregulated privatisations and private profits, particularly in a developing country such as India, in order to make economic growth more inclusive and sustainable. Further, for successfully running a PPP project, mutual coordination and cooperation of various government agencies is very important. Proper regulatory mechanisms are required for sustenance of the project. It is very important that good corporate governance practices are followed religiously. Transparent decisions based on ethical practices ensure that the interests of all stakeholders are protected, along with efficient use of resources that results in better products and higher profits. The need for higher investments through PPPs and rising public participation in equity issues makes a strong case for proper checks and balances. Systems such as RTI and Banking Finance, November 2012
33
public auditing akin to CAG should be a part of the nongovernment corporate sector.
organisation concerned have helped in transparency in their procurement process.
At present, the RTI Act covers only the government sector, including public sector enterprises (PSEs), based on the premise that the sector uses public money. RTI which was earlier looked upon with scepticism,for being a hurdle in strategic decision making, has now become more acceptable for improving PSEs image and their functioning.
It has also categorically mentioned that "bribery from the officials of private sector funds is rampant", and has pointed out that government must bring a strong deterrent tool to curb corruption in private sector. It has thus made a strong case for the private sector to adopt the "integrity pact" in order to bring transparency in procurement process.
Corporate decisions, based on transparency, accountability and ethics have become a hallmark of corporate governance practices all across the world. The public sector has always been subject to transparency and public accountability, and RTI has helped it in this regard.
increased
The idea of extending public accountability to the private and social service sector is to encourage judicious use of resources and enhance efficiencies in the system, thereby promoting faster, sustainable and balanced economic growth'. (BL)
Can HUFs lower........ Continued from page 31
NGO Accountability The concept of corporate social responsibility (CSR) is closely linked to achieving inclusive economic and social development. At the same time CSR initiatives are a potent tool for goodwill and image-building for corporates, thus increasing investors' confidence in them. The very basis of PSEs' existence, namely, growth with equity and social justice conforms to the objectives of CSR. The public sector's initiatives are in line with applicable rules and regulations, and thus scope of wasteful expenditures and diversion of funds under CSR is negligible. NGOs, too, are involved in handling large pubic funds for carrying out social welfare programmes. These NGOs are not subject to either RTI or controlled through any statutory/regulatory norms and social audit. Insduch a case, it is of utmost importance to bring the private sector and NGOs under public accountability and RTI. Social service providers, be it private sector undertaking investments under CSR or non-government organisation (NGO) providing social service using large pubic funds, should also be brought under RTI. Extension of the RTI Act would bring greater transparency and accountability. And in case RTI Act is extended to projects with public money it will not be unprecedented, as 19 countries have already brought their private sector in utility segments under RTI like regulations. A recent Transparency International India Survey has observed that PSEs signing an "integrity pact" with the 34
Banking Finance, November 2012
If the HUF does not have inherited funds, the only way it can build up its funds is out of its income, by receiving gifts from close relatives and friends or by receiving an inheritance under a will, where the HUF itself is a beneficiary. Funds received on inheritance from a parent who has expired without leaving a will or who has made you the beneficiary, would not be treated as HUF funds. Again, here you need to keep in mind the provisions of income-tax, taxing gifts received from persons other than relatives. So far as an HUF is concerned, only a member of an HUF is regarded as a relative and in the case of such gifts from relatives, the clubbing provisions apply. Therefore, effectively only gifts of up to Rs.50,000 a year can be received by the HUF from persons other than members of the HUF, without such gifts being taxable. Of course, the basic exemption limit to the extent not utilized by other income would also be available and an HUF which has no income can received gifts of up to Rs.2.5 lakh a year without paying any tax on such gifts. It is essential that the gifts are genuine, and from close relatives and friends, or else you may end up paying tax at 30% of the value of such gifts received, they being treated as unexplained cash credits. Given this, do consider whether it is possible for your HUF to build up its funds and income. Of course, there are various other issues which you need to keep in mind when you are building up the funds of an HUF. (Mint)
BRANCH BANKING Basic Savings Bank Deposit Account With a view to making basic banking facilities available in a more uniform manner across the banking system, the Reserve Bank has advised banks to offer a Basic Savings Bank Deposit Account to all their customers. Banks have been advised to offer the following minimum common facilities to such account holders : 4 No requirement of minimum balance. 4 Deposit and withdrawal of cash at bank branch as well as at ATMs. 4 Receipt/credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by central/state government agencies and departments. 4 No limit on the number of deposits that can be made in a month. 4 A maximum of four withdrawals in a month, including ATM withdrawals. 4 ATM card or ATM-cum debit card facility. Banks have been further advised not to levy any charges for providing the above facilities. Further, such account holders should not be charged for non-operation/activation of in-operative accounts. Banks would be free to evolve other requirements including, pricing structure for additional value-added services beyond the stipulated basic minimum services on reasonable and transparent basis and applied in a nondiscriminatory manner. The'Basic Savings Bank Deposit Account' would be subject to the Reserve Bank's instructions on 'Know Your Customer' (KYC) anti-Money Laundering (AML) for opening of bank accounts issued from time to time. If such an account is opened on the basis of simplified KYC norms, the account would additionally be treated as a small
account and would be subject to the conditions stipulated for such accounts as indicated in the Master Circular on KYC norms/AML standards/combating of financing of terrorism/obligation of banks under PMLA, 2002 dated July 2,2012. Holders of 'Basic Savings Bank Deposit Account' will not be eligible for opening any other savings bank deposit account in that bank. If a customer has any other existing savings bank deposit account in that bank, he/she will be required to close it within 30 days from the date of opening a 'Basic Savings Bank Deposit Account'. Existing basic banking 'no-frills' accounts should be converted to 'Basic Savings Bank Deposit Account'.
Interest Rate on Deposits The Reserve Bank has advised banks to put in place a board approved transparent policy on pricing of liabilities and also to ensure that the variation in interest rates on single term deposits of Rs.15 lakh and above and other term deposits (i.e. deposits of less than Rs.15 lakh) is minimal for corresponding maturities. It has been observed that there are wide variations in the interest rates offered by banks on single term deposits of Rs.15 lakh and above and those offered on other deposits (i.e. deposits of less than Rs.15 lakh) of corresponding maturities. 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.
Premature Repayment of Term/Fixed Deposits The Reserve Bank has reiterated that in case of term deposits with "either or survivor" or "former or survivor" mandate, banks are permitted to allow premature withdrawal Banking Finance, November 2012
35
of term/fixed deposit by the surviving joint depositor on the death of the other, only if there is a joint mandate from the joint depositors to this effect.
meeting with chief executives of major commercial banks presented the First Quarter Review of the Monetary Policy Statement the year 2012-13 on July 31, 2012. High lights :
Banks have also been advised once again to incorporate a clause in the account opening from itself to the effect that in the event of death of the depositor, premature termination of term deposits would be allowed subject to the conditions, which may be specified therein. Banks have also been advised to inform their existing as well as future term deposit holders about the availability of such an option.
Projections
The joint deposit holders may be permitted to give the mandate either at the time of placing the fixed deposit or anytime subsequently during the term/tenure of the deposit. If such a mandate is obtained, banks can allow premature withdrawal of term/fixed deposits by the surviving depositor without seeking the concurrence of the legal heirs of the deceased joint deposit holder. It is also reiterated that such premature withdrawal would not attract any penal charge.
4 Projection of GDP growth for the current year revised downwards from 7,.3 per cent to 6.5 per cent. 4 Baseline projection for WPI inflation for March 2013 raised from 6.5 percent to 7.0 per cent. 4 M3 growth projection for 2012-13 retained at 15 per cent.
Stance 4 Contain inflation and anchor inflation expectations. 4 Support a sustainable growth path over the medium term. 4 Continue to provide liquidity to facilitate credit availability to productive sectors.
Monetary Measures
Payment System
4 Bank Rate retained at 9.0 per cent.
Compensation for Delay in Clearance of Local Cheques The Reserve Bank has advised banks to reframe their cheque collection policies (CCPs) to include compensation payable for the delayed period in the case of collection of local cheques as well. In case, no rate is specified in the CCP for delay in realization of local cheques, compensation at savings bank interest rate should be aid for the corresponding period of delay.
4 CRR of scheduled banks retained at 4.75 per cent of their NDTL
Banks have also been advised to give publicity to their revised CCPs through display board in their branches and on their website for better customer service and dissemination of information. It may be recalled that in November 2008, banks were advised to specify the time line for realisation of local and outstation cheques in their CCPs, including the compensation payable for delayed credit, if any. Banks were also advised to permit usage of the shadow credit afforded to the customer's account immediately after closure of relative return clearing and in any case, to allow withdrawal on the same day or maximum within an hour of the commencement of business on the next working day, subject to the usual safeguards.
First Quarter Review of Monetary Policy 201213 Dr. D. Subbarao, Governor, Reserve Bank of India, in a 36
Banking Finance, November 2012
4 Repo rate under the liquidity adjustment facility (LAD) retained at 8.0 per cent. 4 Reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, retained at 7.0 per cent. 4 Marginal standing facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, retained at 9.0 per cent.
Expected Outcomes The policy actions and the guidance are expected to : 4 Anchor inflation expectations based on the commitment of monetary policy to control inflation 4 Maintain liquidity to facilitate smooth flow of credit to the productive sectors of the economy and thereby support growth.
RRBS Branch Licensing Policy Relaxed for Tier 2 Centres With a view to enhancing the penetration of banking services in Tier 2 centres, it has been decided to allow regional rural banks (RRBs) to open branches in Tier 2 centres on par with the existing policy for Tier 3 to 6 centres. Accordingly, RRBs can now open branches in Tier 2 centres (with population of 50,000 to 99,999 as per Census
2001) without taking the Reserve Bank's permission in each case, provided they fulfill the following conditions, as per the latest inspection report : 4 Capital to risk weighted assets ratio (CRAR) is at least 9 per cent 4 Net non-performing asset (NPA) is less than 5per cent. 4 No default in maintenance of cash reserve ratio (CRR) statutory liquidity ratio (SLR) during the last year. 4 No profit in the last financial year. 4 CBS compliant. RRBs not fulfilling the above conditions would have to continue to approach the Reserve Bank/National Bank for Agriculture and rural Development (NABARD), as hitherto. RRBs desirous of opening branches in Tier 1 centres (centres with population of 100,000 and above as per Census 2001) would also be required to obtain the Reserve Bank's permission, as hitherto. RRBs may approach the Reserve Bank's Regional Office for post-facto automatic issue of the licence/s. The licence should be displayed in the premises of the branch so opened, for the information of its customers/public to instill confidence in them that the branch is authorized to conduct banking business.
FEMA Relaxations to Exchange Earners/Exporters/Ads On a review of the extant guidelines governing exchange earner's foreign currency (EEFC) accounts, cancellation and rebooking of forward contracts booked by exporters and the net overnight pen position limit (NOOPL) of authorized dealer category-I banks, the Reserve Bank has decided to provide the following operational flexibility to exchange earners/exporters and AD Category-1 banks. l
l
l
To restore the erstwhile stipulation of allowing credit of 100 per cent foreign exchange earnings to EEFC accounts subject to the condition that, the sum total of the accruals in the account during a calendar month should be converted into rupees on or before the last day of the succeeding calendar month after adjusting for utilisation of the balances for approved purposes or forward commitments. To allow exporters to cancel and rebook forward contracts to the extent of 25 per cent of the total For computation of net overnight open position involving rupee as one of the currencies, AD Category-
1 banks need not include the positions taken by their overseas branches and also the delta of the options position. It is, however, clarified that these positions will continue to be part of the total NOOPL along with cross-currency positions and positions arising out of exchange traded currency futures/options transactions for calculation of the total foreign currency exposure of banks.
INFORMATION Expert Committee to Streamline SETCCS The Reserve Bank has constituted a Committee under the Chairmanship of Shri Prakash Bakshi, Chairman, NABARD to review the existing short term co-operative credit structure (STCCS) focusing on structural constrains in rural credit delivery system and explore various ways to strengthen the rural co-operative credit architecture with appropriate institutions and instruments of credit to fulfill credit needs. The Committee will make an in-depth analysis of the STCCS and examine various alternatives with a view to reducing the cost of credit, including feasibility of setting up of a two-tier STCCS as against the existing three-tier structure.
Terms of Reference 4 To assess the role played by state and district central co-operative banks in fulfilling the requirement of agriculture credit, the primary purpose for which they were set up. 4 To identify co-operative banks that may not be sustainable in the long run even if some of them have met the diluted licensing criteria for the time being. 4 To suggest appropriate mechanism for consolidation by way of amalgamation, merger, takeover, liquidation and de-layering. 4 To suggest pro-active measures that need to be taken in this direction by the cooperative banks themselves, the Government of India, state governments, the Reserve Bank and NABARD. 4 Any other issues and concerns relevant to the subject matter. Report of Working Group on Enhancing Liquidity in Government Securities and Interest Rate Derivatives Markets The Reserve Bank of India has, on August 13, 2012, placed on its website, the report of the Working Group on Enhancing Liquidity in Government Securities and Interest Rate Derivatives Markets (Chairman: Shri R. Gandhi, Banking Finance, November 2012
37
Executive Director, RBI). The working Group has made various recommendations, which have been categorised into essential recommendations, desirable recommendations and operational recommendations. Some of the important recommendations made by the Group are:
Government Securities Market 4 Consolidation of outstanding government securities, based on model plan indicated in the report; 4 Allocation of specific securities to each primary dealer for market making in them; 4 Gradual increase in the investment limit for foreign institutional investors in government securities keeping in view the country's overall external debt position, current account deficit, size of government's borrowing programme, etc. 4 A road map to gradually bring down the upper-limit on the held-to-maturity portfolio in a calibrated manner to make it non-disruptive to the entities and other stakeholders maybe prepared; and 4 Promotion of the term-repo market with suitable restrictions on 'leverage' and introduction of tripartite repo in government securities.
Retail Participation 4 Services or banks (and post offices if possible at a later stage and in consultation with Government of India) maybe utilized as a distribution channel and nodal point for interface with individual investors; and 4 A centralized market maker for retail participants in government securities in the long-term who would quote two-way prices of government securities for retail/individual investors, may be considered.
Interest Rate Derivatives Market 4 An electronic swap execution facility (electronic trading platform) for the interest rate swap (IRS) market may be introduced with a Central Counter Party mechanism for guaranteed settlement through the electronic platform; 4 Insurance companies, provident funds and other financially sound entities be permitted to participate in IRS market; 4 Futures contracts that have high probability of attracting participant interest, such as, interest rate futures (IRF) based on overnight call borrowing rate to be introduced; and 4 Cash-settle 10-eyar IRF subject to appropriate regulations like restricted participation, entity-based open position limit, price band etc., to be introduced. 38
Banking Finance, November 2012
The Reserve Bank would examine and initiate appropriate action on the recommendations made by the Working Group. Source : Monetary and Credit Information Review, August 2012
Clerical cadre prone to higher attrition Banks put out impressive recruitment figures in their annual reports. But have you ever thought about the attrition rate in these banks? Shocking but true, in some cases, almost half of those who joined had left within a year. The clerical cadre has been witnessing high attrition, especially in banks with a regional focus. Bank unions say the attrition rate is nearly 30 per cent in both the officer and clerical cadres. D. N. Prakash, President of Corporation Bank Officers' Organisation, said that the attrition level in the clerical cadre was as high as 45 per cent in a bank at one point of time. Ask for the reasons, and you get several of them. According to Prakash, some banks have branches only in particular geographical locations, unlike big public sector banks such as State Bank that have branches across the country. Some of the South-based banks have less presence in the northern region, but most of the new recruits in these banks are from the North. The banks find it difficult to place the new employees in States of their choice. This is one of the reasons why most of them don't stick on for more than a year. P. R. Karanth, Joint Secretary of AIBEA, says that someone who joins bank 'A' in the clerical cadre usually gets a good offer from bank 'B' in the officer cadre after two-three years. Even if the banks impose any bond during their appointment, they are ready to pay and leave. To address this, K. S. Bhat, Secretary of the Syndicate Bank Staff Association, said that weightage should be given to those who work in bank 'A' while filling vacancies in the officer cadre. He said a person from clerical cadre had passed IBPS with 167 marks in his bank. But the cut-off for officers' cadre was 168 marks. But he got as officers job in bank 'B', where he matched the cut-off marks. Some relaxation for the existing staff would have helped his bank to retain him. "In this process, we lost a clerical staffer and a person with two years' experience," he said. Bhat said that in some States a lower division clerk in a government office gets a better salary than a bank clerk. Compared to banks, the workload and risks in some government offices are lower. (BL)
List of Websites of Banks in India Nationalised Banks 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.
Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab and Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank
State bank of India & Group 1. State Bank of India 2. State Bank of Bikaner and Jaipur 3. State Bank of Hyderabad 4. State Bank of Indore 5. State Bank of Mysore 6. State Bank of Patiala 7. State Bank of Saurashtra 8. State Bank of Travancore
www.allahabadbank.com www.andhrabank-india.com www.bankofbaroda.com www.bankofindia.com www.maharashtrabank.com www.canbankindia.com www.centralbankofindia.co.in www.corpbank.com www.denabank.com www.indian-bank.com www.iob.com www.obcindia.com www.psbindia.com www.pnbindia.com www.syndicatebank.com www.ucobank.com www.unionbankofindia.com www.unitedbankofindia.com www.vijayabank.com www.statebankofindia.com www.sbbjbank.com www.sbhyd.com www.indorebank.org www.mysorebank.com www.sbp.co.in www.sbsbank.com www. statebankoftravancore.com
Private Banks 1. Bank of Rajasthan Ltd. www.bankofrajasthan.com 2. Dhanalakshmi Bank Ltd. www.dhanbank.com 3. Federal Bank Ltd www.federalbank.co.in 4. ING Vysya Bank Ltd. www.federalbank.co.in 5. Jammu and Kashmir Bank Ltd www.jammuandkashmirbank.com 6. Karnataka Bank Ltd. www.ktkbankltd.com 7. Karur Vysya Bank Ltd. www.kvb.co 8. Ratnakar Bank Ltd. www.ratnakarbank.com 9. SBI Commercial and International Bank Ltd. www.sbici.com 10. South Indian Bank Ltd. www.southindianbank.com 11. United Western Bank Ltd. www.uwbankindia.com 12. Centurion Bank of Punjab Ltd. www.centurionbank.com 13. Development Credit Bank Ltd. 14. HDFC Bank Ltd. www.hdfcbank.com 15. ICICI Bank Ltd. www.icicibank.com 16. IndusInd Bank Ltd. www.indusind.com 17. Kotak Mahindra Bank Ltd. www.kotak.com 18. UTI Bank Ltd. www.utibank.com 19. Yes Bank Ltd. www.yesbank.in Foreign Banks 1. ABN-AMRO Bank N.V. 2. Abu Dhabi Commercial Bank Ltd. 3. American Express Bank Ltd. 4. BNP Paribas 5. Citibank N.A.
www.abnamro.co.in www.adcbindia.com www.americanexpress.com/india/ homepage.shtml www.bnpparibas.co.in www.citibank.com/india
6. DBS Bank Ltd 7. HSBC Ltd. 8. Standard Chartered Bank
www.dbs.com/in/about www.in.hsbc.com/in www.stanchart.com
Cooperative Banks Bihar State Co-operative Bank Limited (BSCB) www.biharbank.bih.nic.in District Co-operative Central Bank Limited, Bidar, Karnataka www.dccbank.com Haryana State Co-operative Apex Bank Limited (HARCOBANK) www.harcobank.nic.in National Federation of State Co-operative Banks Limited (NAFSCOB) www.nafscob.org Agriculture Planning and Information Bank (APIB) megapib.nic.in National Bank for Agriculture and Rural Development (NABARD) www.nabard.orgwww.nabard.org Financial Institutions in India Industrial Development Bank of India (IDBI) Industrial Finance Corporation of India (IFCI Export - Import Bank of India (Exim Bank) Small Industries Development Bank of India (SIDBI) National Housing Bank (NHB) Unit Trust of India (UTI) Life Insurance Corporation of India (LIC) General Insurance Corporation of India (GIC) Securities Trading Corporation of India Ltd. (STCI) Power Finance Corporation Ltd. Housing and Urban Development Corporation Ltd. (HUDCO) City and Industrial Development Corporation of Maharashtra Ltd Foreign Exchange Dealers’ Association of India (FEDAI) Gujarat Industrial Investment Corporation Ltd Housing Development and Finance Corporation Indian Bank‘s Association (IBA) Insurance Regulatory and Development Authority (IRDA) North Eastern Development Finance Corporation (NEDFI) Pondicherry Industrial Promotion Development and Investment Corp. Ltd Pradeshiya Industrial Development Corporation RIICO Tamil Nadu Industrial Development Corp (TIDCO) Udhyog Bandhu, UP West Bengal Electronics Industry Development Corporation (WEBEL) West Bengal Industrial Development Corporation (WBIDC) Credit Rating Agencies ICRA Ltd CRISIL
www.idbi.com www.ifciltd.com www.eximbankindia.com www.sidbi.com www.nhb.org.in www.unittrustofindia.com www.licindia.com www.gicofindia.com www.stcionline.com www.pfc.gov.in www.hudco.org www.cidcoindia.com www.fedai.org.in www.giicindia.com www.hdfc.com www.indianbanksassociation.org www.irdaindia.org www.nedfi.com www.internetindia.com/pipdic www.picup.com www.riico.com www.tidco.com www.upindia.com www.webel.com www.wbidc.com www.icraindia.com www.crisil.com
Banking Finance, November 2012
39
Regulatory Bodies The banking Codes and Standards Board of india Indian Bankss' Association Stock Market Securities and Exchange Board of India Bombay Stock Exchange National Stock Exchange of India Ltd National Securities Depositories Ltd Central Depository Services (India) Ltd Inter-connected Stock Exchange of India Ltd Reserve Bank of India – Various Monetary Policy Department Department of Currency Management Department of External Investments and Operations Department of Banking Operations and Development Department of Non-Banking Finance Companies Department of Economic Analysis and Policy Rural Planning and Credit Department Department of Statistical Analysis and Computer Services Internal Debt Management Department Foreign Exchange Department Department of Banking Supervision Inspection Department (Internal) Department of Expenditure and Budgetary Control Department of Information Technology Department of Payment and Settlement System Department of Government and Bank Accounts Human Resources and Development Department Department of Administration and Personnel Management
www.bcsbi.org.in www.iba.org.in www.sebi.com www.bseindia.com www.nseindia.com www.nsdl.co.in www.cdslindia.com www.iseindia.com Departments helpmpd@rbi.org.in helpdcm@rbi.org.in helpdeio@rbi.org.in helpdbod@rbi.org.in helpdnbs@rbi.org.in helpdeap@rbi.org.in helprpcd@rbi.org.in helpdesacs@rbi.org.in helpidmd@rbi.org.in fedcopcd@rbi.org.in helpdbs@rbi.org.in helpinternalaudit@rbi.org.in helpdebc@rbi.org.in helpdit@rbi.org.in helpdpss@rbi.org.in helpdgba@rbi.org.in helphrdd@rbi.org.in helpdapm@rbi.org.in
Reserve Bank of India - Regional Offices Bhopal office helpbhopal@rbi.org.in Hyderabad office helphyderabad@rbi.org.in Jaipur office helpjaipur@rbi.org.in Bhubaneshwar office helpbhubaneswar@rbi.org.in Nagpur office helpnagpur@rbi.org.in Ahmedabad office helpahmedabad@rbi.org.in Kolkata office helpkolkata@rbi.org.in Patna office helppatna@rbi.org.in New Delhi office helpnewdelhi@rbi.org.in Chandigarh office helpchandigarh@rbi.org.in Chennai office helpchennai@rbi.org.in Bangalore office helpbangalore@rbi.org.in Kanpur office helpkanpur@rbi.org.in Belapur office helpbelapur@rbi.org.in Guwahati office helpguwahati@rbi.org.in Lucknow office helplucknow@rbi.org.in Kochi office helpkochi@rbi.org.in Thiruvananthapuram office helpthiruvananthapuram@rbi.org.in Panaji office helppanaji@rbi.org.in Mumbai office helpmumbai@rbi.org.in Jammu office helpjammu@rbi.org.in Designated Nodal Officers for Complaints Redressal Cells at Regional Offices of Reserve Bank of India Office Name of the Nodal Officer & Designation Tel Number E-mail address
40
Banking Finance, November 2012
Ahmedabad Shri. Deepak Chikale Manager 079-27542216 rdahmedabad@rbi.org.in Bangalore Smt. Nisha Nambiar Asst. General Manager 080 - 22277620 crcbangalore@rbi.org.in Belapur Shri. B.M. Patnaik Asst. Gen. Manager 022 - 27576717 rdbelapur@rbi.org.in Bhopal Shri. D.C. Soni Manager 0755 - 2553179 rdbhopal@rbi.org.in Bhubaneswar Smt. Manisha Mishra Asst. Gen. Manager 0674 - 2406089 rdbhubaneswar@rbi.org.in Chandigarh Shri. Arvind K Sharma Deputy Gen. Manager 0172 - 2721366 rdchandigarh@rbi.org.in Chennai Shri. S. Srinivasan Asst. Gen. Manager 044 - 25367236 rdchennai@rbi.org.in Guwahati Shri. P. Pramod Kumar
Asst. Gen. Manager 0361 - 2517111 rdguwahati@rbi.org.in Hyderabad Shri. K Mohan Rao Asst. Gen. Manager 040 - 23231043 rdhyderabad@rbi.org.in Jaipur Shri. G.C. Singhi Manager 0141 - 2562060 rdjaipur@rbi.org.in Jammu Shri. Chhotaram Manager 0191 - 2474886 rdjammu@rbi.org.in Kanpur Shri. G.K. Mohan Asst. Gen. Manager 0512 - 2306381 rdkanpur@rbi.org.in Kochi Smt. Santha Paul Manager 0484 - 2402820 rdkochi@rbi.org.in Kolkata Shri. A. B. Mahapatra Deputy Gen. Manager
www.amfindia.com www.assetmanagenent.abnaro.co.in ww.benchmarkfunds.com www.birlasunlife.com www.bobmf.com www.camsonline.com www.canbankmutual.com www.dbscholamutual.com www.deutschemutual.com www.dspmlnutualfund.com www.escortsmutual.com www.fidelity.co.in www.franklintempletonindia.com www.hdfcfund.com www.hsbcinvestments.co.in www.ingvysyamf.com www.jmmutual.com
033 - 22300470 rdkolkata@rbi.org.in Lucknow Looked after by Kanpur office Mumbai Smt. A.S.Telang Asst. Gen. Manager 022 - 22665724 rdmumbai@rbi.org.in Nagpur Shri. D.D. Chauganjkar Manager 0712 - 2532351 Ext. 387 rdnagpur@rbi.org.in New Delhi Shri. G.C. Talukdar Asst. Gen. Manager 011 - 23731054 rdnewdelhi@rbi.org.in Panaji Shri Rahul Sinha Manager 0832 - 2438660 Patna Shri. Chandan Kumar Asst. Gen. Manager 0612 - 2322587, rdpatna@rbi.org.in Thiruvananthapuram Shri. G. Lenin Manager 0471 - 2324778 rdthiruvananthapur@rbi.org.in
www.kotakmutual.com www.licmutual.com www.lotusindiaame.com www.moneypore.com www.msgindia.com www.mutualfundsindia.com www.principalindia.com www.pruiciciamc.com www.quantumame.com www.reliancemutual.com www.saharamutual.com www.sbimf.com www.sebi.gov.in www.standardcharteredmf.com www.sundaramfinance.com www.tatamutualfund.com
Profile Statement III: Private Sector Banks : Income As on March 31 ( ` Crore)
S.No. BANKS I
NATIONALISED BANKS
1
Interest Income
Other Income
Total Income
2009
2010
2011
2009
2010
2011
2009
2010
2011
City Union Bank Ltd.
804
957
1218
124
143
157
928
1100
1376
2
ING Vysya Bank Ltd.
2240
2233
2694
548
620
655
2788
2853
3349
3
SBI Commercial & International Bank Ltd.
54
40
36
3
6
5
57
46
42
977
1118
1371
136
173
188
1113
1291
1559
1376
1359
0
131
130
0
1507
1489
0
4
Tamilnad Mercantile Bank Ltd.
5
The Bank of Rajasthan Ltd.
6
The Catholic Syrian Bank Ltd.
557
578
762
100
74
75
656
652
837
7
The Dhanalakshmi Bank Ltd.
408
535
906
79
91
147
488
626
1053
8
The Federal Bank Ltd.
3315
3673
4052
516
531
517
3831
4204
4569
9
The Jammu & Kashmir Bank Ltd.
2972
3057
3713
261
416
365
3233
3473
4078
10
The Karnataka Bank Ltd.
1949
1976
2371
322
379
292
2271
2355
2663
11
The Karur Vysya Bank Ltd.
1446
1758
2218
265
247
264
1711
2005
2482
12
The Lakshmi Vilas Bank Ltd.
658
909
1065
107
104
137
765
1013
1202
13
Nainital Bank Ltd.
209
224
257
10
16
11
219
240
268
14
The Ratnakar Bank Ltd.
138
144
189
16
13
19
154
157
208
15
The South Indian Bank Ltd.
1687
1936
2446
164
208
197
1851
2144
2643
I
TOTAL OF 15 PVT BANKS [I]
18790
20497
23299
2782
3152
3029
21572
23649
26328
II
NEW PRIVATE SECTOR BANKS
16
Axis Bank Ltd.
10835
11638
15155
2897
3946
4632
13732
15584
19787
17
Development Credit Bank Ltd.
645
459
536
120
107
112
765
566
648
18
HDFC Bank Ltd.
16332
16173
19928
3291
3983
4335
19623
20156
24263
19
ICICI Bank Ltd.
31093
25707
25974
7604
7478
6648
38696
33185
32622
20
Indusind Bank Ltd.
2309
2707
3589
456
553
714
2766
3260
4303
21
Kotak Mahindra Bank Ltd.
3065
3256
4304
274
628
633
3339
3884
4937
22
YES Bank
2001
2370
4042
437
576
623
2438
2945
4665
II
TOTAL OF 7 NEW PVT BANKS [II]
66282
62310
73528
15078
17271
17697
81360
79580
91225
III
TOTAL OF 22 PVT BANKS [I+II]
85071
82807
96827
17860
20422
20726
102932
103229
117553
Banking Finance, November 2012
41
Statement IV: Private Sector Banks : Expenditure As on March 31 ( ` Crore)
S.No. BANKS I
NATIONALISED BANKS
1
Interest Expended
Operating Expenses
Total Expenditure#
2009
2010
2011
2009
2010
2011
2009
2010
2011
City Union Bank Ltd.
562
678
798
140
166
216
701
844
1015
2
ING Vysya Bank Ltd.
1590
1403
1688
772
808
1026
2363
2211
2714
3
SBI Commercial & International Bank Ltd.
36
33
26
10
10
10
46
43
36
4
Tamilnad Mercantile Bank Ltd.
643
744
827
204
231
298
848
975
1125
5
The Bank of Rajasthan Ltd.
998
1024
0
315
493
0
1313
1517
0
6
The Catholic Syrian Bank Ltd.
391
455
514
187
189
289
577
644
803
7
The Dhanalakshmi Bank Ltd.
287
394
641
113
193
344
400
587
986
8
The Federal Bank Ltd.
2000
2262
2305
571
677
836
2571
2939
3142
9
The Jammu & Kashmir Bank Ltd.
1988
1938
2169
471
577
759
2459
2515
2928
10
The Karnataka Bank Ltd.
1444
1708
1758
347
386
549
1790
2094
2307
11
The Karur Vysya Bank Ltd.
1036
1193
1451
258
349
431
1293
1542
1881
12
The Lakshmi Vilas Bank Ltd.
504
660
700
152
186
228
656
847
928
13
Nainital Bank Ltd.
116
131
141
39
45
56
155
175
197
14
The Ratnakar Bank Ltd.
74
85
94
33
39
94
108
124
189
15
The South Indian Bank Ltd.
1164
1367
1655
328
366
463
1493
1734
2117
I
TOTAL OF 15 PVT BANKS [I]
12834
14076
14768
3939
4715
5600
16773
18791
20368
II
NEW PRIVATE SECTOR BANKS
16
Axis Bank Ltd.
7149
6634
8592
2858
3710
4779
10007
10343
13371
17
Development Credit Bank Ltd.
448
317
347
242
201
215
690
518
562
18
HDFC Bank Ltd.
8911
7786
9385
5533
5940
7153
14444
13726
16538
19
ICICI Bank Ltd.
22726
17593
16957
7045
5860
6617
29771
23452
23574
20
Indusind Bank Ltd.
1850
1821
2213
547
736
1008
2397
2557
3221
21
Kotak Mahindra Bank Ltd.
1547
1397
2058
1196
1189
1553
2743
2587
3612
22
YES Bank
1492
1582
2795
419
500
680
1911
2082
3475
II
TOTAL OF 7 NEW PVT BANKS [II]
44123
37130
42347
17840
18136
22006
61964
55265
64354
III
TOTAL OF 22 PVT BANKS [I+II]
56957
51206
57115
21779
22851
27606
78737
74057
84722
#Excludes Provisions& Contingencies
42
Banking Finance, November 2012