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Banking News 24.01.2017

Vaijay Mallya case: CBI arrests former IDBI

Chairman Yogesh Agarwal  & eight others


The Economic Times

Published on January 24, 2017



New Delhi, January 23: The Central Bureau of Investigation has arrested former chairman and three ex-executives of IDBI Bank and four executives of Kingfisher Airlines in the Vijay Mallya loan default case, said sources today. Earlier today, CBI has searched the offices of Vijay Mallya-owned United Breweries (UB) group in Bengaluru, informed a CBI official.


"A 12-member team of the CBI is searching the offices in the UB City with a search warrant from a Delhi court. We are providing logistical support and assistance to the team," the official told IANS.  Though the official declined to specify the reason for the search warrant, informed sources hinted that the exercise was in connection with a FERA violation case against the group companies and Mallya.


The group company said its officials were cooperating with the CBI team. CBI has registered two cases against Mallya who had left the country after changes were made in the CBI lookout circular against him enabling his exit.


These are the nine people who have been arrested:


1. A Raghunathan CFO KF Airlines

2. Shailesh Porkar AVP KF Airlines

3. Amit Nadkarni DGM Finance KF Airlines

4. A C Shah SR Manager Accounts KF Airlines

5. Yogesh Agarwal then CMD IDBI

6. B K Batra then Deputy MD IDBI

7. O V B Undelu then Deputy MD IDBI

8. S K V Srinivasan then ED IDBI

9. R S Sridhar then GM IDBI



From E-Group, Banking-News



Deposit rates are untenable, will have to be

cut in future: Arundhati Bhattacharya


The Financial Express

Published on January 24, 2017



New Delhi, January 23: The State Bank of India chairman, Arundhati Bhattacharya on Monday said “SBI hasn’t survived for 211 years by ignoring competition. Have huge collaboration; don’t just rely in branches.” She was at Mint Conclave.


Bhattacharya said SBI has opened 50,000 -70,000 accounts in a day before note ban; 89 lakh accounts after the ban. She also talked about giving boost to credit growth with excess deposits in hand.


She said that banks have been conservative on deposit rates. “Want to give fillip to credit growth with excess deposits in hand, have been conservative on deposit rates,” she said. “Deposit rates are untenable, will have to be cut in future,” she added.


October industrial credit growth in India was lowest in 6 years, the reason for this sharp decline was low off take of credit by small and medium enterprises and also by large industries.



From E-Group, Banking-News



Is Indian banking losing its balance?


R K Pattnaik & Jagdish Rattanani

The Business Line

Published on January 24, 2017



The risks arising out of bad loans, and now demonetisation,

pose a threat to macroeconomic stability


Away from the immediate concerns on growth and currency management in the light of the recent demonetisation drive, a recently released report by the Reserve Bank of India points to some deeper concerns, particularly in India’s financial sector.


On the one hand, India’s macroeconomic conditions broadly remain stable and resilient with considerable moderation in consumer price inflation. And though the growth impetus has slackened recently, there is a positive undercurrent of growth moving to a higher trajectory. The current account deficit remains modest. A deceleration in worker remittances and software services has posed some concerns. In sum, against the fragile domestic imbalances witnessed in most of the emerging market economies, the outlook on growth and macroeconomic stability for India seems favourable.


However, developments in the financial sector tell a different story. The banking stability indicators as set out in the recently released Financial Stability Report of the RBI depict some serious concerns. The report highlights the elevated risks in the banking sector emanating from “continuous deterioration in asset quality, low profitability and liquidity”. That’s a triple whammy made worse by the upheaval caused by demonetisation, and adds new complexity to a situation that was already spiralling out of control.


Stress goes up


Consider some of the findings of the RBI report. The asset quality of the banks has deteriorated further with gross non-performing advances ratios (GNPAs) increasing to 9.1 per cent from 7.8 per cent between March and September 2016, pushing the overall stressed advances ratio to 12.3 per cent from 11.5 per cent during the same period.


The credit quality of large borrowers (with exposures of Rs.50 million and more) has deteriorated considerably. The system level credit risk of the banking sector against macroeconomic stress revealed that the GNPA may increase to 9.8 per cent by March 2017 and further to 10.1 per cent by March 2018.


Further, capital to risk-weighted asset ratio (CRAR) for the public sector may continue to be lowest at above 11 per cent by March 2017 and less than 10 per cent by March 2018, an indication of just how much the public sector banks (PSBs) are undercapitalised.


The macro stress test also revealed that the provisioning and capital adequacy for the banks and particularly PSBs need to be further enhanced from the present level of 5.8 per cent for PSBs. While there is a persistence of subdued business growth, at the system level, public sector has lagged the private sector.


There has been a contraction of system level profit after tax (PAT) due to higher growth of risk provision but the PSBs recorded losses. The sectoral credit risk as evident from the macro test revealed that iron and steel sector is expected to record the highest GNPAs. The RBI report said banks in general may withstand liquidity shocks with their high quality liquidity assets (HQLA) and SLR investments.


Stability matters


The experience of 2008 financial and economic crisis suggests that deteriorating financial stability is a potential threat to growth and macroeconomic stability. Therefore, post-crisis, the world over, authorities have focused attention on financial stability through tightening regulatory reforms to address the structural issues associated with financial sector in general and banks in particular.


Indian authorities also contemporaneous with the global developments further strengthened the banking regulatory framework through a series of measures. However, on account of weakening of banking stability indicators and higher levels of impairment, the banking sector is expected to remain risk averse.


Also, due to the emphasis of the banking system on the cleaning up of the balance sheets, there is the likelihood that the capital position of the banks could be inadequate to support higher credit growth. This development could work as a cog in the wheel for effective transmission of monetary policy to the real sector via interest rate and credit channel.


The findings of the stability report when perused in conjunction with the Report on Trends and Progress of Banking released by the RBI divulge serious concerns for the banking sector in terms of indicators of profitability based on Return on Assets (RoA) and Return on Equity (RoE), particularly for PSBs with RoA of minus 0.20 per cent and RoE of minus 3.47 per cent during 2015-16. Another important aspect is the slow recovery of NPAs. The latest data released by the RBI on the outstanding credit of the banking system for September 2016 revealed that there has been a reduction in the bank credit to industry and credit to agriculture increased marginally. The weighted average lending rate (WALR) declined marginally to 11.26 per cent.


Currency recall impact


The banking system witnessed unprecedented stress and reputational risk post demonetisation. Thus, the business growth of the banking sector would have shown a significant slackening since September 2016, though data for this will follow with a lag.


One is not sure whether the stress test of the financial stability report captures any scenario like demonetisation on the banking business model, profitability and liquidity. Anecdotal evidence suggests that the banking business has come to a standstill in terms of credit growth. The management of excess liquidity due to the receipt of high value notes remains a severe challenge.


While writing the foreword for the financial stability report, the RBI Governor has mentioned that withdrawal of high-value notes will impart far-reaching changes going forward. He mentioned that this is expected to transform the domestic economy in due course in terms of greater intermediation, efficiency gains, accountability and transparency through increasing adoption of digital modes of payments.


This view from the inside stands in sharp contrast to the views of the highly respected former governor, YV Reddy, who has mentioned that he would not have accepted the recommendation of the Government on demonetisation because of institutional and reputational risks.



From E-Group, Banking-News



SBI Ecowrap Expects Big

Income Tax Relief in Budget 2017


Neeraj Thakur

The NDTV News

Published on January 24, 2017



The demonetisation had sucked out 86 per cent of the currency bills from the economy, hurting the demand in a consumption driven economy


New Delhi, January 23: When Finance minister Arun Jaitley will present his fourth Budget on February 1, the most challenging task for him would be to revive the demand in the economy, which has been hit by the demonetisation of high denomination currency notes. The demonetisation had sucked out 86 per cent of the currency bills from the economy, hurting the demand in a consumption driven economy. According to the research department of country's largest bank, State Bank of India (SBI), this could be achieved by giving a number of tax and interest rate exemptions to taxpayers.


Here are five recommendations from SBI's research department:


1) The research agency has recommended an increase in the personal income tax exemption limit from Rs. 2.5 lakh to Rs. 3 lakh per annum. 


2) In last year's Budget, the government raised tax deduction under National Pension Scheme o Rs. 50,000 under Section 80CCD (1), resulting in total deductions under Section 80C and Section 80CCD to Rs. 2 lakh. For the next fiscal year, SBI has recommended an increase in the 80C deduction by least Rs. 50,000 to Rs. 2 lakh so that the total deduction under Section 80C and Section 80CCD goes up to Rs. 2.5 lakh.


3) SBI Research has recommended that the interest rate exemption on housing loan needs to be increased to Rs. 2.5 lakh for new as well as existing home buyers from the current level of Rs. 2 lakh. There are around 75 lakh home loan buyers in the country, so the increase in home loan interest deduction from Rs. 2 lakh to Rs. 2.5 lakh will benefit them. This will cost the government around Rs. 7,300 crore.


4) To incentivise savings, the government should provide exemption in interest of savings bank deposits. The exemption limit on TDS on interest on term deposits with banks should be raised to Rs. 20,000 per annum from the current limit of Rs. 10,000 per annum.


5) The lock-in period for tax-savings bank deposits needs to be reduced to three years from the current five years, and these deposits should be brought under EEE (exempt, exempt, exempt) tax regime. This will cost the government only Rs. 3,500 crore, according to SBI.


According to the report, such giveaways will cost Rs. 35,300 crore to the government. The tax exemptions could be “more than balanced by (revenue generated from) Income Disclosure Scheme-2 and cancelled note liabilities of RBI", it added.



From E-Group, Banking-News



Talk of cashless economy ‘unreal’, agenda of

MNCs: Former RBI Dy Governor, K C Chakrabarty


Dinesh Unnikrishnan

The Firstpost Online

Published on January 23, 2017



New Delhi, January 23: It is highly critical that the Reserve Bank of India (RBI) has an independent view. Stating this, K C Chakrabarty, former deputy governor RBI termed any talk of autonomy for RBI as 'useless' unless there is a clear framework that defines which authority the central bank is accountable to. “So long as the RBI is accountable to government, it cannot be autonomous. In such a scenario, the RBI will be autonomous only to the extent government wants it to be autonomous. That means, they will give them some target, some framework to operate within,” Chakrabarty said in an exclusive interview to Firstpost on Monday.


The veteran banker, who previously headed the Punjab National Bank, said talks of a cashless economy is an ‘unreal’ idea and felt that the change into a cashless economy and financial inclusion are contradictory things. “All the talk on cashless economy is an unreal thing. This is an agenda of the multinational fintech technology and communication companies. Financial inclusion and cashless economy are contradictory,” Chakrabarty reiterated. Former central banker’s comments are significant at a time the Narendra Modi-government is aggressively pushing the idea of a cashless economy post 8 November demonetisation announcement and the central bank under governor Urjit Patel, facing severe criticism for undermining the institution’s hard-earned independence. Edited excerpts:


There is a big debate on RBI’s autonomy yet again


K C Chakrabarty: The issue of autonomy cannot be discussed without discussing the issue of accountability. Autonomy without accountability is the most dangerous thing. So, ideally the RBI should be first made accountable within a firm framework (to an authority) before the issue of autonomy arises. Now, only in the monetary policy some accountability has come because of the MPC (monetary policy committee) and the agreement between the government and the Reserve Bank.


At present, who is the Reserve Bank accountable to? For all purposes, it (RBI) is accountable to the Ministry of Finance, Government of India. So long as the RBI is accountable to the government, it cannot be autonomous. In such a scenario, the RBI will be only autonomous to the extent government wants it to be autonomous. That means, they will give them some target, some framework to operate from. It is highly critical that the RBI should have an independent view in an economy to discharge its functions.


In your opinion, where should the accountability of the RBI rest?


K C Chakrabarty: In a Parliamentary democracy, Parliament is supreme. Accountability to the public is accountability to Parliament. The accountability of the government is to Parliament. The accountability of the bureaucracy is to the government. If you want any institution to be autonomous, to be free of government (control), it should be directly accountable to Parliament. For example, CAG (Comptroller and Auditor General of India). Thus, if you want RBI to be autonomous, it should be directly answerable to Parliament (alone). But, in a democracy, it is desirable if institutions are accountable to the elected government. In that case, if the government is accountable (for RBI’s functions), if something goes wrong, a minister has to explain on why that particular matter has gone wrong in the Reserve Bank. The Reserve Bank has to be subservient to the government. Now, how much autonomy is needed by the RBI is another question. But, all this talk of autonomy is useless without understanding the structure.


Can the government intervene in the RBI’s functions?


K C Chakrabarty: If the RBI is accountable to the government, there should be a framework for autonomy defining what should the central bank deliver. In that case, the government can interfere any time if they so desire. If the RBI should be accountable to Parliament, then Parliament should lay out a framework. Currently, the RBI is actually accountable to government, but there is no framework for accountability, hence the government is intervening in everything. Anywhere in the world, if central banks are free of government, they should be accountable to Parliament.


Had you been in the RBI now, would you have said ‘yes’ to demonetisation?


K C Chakrabarty: I have already said earlier that as an institution the Reserve Bank has always been opposed to demonetisation because it is not going to deliver the results. Even if RBI opposed demonetisation, the government would have gone ahead with it. The originally stated targets of note ban are fighting black money, fake currency and corruption. None of these is going to be solved out of the demonetisation exercise. Tell me how? Anytime you do this, it will hurt the common man only. Now, some of the activities like terror funding, etc would have come down because there is no cash available in the system. But, with this, the overall economic activities also have come down. Money, which was utilized earlier, is not available now. Once the cash comes back, all of this will start again. The point is for one or two targets, you don’t burn the entire forest.


Some former RBI officials, including Usha Thorat, have criticized the RBI for being non-transparent about the rollout of demonetisation?


K C Chakrabarty: What transparency they want from the Reserve Bank? On demonetisation, whatever details RBI has, they are being transparent to that extent. Now, if I don’t have information, how do I give? First thing, all information now (currently coming out) is incorrect. Whatever numbers are being given out on new currency or what is being written about in papers do not tally. Unless you have a very robust information system, nobody will know whether the information is correct or incorrect. But, on the issue of transparency, the RBI is as transparent as it was earlier (even during the times of Y V Reddy or Usha Thorat).


RBI says it is still counting old notes that have been deposited


K C Chakrabarty: If they (RBI) are counting, they are counting. That’s it. If they are saying, we don’t have the right kind of information and we are collecting the information by counting the notes, one cannot blame them.


How long do you think the cash curbs will continue?


K C Chakrabarty: Till the time the currency situation improves, curbs will continue. I cannot tell you how quickly RBI will be able to reissue the (scrapped) currency.


RBI has been assuring time and again that there is enough currency in the system


K C Chakrabarty: Look around. If there is enough cash, then why is there restriction (on cash withdrawals even now?) One can say the situation is back to normal when there are no more restrictions to withdraw currency from the bank.


What is the impact of demonetisation on the economy?


K C Chakrabarty: Ours is primarily a consumption-driven economy. So, if people don’t have enough cash to buy goods, there will be an impact. That’s why it (demonetisation) has effected more. As and when you put out the cash (into the system), they will start buying. The consumption will then come back. But, how much will be its impact will depend on how soon the government and RBI will manage to normalize the situation.


The government is pushing for a cashless economy. Your take?


K C Chakrabarty: That is impossible. All the talk of a cashless economy is away from ground, an unreal thing. This is all agenda of the multinational fintech technology sand communication companies. Financial inclusion and cashless economy are contradictory. I’m going to talk about this more in the coming days.



From E-Group, Banking-News



Banking in India is set to be revolutionised

if NITI Aayog's latest proposals are accepted


Aseem Manchanda

The Zee Business News

Published on January 23, 2017



Mumbai, January 23: The NITI Aayog has sent a proposal to the Government stating that customers should be able to deposit or withdraw money from their accounts from any bank.


For example, an HDFC Bank customer could go to an ICICI Bank branch and deposit money in their HDFC Bank account. NITI Aayog's proposal states that it isn't compulsory for a customer to have an account in the bank they are visiting to deposit or withdraw money.


Simply put, NITI Aayog envisions banks to work like ATMs. Currently, one can withdraw money from any bank's ATM. On the same lines, anywhere banking for deposits and withdrawals is what NITI Aayog is batting for.


Sources told Zee Business that finance ministry has given its in-principle approval to the proposal. Consultations with Reserve Bank of India (RBI) on this matter have begun, they said.


According to the proposal, first three transactions each month will be free. First phase or the trial of this proposal will be carried out only at Public Sector Banks (PSBs). Sources also said that an announcement to this effect may be possible during the next round of banking reforms.



From E-Group, Banking-News



Banking board to organise ‘know your rights’

programme in urban, rural areas soon


The Economic Times

Published on January 24, 2017



Kochi, January 23 (PTI): In a bid to create awareness about a bank's commitment towards their customers, the Banking Codes and Standards Board of India will organise "Know Your Rights" programme in select urban and rural areas of the country to enhance awareness on Banking Codes at the grassroot level, a top official said here today


"BCSBI plans to organise "Know Your Rights" programme in selected urban and rural segments countrywide to enhance awareness on Banking Codes at the grassroot level," Anand Aras, CEO of BCSBI said. BCSBI for the first time organized a "Know Your Rights" programme for less privileged women in Kerala in association with Kudumbashree here today.


The session focused on simplifying the technicalities of the banking codes in a simple language through a skit and a puppet show, drew participation of over 100 women. At the session the women were enlightened on the Banking Codes and how they protect their rights while using banking services in their day-to-day financial transactions, BCSBI officials said.


The interactive session 'interalia' highlighted the importance of having a nominee for their banking products like savings accounts and fixed deposits, the process of exchanging soiled/torn notes, ways to protect their privacy and confidentiality, introduction to digital banking and the Codes coming to their aid during an unauthorized transaction, grievance redressal mechanism, etc.


"With the opening up of innumerable Jan-Dhan accounts and increased usage of formal and transparent modes of financial transactions, we believe that it is now imperative for the lesser privileged section of the society to understand their rights," Anand Aras said.


"We also believe that conducting an educational programme through an interactive session would prove to be more beneficial as people relate things better when delivered in simple language with situational references than conducting a mere class-room session," he said.


BCSBI is an independent institution set up to monitor and ensure that the Banking Codes and Standards adopted by banks are adhered to in true spirit while delivering their services. BCSBI also reached out to around 300 customers belonging to the educated sections of society and increased awareness about their bank's commitment towards them.



From E-Group, Banking-News



Panel recommends complete overhaul of FRBM act;

suggests govt not to keep fiscal deficit below 3%


The Economic Times

Published on January 24, 2017



New Delhi, January 23: N K Singh panel on review of Fiscal Responsibility and Budget Management Act (FRBM) has recommended the government to completely overhaul the act. According to reports on ET Now, in its final report submitted to Finance Ministry today, the panel has recommended against following an ‘aggressive fiscal consolidation path’. In its report, the panel has advocated expansionary fiscal consolidation policy to aid growth and has suggested the government that there is no need for reducing fiscal deficit below 3% in near term. Government is likely to incorporate the recommendations in the Budget.


The Government had constituted a Committee in May, 2016 to review the Fiscal Responsibility and Budget Management (FRBM) Act under the Chairmanship of Shri N.K. Singh, former Revenue and Expenditure Secretary and former Member of Parliament. The Committee consisted of Dr. Urjit R. Patel, Governor, Reserve Bank of India (RBI), Shri Sumit Bose, former Finance Secretary, Dr. Arvind Subramanian, Chief Economic Adviser and Dr. Rathin Roy, Director, National Institute of Public Finance & Policy (NIPFP) as members.



 From E-Group, Banking-News



Demonetisation: Costs have been huge;

benefits unquantifiable, says Subbarao


Latha Venkatesh


Published on January 23, 2017



“If atleast one percent is not added to tax to GDP ratio, then the situation will be equivalent to Iraq’s ‘weapons of mass destruction”


Mumbai, January 23:  The government had anticipated 15-20 percent of black money will be destroyed via its demonetisation move, which actually has not happened, believes the former Reserve Bank of India Governor D Subbarao. “Cost of demonetisation have been huge and benefits are indefinite and unquantifiable,” he said. If atleast one percent is not added to tax to GDP ratio, then the situation will be equivalent to Iraq’s ‘weapons of mass destruction’. Speaking to CNBC-TV18’s Latha Venkatesh, Subbarao said that while the step was a bold one, it was not executed well. It should have been done with more time as the RBI and the government do not work on ‘take it or leave it’ basis. Speaking on the current issue of the Reserve Bank’s autonomy and credibility, Subbarao said that there is insufficient sensitivity in the government towards RBI. The government should cautiously comment in spaces where the central bank has statutory autonomy. However, he further added that the issue of RBI’s credibilit

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