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Articles for Banking

Rajan Says Economy In Better Shape, But Flags Volatility

Reserve Bank Governor Raghuram Rajan has said macroeconomic fundamentals of the country have improved over the past two years and emerging market economies like India are better placed to face any eventuality. In the same breath, he cautioned against more volatility, given conflicting action by the developed world. After the "taper tantrums" starting mid-May 2013, when the Fed hinted at reversing its easy money policy, "a combination of global factors and concerted domestic policy decisions" have helped the country, Rajan said in the foreword to the Financial Stability Report 2015 (FSR) released by RBI today. "The macro-economic fundamentals have improved and we have also been able to build buffers to fight any future uncertainty," he said, stressing that "we need to be vigilant". "With back-to-back quantitative easing by other major central banks, alongside the possible tightening by the Fed, what we have seen might be only one of a series of such 'tantrums' that the global markets are likely to witness."  Rajan has repeatedly called for policy co-ordination at global forums, saying policies in the developed world driven by domestic needs can adversely impact other developing countries in an inter-connected world. Reiterating the need for a consensus here, Rajan said: "There is a need to be vigilant about the spillovers (of the Fed ending the near-zero interest rate regime)... For India, what matters is reducing inefficiencies as also improvements in non-price competitiveness."  He also underscored the need for promoting "healthy innovation while ensuring financial stability". The vision for the overall regulatory framework envisages a "balanced, predictable, institution-neutral, ownership-neutral and technology-neutral" regime, he said. FSR is published by a sub-committee of the Financial Stability & Development Council headed by the RBI Governor. The sub-committee has representation from the heads of other regulators like Sebi, IRDAI, FMC and PFRDA, apart from the Chief Economic Advisor and the Finance Secretary, among others.(PTI)

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State-run EPF To Start Equity investments In July

India's state social security fund, undeterred by resistance from trade unions, will start investing in equity markets next month, the labour minister said, as part of a reform drive aimed at boosting the economy.With more than $100 billion of assets from some 80-million members, the Employees' Provident Fund Organisation (EPFO) is one of the world's largest. It will begin by investing in exchange traded funds, with the goal of earning higher returns."We are starting with 1 per cent in July and by the end of this (fiscal) year it will go up to 5 per cent" of annual investments), Labour Minister Bandaru Dattatreya told Reuters in an interview late on Wednesday.India's fiscal year ends March 31.An EPFO official said the fund annually invested nearly 1 trillion rupees ($15.72 billion), out of which it could invest nearly 50 billion rupees ($785.95 million) in equities between July and March.The move is part of Prime Minister Narendra Modi's agenda to reform Asia's third largest economy, which includes changing tax, land and labour regulations.The new EPFO rules may help Modi hit an ambitious target of raising nearly $11 billion through selling shares in state-run firms and minority stakes in private companies this fiscal year, a senior government official said, because for the first time EPFO will be able to buy the government's shares.In the past, the government has nudged the state-run Life Insurance Corp of India into buying its assets when market interest is low, a model that could be replicated with EPFO, the official said.Dattatreya said that if the experiment was successful, the fund could increase its equity exposure to 15 percent of annual investments over the next few years. At current investment rates, that would be about $2.5 billion a year.Some unions have opposed EPFO investing in share markets as they worry that their life-long savings could be depleted in a market crash.Until now, EPFO's market exposure has been limited to government and corporate bonds. It earned a return of 9.22 per cent on its investments last fiscal year, and paid 8.75 per cent to its subscribers.But with yields falling on debt securities, the returns are likely to be "much, much more moderate" this year, a senior official at the EPFO said.(Reuters)

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The Politics Of Plastic

Come to think of it. North Block wants to curb black money; it’s mooted a set of initiatives to boost plastic payments – it’s for tax breaks if you transact through debit and credit cards. And contrary to what some trade bodies will tell you, it’s all for a tax rebate for merchants if at least 50 per cent of the transactions is through electronic means; or alternatively, a 1-2 per cent reduction in value-added tax. What’s the idea behind all this? Black money has to be, and can be curbed. You get to have an audit trail of transactions; the Centre can use plastic and e-transactions to ensure welfare schemes reach the audience they are targeted at; and plug leakages. And when you mine such data over a period of time, banks, retailers and the taxman can laugh all the way to the bank – for the right reasons. What’s Sauce For The Goose…It’s almost a decade since the Reserve Bank of India (RBI) introduced its Know-Your-Customer (KYC). The essence of KYC is that a bank should know you: Who are you? What are you? Why do you do what you do? As a customer that is. Of course, in the process, it did put in a few conditions wherein it became difficult to open a bank account. That was corrected ahead of the launch of the Pradhan Mantri Jan Dhan Yojana. What you can’t get away from (even if it was not overtly stated) is that Mint Road wanted some very clever amongst us to change their way of life, and not continue to laugh all the way to the bank by doing what they were doing – that is by being clever. Look at the tamasha that’s on in New Delhi. An otherwise sensible voice describes a transaction as a commercial one between two private individuals; what’s the government got to do with all this? It’s not so simple. It does not follow that just because a transaction is conducted or settled in private or that it was routed through banking channels, it’s above board. To better flesh out this point, let’s flashback to the RBI’s mastercircular dated 1 July, 2014 (KYC/Anti-Money Laundering Standards/Combating of Financing of Terrorism/Obligation of Banks under Prevention of Money Laundering Act (2002)  Read this paragraph on politically exposed persons (PEPs); it may be long, but is worth a read.  It says “banks should gather sufficient information on any person, customer of this category intending to establish a relationship and check all information available on the person in public domain. Banks should verify the identity of the person and seek information about the sources of funds before accepting PEP as a customer. The decision to open an account for PEP should be taken at a senior level which should be clearly spelt out in Customer Acceptance Policy. Banks should also subject such accounts to enhanced monitoring on an ongoing basis. The above norms may also be applied to the accounts of family members or close relatives of PEPs and accounts where the PEP is the ultimate beneficial owner. In the event of an existing customer or the beneficial owner of an existing account, subsequently becoming PEP, banks should obtain senior management approval to continue the business relationship and subject the account to the Customer Due Diligence measures as applicable to the customers of PEP category including enhanced monitoring on an ongoing basis”. Now let’s go back to the latest set of plastic initiatives. Just about every other payment is sought to be audited now – with the enhanced use of plastic and e-transactions (please see below)  What’s On The Cards?At present, there is a Merchant Discount Rate (MDR) of 0.75% on debit-card transactions up to Rs 2,000 and 1% on all transactions above Rs 2000. The possibility of reduction in the MDR and the rationalisation of the distribution of the MDR across different stakeholders will be examined.The existing inter-change fee on debit and credit-card transactions are not uniform and need to be standardised and or rationalised to encourage both issuing and acquiring banks to establish and utilise acceptance infrastructureTax benefits could be provided to merchants for accepting electronic payments. Example: an appropriate tax rebate can be extended to a merchant if at least say 50% value of the transactions is through electronic means. Alternatively, 1-2% reduction in value added tax could be considered on all electronic transactions by the merchants Tax benefits in terms of income-tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means The authentication requirements for different classes of transactions could be re-examined based on the risk profile and safety requirements Consider a levy of a nominal cash-handling charge on transactions greater than a specified level Mandating settling of high value transactions of, say, more than Rs 1 lakh, only by electronic means At present, banks have to report the aggregate of all payments made by a credit cardholder as one transaction, if such an amount is Rs 2 lakh in a year. To facilitate high value transactions, the ceiling of Rs 2 lakh could be increased to say Rs 5 lakh or more   All this is well and good. But what about funding of political parties?! Just look at the transparency guidelines issued by the Election Commission of India (1 October, 2014). It noted that “Concerns have been expressed in various quarters that money power is disturbing the level playing field and vitiating the purity of elections”. Okay, “we all know that” you may say. Read this too. If the expenditure incurred by political parties exceeds Rs 20,000, then payment should be made by cheque, draft and not by cash unless there is a lack of banking facility or towards payment of party functionaries. And that while providing lumpsum amounts to candidates for campaigning during elections, political parties shall not exceed the ceiling prescribed for expenditure by the candidate and that the payment should be made only through crossed cheque, draft or bank transfer. If the ECI is for transparency, why is North Block mum on the matter in the new payments’ architecture it has imagined for you and I? Tailpiece: Read the RBI circular on 15 January, 2015 on ‘Foreign Donor Agencies placed in Prior Permission Category’. (It’s on RBI.org.in). Of course, it’s another story! 

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No Guns, No Roses

Not a fortnight passes by without a snippet -- at least -- on how a bank was left red-faced as cash was fed into its automated teller machine (ATM). That is some Danny Ocean walked away rich. It can only get worse. It’s well over two years since cash logistics firms (CLF) – the ones who load cash into ATMs, take it from toll-posts to banks or in general, move cash about town – raised red-flags over the security aspect of the game. That gun licenses are hard to come by. The matter was taken up with the Reserve Bank of India which said that gun licences came under the purview of the Home Ministry. The deadlock continues. "Its nobody's concern, but our's! The media goes to town with a robbery story. But do you know what we go through everyday", asks the CEO of a CLF. Trouble started when three states -- Maharashtra, Andhra Pradesh and Karnataka – clamped down on gun licenses. That too in an industry where they were hard to come by in the first instance. Now roughly 4,000 weapons are needed to run daily operations of CLFs. Under the terms of contract terms, CLFs have to provide armed guards or they will not be able to get insurance cover for the cash and valuables they move about. It’s not good news as the boom in retail (banking and sundry retailing) means you have much more cash to sort, replenish and carry around. It is estimated to be an Rs 1,500-crore industry: about 10,000 cash vans ply on roads; employs close to 50,000 and expected to grow at 50 per cent annually. It’s an industry where numbers are hard to come by; it’s also secretive by nature. The big four in the business — CMS, Brinks, SIS-Prosegur and Writers — share 80 per cent of the market between them and, on an average, cart over Rs 20,000 crore in cash daily. Which means, in a year, it is a whopping Rs 73 lakh crore. Add all CLFs and it is Rs 91.25 lakh crore. This was the math two years ago; insiders say that amount would now top closer to Rs 100 lakh crore. That’s because the installed ATM base is now at 1,93,000; it is lower than what the London-based Retail Banking Research’s (RBR) projection of 2,25,000 for 2014. RBR — a strategic research and consulting firm in retail banking, automation and payment systems — reports are the gold standard in this line of business. The ATM rollout may have slowed down, but you can’t get away from the fact that about 50,000 new units are deployed every year (this includes replacements of old machines and installations at new sites as well). And that means more cash on the road needs to be guarded. With the curb on guns, that can prove to big headache for CLFs. But if you are in the Danny Ocean mould, it’s a great chance to move in and make a killing! 

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YES Bank Shareholders Reapprove Rana Kapoor As MD & CEO

Shareholders of Yes Bank, India’s fifth largest private sector bank, have wholeheartedly backed the reappointment of Rana Kapoor as the MD & CEO for a period of three years. At the bank’s eleventh annual general body meeting (AGM) on 6 June, the shareholders voted overwhelmingly in favour of the resolution reappointing Kapoor as the bank’s top executive.The shareholders also approved the resolution fixing the remuneration of Kapoor. “This is a reflection of the faith reposed by the shareholders in Rana Kapoor’s vision & leadership,” the bank said in a release. The AGM saw shareholders approving the reappointment of M.R. Srinivasan as chairman of the bank as well as the appointment of Diwan Arun Nanda and Ajay Vohra as independent directors. A clutch of special resolutions on capital raising by the bank including Rs 10,000 crore through non convertible debentures and bonds as well as $1 billion in fresh equity received the stamp of shareholder approval as did the one on raising the combined Foreign Portfolio Investors (FPIs) and Foreign Institutional Investors (FIIs) investment limit to 74 per cent of the bank’s paid-up capital. Among other resolutions that the shareholders approved included a dividend of 90 per cent (Rs 9 per share), which the bank claims is the highest among private banks; balance sheet for the financial year 2014-15 as well as profit and loss account for 2014-15; and appointment of M/s S R Batliboi & Co. as the bank’s auditors. Radha Singh, non executive chairperson, Yes Bank, thanked the shareholders saying, “We are extremely satisfied with the trust and faith shown by the institutional and retail shareholders to the Board of Directors, in the bank’s performance, its growth plans and decisions to maintain the highest professional standards of management.” Singh added that with the enabling approvals in place, Yes Bank would now look to capitalise on the renewed economic momentum and achieve its vision of emerging as the finest large Indian bank by 2020. The AGM was attended by 9 of the bank’s 10 directors including Kapoor (Diwan Arun Nanda was travelling) The attendees included Radha Singh, Non-Executive Chairperson; independent directors Ajay Vohra, Brahm Dutt, Mukesh Sabharwal, Ravish Chopra and Vasant V. Gujarathi; and M.R. Srinivasan, Non-executive, non-independent director.

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PSU Banks To Get $3 Billion Capital Infusion

The government plans to inject about $3 billion into state-owned banks this fiscal year and could double that amount next year in a push to boost capital and help lenders meet the global Basel III regulatory requirements, Finance Secretary Rajiv Mehrishi said. The planned capital infusion into the state lenders, which account for more than 70 per cent of all outstanding bank loans, is more than double an earlier estimate of Rs 7,940 crore ($1.25 billion) made in the government's budget for this fiscal year. It was unclear, however, what impact the increased funding would have on the fiscal deficit, which the government has targeted at 3.9 per cent of GDP. "What we are aiming at is an infusion of about $3 billion in the current year and perhaps twice as much in the next year," Mehrishi told news local news channel CNBC-TV18, during a visit to the United States with Finance Minister Arun Jaitley. Shares of most state-run banks rose on the news, with Punjab National Bank gaining as much as 4.9 per cent. A slowing economy and stretched corporate balance sheets have led to a surge in bad loans at Indian banks. State-owned lenders have amassed bad loans at a faster pace than their privately owned peers, raising doubts about their ability to meet tougher global regulatory capital requirements. Rating agency ICRA estimates non-performing loans at state banks this fiscal year to rise to between 5.3 per cent and 5.9 per cent of total loans from 4.4 per cent in the year that ended March. Morgan Stanley estimated this month the government would need to inject $15 billion across all state banks "urgently" to achieve a common equity tier 1 ratio of around 10 per cent. Mehrishi said the government could finance the increased funding through off-budget means, but gave no further details. It was also not immediately clear if the government would require banks to fulfil certain conditions to be eligible for grants. When it announced its previous plans for the $1.25 billion capital injection, the government had said the top most profitable banks would be eligible. Mehrishi and finance minister Jaitley are in the United States to promote investment in India. (Reuters)

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Actually, Yes Bank Verdict Is A Relief For Rana Kapoor

The Bombay High Court on Wednesday (17 June) turned down Madhu Kapur's request for appointing her daughter Shagun Kapur Gogia on the board of YES Bank. The verdict clearly upholds the unanimous decision of the YES Bank board of directors to reject Gogia’s nomination as she does not meet the ‘fit and proper’ regulatory criteria. The high court has also rejected the repeated expectation of a reserved seat for Madhu Kapur. With this verdict, Rana Kapoor will lead YES Bank into another round of growth and  continue this very young bank’s fast paced expansion. This mandate is a mandate to Rana Kapoor for YES Bank's growth. The key findings of the Bombay high court are following: 1.  Articles of Association: The court has held  that "I  have  very  little  doubt that  there are articles  that require amendments, both for consistency going  forward and also to resolve  the present disputes" 2. Shagun Kapur Gogia's rejection on the Board of YES Bank is final The  plaintiffs have sought to appoint Shagun Kapur Gogia (daughter of Madhu Kapur) on the board of YES Bank, which  was rejected  by the board of directors of YES Bank, as she did not satisfy the 'fit and  proper' guidelines of Reserve Bank of India. The Bombay high court has upheld the decision of the board of directors. The court  maintained that "whether  or not the board found Shagun's work  profile and background commensurate is not for me to assess. This is entirely outside my remit" The court has also observed that "the plaintiffs do not have the right to demand that the second plaintiff  (Shagun Kapur Gogia) be accepted onto the board without Rana Kapoor's concurrence and consent." 3. No reservation of a seat for Madhu Kapur & her family members on the Board of YES Bank: The court  amongst other  observations unequivocally held  that "Nothing in the Articles leads to the conclusion that the plaintiffs  are entitled to a 'reserved seat' on YES Bank's board". "Apart from anything else, a demand for a seat on the board seems to me to fly in the face of YES Bank's ethos. It is said to be the professional's bank. That necessarily means that it cannot run like a family estate.  Consequently, I do not believe it is open to the plaintiffs  to demand that any of them take a seat reserved for them on Yes Bank's Board." 4. Appointment of  Rana  Kapoor as MD & CEO of YES Bank upheld and is final: The court has rejected  all the contentions raised  by the plaintiffs against Rana Kapoor. The court has unequivocally held that the appointment of Rana  Kapoor has been approved by the RBI and  the shareholders. "It is not as if YES Bank is operating entirely without shareholder and regulatory oversight.  It is not  possible to accept the plaintiffs submission in relation to the appointment of Rana Kapoor" The court has also observed that "under his (Rana Kapoor) stewardship, in the seven years since Ashok Kapur's death,YES Bank has grown and progressed exponentially, to the benefit of all, not least, the plaintiffs themselves." Further, the court observed that "the appointment of a managing director is not an 'office or place of profit" per se. Rana Kapoor's appointment  is one of the matters in the ordinary course of YES Bank's business. It is an arms-length transaction". The shareholders at the bank's AGM on June 5, 2015 fully supported the resolutions for reappointment of Rana Kapoor as the MD & CEO of the bank for a further period  of three years. 5. Appointment of  Diwan Arun Nanda and Ajay Vohra as independent directors: The court has held  that the Bank had  not procedurally complied  with  the necessary  formalities for appointment of these directors as independent directors.  However, the court  pointed out  that "whether  or not this can be rectified is for YES Bank to detennine" The  court  has further observed that "YES Bank to take the necessary steps to revalidate, appoint  or reappoint  the persons  in question (subject to them meeting statutory  requirements of course, including the age limits). There is no finding of disqualification of any of these directors for want of ability or credentials." 6.  Appointment of M R Srinivasan and Ravish Chopra: The court  has held  that  there  was a procedural infirmity in these appointments in view of the interpretation regarding the Articles of Association of the Bank. However, the court  has held  that "There is sufficient space and room for YES Bank to correct its course in the time ahead." It may also be noted   the court  has clarified  that ''YES Bank to  take  the  necessary  steps  to  revalidate,  appoint  or reappoint the persons in question (subject to them meeting statutory requirements of course, including the age limits). There is no finding of disqualification of any of these directors for want of ability or credentials." 7. The proposed appointment of whole-time directors The  court has held that the proposed  appointment  of  the aforesaid Whole-time directors is procedurally improper in view  of the interpretation of the existing  language of the Articles of Association. The court   itself  has  suggested  that   these   Articles  of  Association require redrafting.

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Federal Bank Launches All New Mobile Banking App

Federal Bank launched the all new version of FedMobile, the Mobile Banking App of the Bank. The new and improved version comes with added convenience to customers making it simpler, faster and friendlier to use. Customers can register for mobile banking anywhere, anytime, and start availing the service immediately after downloading the App. To facilitate this, options for generating new PIN and resetting new PIN are enabled through the mobile App itself. Thus it dispenses with the need to visit the branch to register for availing the service.Fedmobile facilitated funds transfer to other bank accounts as well which can be done through NEFT and IMPS modes. It now has value-added services such as top up, recharge of mobile phones, payment of utility bills, payment of school fees etc. FedMobile is integrated with Bank’s e-passbook App, Fedbook thus facilitating access of FedBook through FedMobile.As a launch offer, the Bank has announced a Cash Back of Rs 50 for customers who initiate a transaction worth Rs 100 or above as their first transaction using the new version of FedMobile. The Cash Back amount will be credited to the customer’s account within 24 hours of the transaction.  This offer is valid up to 31st July 2015.The new version is currently available in smart phones with Android Version 4 upwards, and will soon be made available in iOS, Windows and Blackberry based phones.

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