WASHINGTON: The Reserve Bank of India will soon come out with major reforms in the banking sector that will let foreign banks enter India and even take over domestic lenders, governor Raghuram Rajan has said.
“That is going to be a big, big opening because one could even contemplate taking over Indian banks, small Indian banks and so on,” he told a Washington audience on Saturday.
The policy framework for the entry of foreign banks in India, Rajan added, would be unveiled in the next few weeks. The banking sector reforms, particularly those facilitating entry of foreign banks in India in a “big way”, are part of the five pillars of reforms, including the monetary policy framework, which the RBI is going to implement in the next few years, the RBI governor said.
“For foreign banks, if you adopt a wholly-owned subsidiary structure — and we are coming up with details on that in the next couple of weeks — we will allow you near-national treatment,” he said, quickly adding that there would be two conditions.
“One, reciprocity — your country should allow the same to our banks and, two, you come through one route — you have either a branch or a subsidiary. Don’t do both. That is primarily to simplify our regulatory function, but also to make it clean. But once you have a fully owned subsidiary, we would allow you a lot of freedom,” he said.
Acknowledging that price situation was an issue for the economy, Rajan said the ordinary monetary policy would be focused on containing inflation and not directed towards external sectors.
The RBI is scheduled to present the quarterly review of the monetary policy on October 29.
Referring to the US shutdown, Rajan expressed full confidence in the American economy and ruled out selling of US treasury bills, which India holds to the tune of $59.1 billion.
“We (India) do not worry about that issue (US defaulting). We are not selling our US assets. We are holding on to them,” he said, adding, “I have to say, whatever default, will be a technical default.”
We do not expect the US not… from my understanding, because repayments can be prioritised, unless there is a sudden stop and markets stop taking new US debt meant to refinance the old debt, there is no chance that the US will default.”
Rajan said it would be good for the US to adopt fiscal policies consistent with its current needs and added, “The 1-1.5% of US growth would be so tremendous and welcome to the world economy.”
Elaborating on the banking sector reforms, Rajan said they would be a part of his five pillars of reforms, which would start with the monetary policy.
“We’ve got to get our monetary policy clear and understood by the broader public. Clearly, the RBI has had a monetary policy framework — we need to make it much more explicit.
And also bring it up to the modern standards of transparency and credibility,” Rajan said.
Observing that the RBI had already announced free branching in India, Rajan said, “We announced that we will give new bank licenses not just once, but we would contemplate opening it on tap — people come in and submit their application, we consider them and give licences.”
Deepening of Indian markets is another area of policy reforms, he said, adding “We want deeper Indian markets — the corporate markets, the government debt markets and the money markets.”
Noting that the level of technology in India is tremendous, Rajan said financial inclusion is another sector of his reform. “We can think about technology-based solutions. Across the board, we would use to spread financial inclusion technology,” he said. “Whether it be corporate distress or financial institution distress, we need to improve our mechanism to make it simpler, cleaner and less value-reducing,” he said.
(Source: The Financial Express, October 14, 2013)
UPA’S MAIN ADVERSARY IS RSS, NOT BJP: FM
WASHINGTONDC: The government is working on a carefully selected agenda of financial sector reforms that don’t require legislation and can be put in place by April at the latest, Finance Minister P Chidambaram said. “We have got the report of FSLRC (Financial Sector Legislative Reforms Commission). We are picking out elements of the FSLRC report which can be implemented in the next four-six months without legislation. We have also got a small group preparing the steps that have to be taken which require legislation,” Chidambaram told ET in an exclusive interview. The finance minister expects the economy to do better this year than the decade-low 5 per cent it slumped to last fiscal, but said it wouldn’t be possible to indicate a precise inflection point. “The economy turns around as a result of policy decisions, administrative actions, external factors and some internal developments over which we may not have full control. So that’s an event. It’s not something you mark on a calendar,” the FM said. Congress is monitoring what Modi is saying, said Chidambaram, who is in the US to attend the annual meetings of International Monetary Fund and World Bank. “BJP has named him as a candidate. Whether he is a good candidate or a poor candidate, whether he’s a tough candidate or a push-over candidate, only time will tell as the campaign unfolds… We will, of course, carefully analyse every pronouncement of his and express our views,” he said. The finance minister didn’t say what Congress will offer voters, but said it will pledge a forward-looking economic agenda with a strong pro-poor bias. “There is a manifesto committee which is working on that and it is for the manifesto committee to prepare the manifesto. But I have no doubt in my mind that the manifesto will be forward-looking, will encourage investment, entrepreneurship, growth, but there will be a pronounced bias in favour of helping out and reaching out to the poor,” he said.
FM SLAMS IMF ON ‘PESSIMISTIC’ INDIA OUTLOOK
WASHINGTONDC: Finance minister P Chidambaram rejected the International Monetary Fund’s “pessimistic” growth forecast for India and called for a review of its methodology, citing significant divergence between its forecasts and final numbers. Speaking at the Fund’s Plenary Meeting in WashingtonDC on Saturday Chidambaram also asked for the speeding up of quota reforms and urged the Fund to improve its surveillance. “We do not share this pessimistic outlook,” Chidambaram said, questioning the IMF’s sharp downward revision in its India growth estimate for the year. In its World Economic Outlook released last week, the IMF said India’s economy will grow only 3.8 per cent in 2013-14, down 1.8 percentage point from its July estimate of 5.6 per cent. “I would like to ask, respectfully, what is the information that IMF has gathered between July and September, that we do not have, that has impelled the Fund to drastically change the estimate?” Chidambaram said. That growth number is not strictly comparable with India’s official statistics because of the difference in the methodology – IMF’s national account statistics are on market-price basis as opposed to India’s, which is at factor cost. However, on factor cost basis also the IMF sees India’s economy expanding only 4.25 per cent in 2013-14, placing it among the lower band of private forecasts. Both the finance ministry and the Reserve Bank of India expect the economy to expand 5-5.5 per cent.
FINANCE MINISTRY SENDS RAGHURAM RAJAN REPORT TO PLANCOM FOR ‘NECESSARY ACTION’
NEW DELHI: Finance Ministry has forwarded to the Planning Commission for “necessary action” the report of Raghuram Rajan Committee on states which seeks to do away with the special category status for poorer states, evoking sharp reactions. “Following the recommendations of the Finance Minister and pursuant to the directions of the Prime Minister, I am enclosing a copy of the report of the (Rajan) Committee for necessary action,” said an official communication from the Finance Ministry to the Planning Commission. Sources said the letter has been received from the Finance Ministry and the Commission will take a view on the recommendations of the Rajan Committee. The Rajan Committee, which suggested a new formula for providing assistance to the states on the basis of a Multi-Dimentional Index (MDI), evoked divergent reactions from the states. “The Prime Minister has also directed that the recommendations of the Committee may be examined and necessary action in this behalf may be taken,” said the Ministry.
RAJAN’S PLANS TO CHANGE TRADE CREDIT MAY BRING RELIEF TO SMEs
MUMBAI: The 3.6-crore micro, small and medium enterprises, which account for nearly 10 per cent of the country’s gross domestic product, could get a substantial boost if the moves by Reserve Bank of India governor Raghuram Rajan to change the way trade credit is treated have their intended effect. Rajan’s plans to permit trade in the receivables of small companies that sell goods to big producers such as Tata Motors or Maruti Suzuki may bring relief to small industries as this leads to the cost of working capital falling sharply. A supplier waiting 90 or 120 days to receive payments from final goods producers may be able to discount receivables in an electronically operated exchange similar to stock exchanges. If a small company is able to sell receivables, its interest payment to the bank drops to that extent. “It is a sign of matured markets and a good idea to ensure payments to MSMEs within definite timetable,” said S Mundra, chairman and managing director of Bank of Baroda. “Only a few things need to be taken care of like the quality of receivables, mechanism of payments as well as legal and operational aspects.
COUNTRIES AVOID IMF UNLESS THEY ARE DESPERATE, SAYS RBI GOVERNOR
WASHINGTON: Days after saying that India will not seek funds from the International Monetary Fund in the next five years, RBI governor Raghuram Rajan has said that countries now only go to the IMF when they are desperate, which according to him is a dangerous situation. “I have to say that there are a number of countries that would stay some distance from the IMF, because it would be politically very difficult for them to get anywhere very close unless they were desperate,” Rajan said at an Institute of International Finance event on Saturday. “I think waiting till you are desperate is too late. And so countries are, therefore, going to try and avoid being in that position and I think that is damaging for the global economy. We have to find a better solution,” said Rajan, who in his previous capacity was a top economic advisor to the IMF. Earlier this week, Rajan had said that India would not be going to IMF for help in the next five years. “There’s no way we are close to being a country in financial or economic crisis… There’s not a chance we will go to the IMF for money in the next five years,” he said at a debate global economy on a private news channel.
I AM NOT A SUPERMAN, SAYS RAGHURAM RAJAN
WASHINGTON: With a “little bit of euphoria” surrounding him with the arrest of the Indian rupee’s slide, RBI’s new governor, Raghuram Rajan, has sought to temper expectations saying, “I am not a superman.” Portraying himself as a regular guy with “a wife and two kids”, he told a Washington audience on Saturday what the country’s central bank could do or not do. “Expectations are high. There is a little bit of euphoria in India,” said Rajan, a former chief economist at the International Monetary Fund (IMF) and economic adviser to Prime Minister Manmohan Singh, at an event at the Institute of International Finance. But “clearly I am not a superman”, said Rajan, who has often been portrayed in the media as a “rock star” of finance. “We can do more than what a central bank in an industrial country can do. But we can in some ways do less,” he said. “On where we can do more, clearly there are a lot of low hanging fruit in the financial sector,” he said. Rajan, who was here to attend the just concluded annual IMF-World Bank meetings, said emerging market economies were less understood and financial sector reforms can be incredibly positive for growth going forward. “I think, with the financial sector reforms, coupled with the real sector reforms, the growth turnaround should be on its way,” he said.
CENTRE IS READY FOR TOUGH STEPS TO CHECK DEFICIT: FM
WASHINGTON: Committing to contain the fiscal and current account deficit, finance minister P Chidambaram has said the government will not hesitate before taking difficult decisions to keep them in check. “The government is committed to the path of fiscal consolidation and has drawn red lines for the two deficits (fiscal and current account). We shall not allow the red lines to be breached under any circumstances, and we shall remain within the red lines. We are prepared to take difficult decisions in this regard, should the need arise,” he said. Chidambaram said this during an intervention at the IMF Committee plenary meeting here on Saturday. The government proposes to bring down fiscal deficit, an indicator of government borrowing, to 4.8% of the GDP in 2013-14 from 4.9% a year ago. As regards the current account deficit, Chidambaram had earlier said that all efforts would be made to contain it at 3.7% of the GDP or $70 billion in the current fiscal. The CAD, the difference between the inflow and outflow of foreign exchange, had touched an all-time high of 4.8% of the GDP, or $88.2 billion, a year ago.
BANKERS CUT CONSUMER LOANS, CRY FOUL ON GOVERNMENT MISSIVE
Mumbai: A government missive to public sector banks to boost consumer loans in the festive season has confused bankers, who argue that the move by the Congress-led United Progressive Alliance (UPA) amounts to government-directed lending ahead of next year’s general election. On 3 October, the finance ministry said in a statement that the government will infuse extra capital in state-owned banks to help them lend to consumers at lower rates to finance the purchase of two-wheelers and consumer durables to stimulate demand. About a fortnight before, the Reserve Bank of India (RBI) hiked its key lending rate. The budget for the current fiscal has provided Rs.14,000 crore towards capital infusion in public sector banks. The latest announcement on capital infusion is over and above that. Such a step could set a precedent for similar treatment in other segments, which could lead to credit bubbles at some point, besides sending confusing signal to the markets on interest rates, economists said. Analysts cautioned that forced lending could have an impact on banks’ profitability. The promised capital hasn’t reached banks yet, but they have begun slashing rates. At least seven state-run banks, including State Bank of India (SBI), have cut auto and consumer loan rates by up to 2.5 percentage points.
BANKS WON’T BUDGE ON ROAD LOAN RIDERS
NEW DELHI: Many banks have virtually stopped lending to road projects where the developers are unable to bring 50% equity capital upfront, do not have 100% of the required land in possession or have not obtained the requisite environmental clearances. “We have been insisting on these two requirements (100% land and 50% equity capital upfront by promoters) for quite sometime now,” a senior Punjab National Bank official told FE, wishing not to be quoted. Sources in the road sector and the National Highway Authority of India (NHAI) also confirmed that despite several meetings with NHAI and the road ministry, banks have started asking highway developers to show more equity contribution upfront before they lend to the project. SBI, another big player in the area, has discontinued lending to road projects without 100% land in possession. RK Dubey, chairman and managing director (CMD) of Canara Bank, said though the bank has not brought out general guidelines internally, it is getting selective when in lending to road projects. “Since we can’t choke funds to the sector, we have strengthened our due diligence process. We are giving loans only on the basis of the financial strength of the group that is developing the project. We have to safeguard the interest of our bank in all the possible ways as the non-performing assets are rising,” he said.
PSU BANKS NEED TO SET UP 137 ATMs A DAY TO MEET FINMIN TARGET
NEW DELHI: Public sector banks will have to race against time to install 137 ATMs every day to meet the Finance Ministry’s target of putting up cash dispensing machines at all their branches by March end. According to the ministry, all the public sector banks are running behind schedule. The banks, which are required to install onsite ATMs at 34,668 branches by March 31, had set up 5,726 at the end of August. In the remaining seven months of the financial year, the 26 public sector banks will together have to set up 28,942 ATMs, or an average of 137 every day. The government has directed public sector banks to have ATMs at all their branches as part of its financial inclusion drive. Finance Minister P Chidambaram said in his last Budget speech that “public sector banks have assured me that all their branches will have an ATM in place by March 31, 2014.” At the end of March 2013, public sector banks had a combined 72,340 branches, of which 37,672 had onsite ATMs.
WITH A WOMAN AT THE HELM, HOPES OF SBI’S FEMALE STAFFERS SOAR
MUMBAI: A faster and more rational transfer policy tops the wish list of women employees of the State Bank of India as they look to their new Chairperson, Arundhati Bhattacharya, with expectant eyes. Expectations have soared among women employees, at least in cities, after Bhattacharya took over the reins of the country’s largest bank. They expect their boss to empathise more with their concerns. When Bhattacharya took over earlier this week, she said she will try to make “spousal” transfers faster and effective. Most women employees, we spoke to, were welcoming of their new boss. An employee named Geeta Aravind said, “As a woman, it is a very proud moment for all of us. She seems co-operative, ethical and enterprising.” We hope she will let women stay in the same circle as it will help in enhancing the productivity of all women employees, Geeta said. “While other women have reached the top positions in ICICI, Axis Bank and HSBC… being the chairperson of SBI is prestigious,” Geeta said, adding that 2013 is the year of women.
SCOTIABANK MAY TIE UP WITH JEWELLERS FOR GOLD DEPOSIT PLAN
MUMBAI: The biggest bullion-importing bank in India plans to team up with jewellers for the first time to offer a gold deposit scheme, hoping ease of access and attractive interest rates will tempt people to part with their jewellery and relieve tight supplies. Bank of Nova Scotia is in talks with trade group the Gems and Jewellery Trade Federation (GJF) and the Reserve Bank of India (RBI) to finalise details, the head of the bank’s Indian bullion operations said. Gold imports to the world’s biggest bullion buyer have all but dried up after steps taken by the government and RBI to cut them to help rein in a record current account deficit, leaving domestic jewellers scrambling for supplies. With demand still strong and expected to rise in the next few months as the festival season starts, the gold industry has turned its sights on the 20,000 tonnes of gold thought to be squirrelled away in homes.
INSURANCE BIZ MAY REACH RS 4 LAKH CRORE THIS YEAR
HYDERABAD: Insurance business in India is expected to reach Rs 4 lakh crore in the current financial year, according to Insurance Regulatory and Development Authority (Irda) chairman T S Vijayan. The total premium collected by general and life insurance industry stood at Rs 3.75 lakh crore last year. “Both the general and life insurance sectors have been doing well in recent months. I expect the total business this year would be anywhere near the Rs 4 lakh crore figure,” he said recently here while responding to a question on the insurance sector scenario. Addressing the convocation ceremony of the Institute of Insurance and Risk Management (IIRM), Vijayan said insurance penetration in the country had a potential to rise to 5-6 per cent from the present 3.86 per cent level in the short-term. The regulator has initiated various steps to transform insurance policies, which essentially fall into the category of ‘push product’ into a ‘pull product’ by making them more relevant to the needs of the policy holder, according to him. A push product is marketed to a customer having no desire to either purchase or learn about it while the pull product is something that the customers seek out.
LIFE INSURANCE MARKET IS HUGE, AND IT’S ‘GOING TO GET BIGGER’
NEW DELHI: Canara HSBC Oriental Bank of Commerce Life Insurance Company (CHOLIC) put competition on notice when it clocked a maiden profit of Rs 23.5 crore in 2012-13 and that too in its fifth year of operations itself. Distributing exclusively through its shareholder banks — Canara Bank (51 per cent stake), HSBC (26 per cent) and OBC (23 per cent) this life insurer has a potential customer base of five crore bank clients. Launched in June 2008, the life insurer had as of September 2013 sold 4.15 lakh policies and recorded gross written premium of Rs 7,310 crore . With an entrenched bancassurance play, the life insurer’s Chief Executive Officer John Holden says that the company does not see any commercial case in having an agency channel. The company is not going to build an agency force. It will also not enter into health insurance to cash in on this segment’s strong growth in recent years. Holden’s vision for the life insurer is to put a policy in the hands of all the five crore bank customers of the three shareholder banks.
STANDARDISED PRODUCTS WILL REDUCE SCOPE FOR MIS-SELLING, SAYS MD, KODAK LIFE
MUMBAI: Private life insurer Kotak Mahindra Old Mutual Life Insurance is gearing up for product approvals as per the new product guidelines by the insurance regulator. In an interview with Business Line, G. Murlidhar, Managing Director of Kotak Life, thinks the near-term uptick for the industry will depend on two key factors — the pace at which the industry is able to adjust to product changes and economic growth rate. He says that his highest priority is to align products to the new product guidelines. He thinks the company has done well in managing expenses and keeping costs under control and will pay more attention to improving distribution efficiency. Excerpts from the interview: How many products have been approved by the Insurance Regulatory and Development Authority so far? As of now, all unit-linked products and two traditional products has been approved. The remaining traditional products too should get approved soon. We look forward to have all product approvals in place at the earliest. IRDA has given the industry three months’ extension for launching the new products? How will it help? The extension is a welcome development. The extra time will make the transition from the old product regime to the new one smooth.
NBFCs GAIN BIG FROM BAN ON BANKS LENDING 0 PER CENT LOANS
Nilesh Gupta, managing director at Mumbai’s biggest retailer Vijay Sales, felt as if the roof was coming down when weeks before the festive season began, the Reserve Bank of India banned banks from offering 0 per cent lending for purchase of goods. To his delight, he realised in a couple of days that finance companies could fill the void created by banks’ exit. Business is booming as usual during the Navratri and Diwali festival season and televisions and iPhones are flying off the shelf. Consumers are almost unaffected, but the beneficiaries of the demand will be the non-banking finance companies, and banks have come out losers. “There was a slight worry initially, but the RBI ban is mostly for banks and credit cards,” says Gupta of Vijay Sales, which has been selling consumer durables for more than four decades in Mumbai. The regulator feels consumers have been fooled by 0 per cent or discounted interest rate schemes into believing that bank funding comes for free and it wants them stopped. Consumer durable manufacturers make the 0 per cent facility available mostly on high-value products such as smart phones, LED televisions and premium home appliances. “We have a regulatory function and a consumer protection function,” said Raghuram Rajan, the governor of RBI, in an interview to ET.
PRIVATE EQUITY FUND-PROMOTER RIFT ADDS TO INVESTMENT WOES
MUMBAI: It may seem like a drop in a bucket compared to the billions of dollars poured in to back Indian enterprises. However, the growing friction between private equity (PE) funds and entrepreneurs is, by now, simply hard to miss. Disputes with promoters over mismanagement, financial irregularities and other corporate governance issues are leading to investments in Asia’s third largest economy being increasingly written down. The recent spate of cases has involved marquee PE names — from General Atlantic to TPG to Bain — bickering over cooking of books and wilful deceit by promoters of their portfolio companies. While some are battling it out in courts, others have taken a hit on their investments as investee firms teeter on the brink. The unexpected fights open a new front against investors that will cost them dear and undermine wider investment in the country. PE, which is coming of age in India, has pumped in over $60 billion across sectors since 2006, fuelling the ambitions of several middling promoters and aspiring entrepreneurs. “PE is generally a more sophisticated investor who would figure out mala fide practices, which a small investor wouldn’t,” said Rahul Bhasin, Managing Partner at Baring India, and among the early PE investors in the country.
BANKS’ EARNINGS LIKELY TO MODERATE IN Q2, SAY ANALYSTS
MUMBAI: Continued asset quality pressures, treasury losses and margin contraction due to tight liquidity are likely to moderate banks’ earnings in the second quarter of this fiscal (2013-14). “Net interest margins, especially for the public sector banks, will remain under pressure in the quarter ending September 30, 2013, as their base rates were not increased despite a rise in their cost of borrowed funds after the RBI’s liquidity squeeze move in July,” said Vaibhav Agrawal, Banking Analyst, Angel Broking. He said the asset quality pressures will continue to drag the profits of public sector banks, widening the gap between them and private sector banks. Net interest income (NII) of PSBs and private sector banks would grow by around 9 per cent and 22 per cent, respectively. According to Vishal Narnolia of SMC Global Securities, NIMs of PSU banks will only be marginally hit as borrowed funds were just 10 per cent of the total deposits as compared with 22 per cent of deposits for private banks. “Hence, the spike in borrowing costs due to the hike in MSF (marginal standing facility) rate affected PSBs less. Private banks increasing their base rate would have helped reduced their losses,” he said. Additional provisioning, restructuring and non-performing assets (NPAs) will weigh on the income of banks, particularly PSBs. “However, banks that have seen some recoveries could spring a surprise, improving the asset quality by 5-8 per cent, Narnolia added.
SEBI WORKING ON GUIDELINES FOR SOCIAL MEDIA USE IN CAPITAL MARKET
NEW DELHI: Sebi is looking to frame guidelines to check the possible misuse of social media in capital markets so as to protect investor interest. The move is a part of efforts to curb manipulative practices in the market through the use of social media. That apart, with increasing popularity of platforms like Twitter and Facebook, capital market regulators worldwide are also looking to tap such tools to understand overall trends and also gather market intelligence. A senior Sebi (Securities and Exchange Board of India) official said it would take some time before the regulator finalises guidelines related to social media use. “It will take quite sometime to get our acts together… We are starting something in a very very preliminary level,” the official said. The International Organisation of Securities Commissions (IOSCO), the global grouping of capital market regulators that includes Sebi, recently resolved to focus on the social media, which could also serve as a tool for gathering market intelligence and identifying trends.
RURAL GROWTH STORY IS A BRIGHT SPOT FOR INDIA INC, INVESTORS
The rain gods have been kind to India. According to Indian Meteorological Department (IMD), for the country as a whole, the rainfall for the season (June-September) was 106 per cent of its long period average, an indication of a good monsoon. This is expected to leave farmers with more money in their hands, which could increase spending and consumption in the coming months. With 50 per cent of the Indian population depending on agriculture to earn their livelihood in some form or the other, this is good news for companies which are dependent on rural income. “A good monsoon will increase the purchasing power of rural India. It could benefit FMCG companies, two-wheelers and tractors, agrochemical and fertiliser companies in the coming months,” says K Ramanathan, executive director and chief investment officer, ING Mutual Fund. In anticipation, stock prices have already started moving up in the last 45 days. For example, ITC has moved up from Rs 300 to Rs 342, while Rallis from the agrochemical sector has seen its price move up from Rs 145 to Rs 164 and Bajaj Auto from the two-wheeler space has moved up from Rs 1,861 toRs 2,140. With concerns on the current account deficit, high interest rates, high inflation, the macroeconomic scenario still looks bleak.