Raghuram Rajan appointed 23rd RBI governor

Raghuram Govind Rajan, the country's chief economic advisor to the Finance Ministry, will take up the mantle of governorship in the Reserve Bank of India (RBI) from September 5. The present incumbent - D Subbarao will demit his office on September 4, this year.

"Prime Minister has approved the appointment of Dr. Raghuram Rajan as the Governor of Reserve Bank of India (RBI) for a term of three years, vice Dr. D. Subba Rao upon completion of his (Dr. Rao's) tenure," the government said in a release on Tuesday.

Rajan is going to be the 23rd governor of India's the central bank since May 19, 1975 when N C Sengupata had assumed the responsibility. With this move, it scorched all speculations for the top post of the banking regulator. The other two names, which were floating around included the Planning Commission member Saumitra Chaudhuri and economic affairs secretary ArvindMayaram.

Dr Rajan (50) has worked extensively in the field of economics across the world. He is an Indian economist who served as Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. He is also a visiting professor for the World Bank, Federal Reserve Board, and Swedish Parliamentary Commission.

Besides, he has served many other international bodies before becoming the chief economist of the International Monetary Fund (IMF). Finally, he entered the north block in August, 2012 to serve as the economic advisor in the ministry of finance.

"It is a great honour to be appointed as RBI governor. It is a challenging time for Indian economy. Both the government and RBI are working together to tackle it. There is no magic wand to disappear the economic problems overnight. No doubt, India will deal with its problem," Dr Rajan said in a press breifing in New Delhi.  

He is assuming the post at a time when Indian economy is going through a rough weather. By RBI's own submission in the first quarter (April-June) monetary policy, it is facing the "impossible trinity" or trilemma of controlling foreign exchange rate, the rate of inflation and the monetary policy stance. 

Banking starts charges on sending SMS and internet services.

Banks become greedy day by day more due to inflation. Banks increased charges or levy charges on such services which are used to be free earlier. This includes looking saving account either by SMS or internet.

Some banks which used to offer free debit cards now levy charges and other increased the charges. Also some banks increased charges for cash deposit or issuing a demand draft.

This all make banking costlier and it will affect more to a common man.

This all because of high cost operations of the banks and low income generation. Thus as per banks, there is no option left to them but to increase or levy charges on the services.

SMS

Now the account holder needs to pay some charges for getting SMS by the banks on debit or credit entries as well as to know the balances of the accounts.

Banks say that the cost of SMS has increased 5 times compare to past as well as telecom companies have increased the cost of SMS. So they pass it on customers.

Some banks like Axis bank and ICICI bank charge 15 Rupees per quarter whereas Kotak Mahindra bank charges 120 Rupees per year.

PNB has revised the cash deposit charges at all branches within the same clearing centre and city. From April 2, customers are being charged Re 1 per Rs 1,000 or a minimum of Rs 25 per transaction on select products such as savings account. Monish Shah, Senior Director at Deloitte India, said though banks started with free services to remain competitive, there is now an increasing emphasis on operational efficiency.

“There is a realization that being value driven is also important. Moreover, there is a segment of customers willing to pay for these services.”

Oldest Bank of India & Asia

"Bank of the Philippine Islands" ( Click Here) is oldest bank of Southeast Asia. its established in 1828. The oldest bank of India is Bank of Calcutta established in Calcutta on 2 June 1806.it was the first joint-stock bank of British India sponsored by the Government of Bengal.The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) this three bank merged together as an act was passed in Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955 (Click Here) (go to about us) Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries.


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Nair Committee Report on Priority Sector Lending

Nair Committee Report on Priority Sector Lending

The Reserve Bank of India, on February 21, 2012 has released the report of the Committee (Chairman: M V Nair, Chairman, Union Bank of India) constituted to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending and related issues.

The Major Recommendations of the Nair Committee are:

• The sector ‘agriculture and allied activities’ maybe a composite sector within priority sector, by doing away with distinction between direct and indirect agriculture. The targets for agriculture and allied activities may be 18% of Adjusted Net Bank Credit (ANBC) or credit equivalent of off-balance sheet exposure (CEOBE), whichever is HIGHER.
  
• A sub target for small and marginal farmers within agriculture and allied activities is recommended, equivalent to 9% of ANBC or CEOBE,whichever is HIGHER to be achieved in stages by 2015-16.
• The MSE sector may continue to be under priority sector. Within MSE sector, a sub target for micro enterprises is recommended equivalent to 7% of ANBC or CEOE, whichever is HIGHER to be achieved in stages by 2013-14.
• The priority sector targets for foreign banks may be increased to 40% of ANBC or CEOBE, whichever is higher with sub-target of 15% for exports and 15% for MSE sector, within which 7% may be earmarked for micro enterprises.

Bank loans to non-bank financial intermediaries for on lending to specified segments may be allowed to be reckoned for classification under priority sector, up to a minimum of 5% of ANBC or CEOBE, whichever is HIGHER, subject to certain due diligence and documentation standards.

What are Basel banking norms

Around 10 public sector banks (PSBs) will get a total capital infusion of Rs 12,517 crore from the government before this financial year ends. This is to enable a step-up of lending at this time of slowing economic growth, as well as meeting the capital adequacy norms. In the light of this development here is a short primer on Basel banking norms.

Basel is a city in Switzerland which is also the headquarters of Bureau of International Settlement (BIS). BIS fosters co-operation among central banks with a common goal of financial stability and common standards of banking regulations.  Currently there are 27 member nations in the committee. Basel guidelines refer to broad supervisory standards formulated by this group of central banks- called the Basel Committee on Banking Supervision (BCBS). The set of agreement by the BCBS, which mainly focuses on risks to banks and the financial system are called Basel accord. The purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. India has accepted Basel accords for the banking system.

Basel I

In 1988, BCBS introduced capital measurement system called Basel capital accord, also called as Basel 1. It focused almost entirely on credit risk. It defined capital and structure of risk weights for banks. The minimum capital requirement was fixed at 8% of risk weighted assets (RWA). RWA means assets with different risk profiles. For example, an asset backed by collateral would carry lesser risks as compared to personal loans, which have no collateral. India adopted Basel 1 guidelines in 1999.

Basel II

In 2004, Basel II guidelines were published by BCBS, which were considered to be the refined and reformed versions of Basel I accord. The guidelines were based on three parameters. Banks should maintain a minimum capital adequacy requirement of 8% of risk assets, banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that is  credit  and  increased disclosure requirements. Banks need to mandatorily disclose their risk exposure, etc to the central bank. Basel II norms in India and overseas are yet to be fully implemented.

Basel III

In 2010, Basel III guidelines were released. These guidelines were introduced in response to the financial crisis of 2008. A need was felt to further strengthen the system as banks in the developed economies were under-capitalized, over-leveraged and had a greater reliance on short-term funding. Also the quantity and quality of capital under Basel II were deemed insufficient to contain any further risk. Basel III norms aim at making most banking activities such as their trading book activities more capital-intensive. The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.

Basel II           vs.         Basel III

Earlier guidelines, popularly known as Basel-II was focused on macro prudential regulation, those features being carried out in Basel-III norms as well with added advanced support. That systemizes the changed motives of regulators now – they have sharp concentration on financial stability of the system in totality instead of micro regulation of any inidual bank. Under the Basel-III norms, Key Capital Ratio has been raised to 7% of risky assets - Tier-I capital that includes common equity and perpetual preferred stock will be raised from 2 to 4.5% starting in phases from January 2013 to be accomplished by January 2015. Moreover, banks will have to set aside another 2.5% as a contingency for future stress, taking the overall capital ratio or Capital Conservation Buffer to 7%. Banks that would fail to comply after the stipulated timeline would be unable to pay idends, though they will not be forced to raise cash.

A further countercyclical buffer in average of 0%-2.5% of common equity is to be imposed depending on specific circumstances of an economy to protect the banking sector from periods of excess aggregate credit growth. A liquidity buffer, much like our Statutory Liquidity Ratio (SLR) is to be made mandatory by January 2018 to check the risk based measures and higher capital norms for systemically important bank.

On paper, Basel-III will triple the quantum of capital, banks will need to maintain but whether it will make the banking sector risk-proof is doubtful. Thus, regulation would decide whether Basel-III norms is light touch set of rules or indeed an effective panacea for hassle free and ethical functioning of banking system.