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Banking News 26.02.16


Banking News: February 26, 2016


Here is an endeavour to bring you in one folder all banking related unedited news/columns/articles/opinions/analysis etc appearing in major business dailies The compiler assumes no responsibility for the authenticity and reliability of the news. Readers are requested to go through the official instructions before acting upon any news articles and views appearing herein.


Compiled by: Anup Sen

 Salt Lake City, Kolkata 700 064


 From E-Group, Banking-News



RBI partially modifies/clarifies Prudential Guidelines

 on Revitalising Stressed Assets in the Economy


Source: RBI Press Release

Published on February 25, 2016



Mumbai, February 25: On a review and based on feedback received from stakeholders, the Reserve Bank of India has partly modified and also clarified, some aspects of its Prudential Guidelines for Revitalising Stressed Assets in the Economy.


The revised guidelines will be applicable prospectively. The salient features of the Review are as follows:



v         Reduction in the minimum percentage of shareholding to be initially divested by the lenders;


v         Lenders to build up adequate provisions for possible loss in value of the equity acquired in lieu of debt and residual loan exposures;


Framework to Revitalise the Distressed Assets in the Economy

v         Reduction in the percentage of lenders, by number, required to approve the Corrective Action Plan;


v         Revised composition of the JLF-EG for enhancing the quality of decision making;


v         A scheme of incentives for adherence to timelines for decision-making by JLF members to facilitate timely implementation of the Corrective Action Plan;


Restructuring of Advances

v         Permitting restructuring and benefits of asset classification in cases of borrower accounts, which were involved in fraud,  where the promoters have been subsequently replaced by new promoters and the borrower is totally delinked from the erstwhile promoters;


v         Clarifying that Flexible Structuring of Project Loans is also permitted for ECBs;


It may be recalled that the Reserve Bank had issued various guidelines aimed at revitalising the stressed assets in the economy. These include: Strategic Debt Restructuring (SDR) Mechanism, Framework to Revitalise the Distressed Assets in the Economy, Revisions to the Guidelines on Restructuring of Advances by Banks, Flexible structuring of Long Term Project Loans and amendments to guidelines on Sale of Financial Assets to Securitisation Companies (SC)/Reconstruction Companies (SC).



 From E-Group, Banking-News



Reserve Bank of India has issued Revised Comprehensive

 Master Directions on Know Your Customer (KYC)


Source: RBI Press Release

Published on February 25, 2016



Mumbai, February 25: The Reserve Bank of India today issued the Master Direction on Know Your Customer (KYC), Anti-Money Laundering (AML) and Combating of Financing of Terrorism (CFT).


The Master Direction issued today consolidates all relevant instructions issued by different departments of the Reserve Bank so far on the subject and will be applicable to all its regulated entities.




The Reserve Bank of India has started issuing Master Directions on all regulatory matters beginning January 2016 to streamline compliance in pursuance of the decision announced in the Fourth Bi-monthly Monetary Policy Statement, 2015-16 on September 29, 2015.


The Master Directions consolidate instructions on rules and regulations framed by the Reserve Bank under various Acts including banking issues and foreign exchange transactions.


The process of issuing Master Directions involves issuing one Master Direction for each subject matter covering all instructions on that subject. Any change in the rules, regulation or policy is communicated during the year by way of circulars/press releases.


The Master Directions will be updated suitably and simultaneously whenever there is a change in the rules/regulations or there is a change in the policy.


Explanations of rules and regulations will be issued by way of Frequently Asked Questions (FAQs) after issue of the Master Directions in easy to understand language wherever necessary.


The existing set of Master Circulars issued on various subjects will stand withdrawn with the issue of the Master Direction on the subject.



From E-Group, Banking-News



Vijay Mallya quits as United Spirits chairman;

to pocket Rs 515 crore from Diageo


The Press Trust of India

Published on February 25, 2016



New Delhi & London, February 25 (PTI):  In a sweetheart deal, flamboyant businessman Vijay Mallya today quit as Chairman of United Spirits after its new majority owner Diageo agreed to pay Rs 515 crore and absolve him of all liabilities over alleged financial lapses at the company founded by his family.


Mallya, who along with his group firms is fighting ‘wilful defaulter’ tags given by various lenders in relation to loans taken by long-defunct Kingfisher Airlines, said he would now “spend more time in England” closer to his children. For son Sidhharth also, he has managed a sweetheart deal, with Diageo agreeing to retain him as Director of the USL Group firm that runs the RCB cricket team of IPL cricket tournament for at least two years.


Mallya himself has agreed to resign from boards of all USL group firms, including as Chairman and non-executive director of United Spirits Ltd (USL). He would become ‘founder emeritus’ of USL and Chief Mentor of RCB. Announcing his resignation, Mallya said, “The time has now come for me to move on and end all the publicised allegations and uncertainties about my relationship with Diageo and USL.


“I am pleased to have been able to agree terms with Diageo and USL. The agreement we have reached secures my family legacy.”


Giving details of the agreement, Diageo later said in a statement that Mallya will have no “personal liability” to the UK-based company in relation to the findings of the alleged financial irregularities at the company that had triggered an acrimonious fight between them.


These allegations, which surfaced after an internal inquiry, related to the period before Diageo acquired controlling stake in USL from the Mallya family in a multi- billion dollar deal. Diageo said it has “agreed to pay USD 75 million to Mallya in consideration for his resignation and termination of his appointment and governance rights and his relinquishing of the rights and benefits attached to his position as Chairman and non-executive director”, among other factors.


Diageo said it will pay USD 40 million of this amount immediately with the balance being payable in equal instalments over five years. The payment is also for “his agreement to five-year global non-compete (excluding the UK), non-interference, non-solicitation and standstill undertakings, and his agreement that he and his affiliates will not pursue any claims against Diageo, USL and their affiliates”.



 From E-Group, Banking-News



Indian rupee moving closer to

all-time lows on FPI sell-off


Bhavik Nair

The Financial Express

Published on February 26, 2016



Mumbai, February 26: The Indian rupee dropped to an intra-day low of 68.785 against the dollar on Thursday, edging closer to the all-time low of 68.85 it hit in end-August 2013, before closing the session at 68.71. Currency dealers said the central bank had intervened in the market.


The rupee hit its all-time low following the contagion in August 2013 after the US Federal Reserve said it would consider tapering its bond purchase programme. Equities too were under pressure and the Sensex slipped below the 23,000-point mark, losing 0.49% to close at 22,976. The broader Nifty dropped below 7,000, giving up 0.69% to close at 6,970.60 points, the lowest close since early May 2014.


The rupee has been under pressure with foreign portfolio investors (FPIs) continuing to pull out from the equity market — in 2016 they have sold close to $2.4 billion worth of stocks. Moreover, in the last four sessions, FPIs have sold bonds worth $770.5 million, data from Bloomberg showed.


Jayesh Mehta, MD and country treasurer, Bank of America, pointed out that the sell-off in the bond markets is more noticeable because fresh inflows have dried up. “This sell-off appears more prominent as the fresh inflows have stagnated. Old buyers are still sitting on losses as the currency has depreciated due to global reasons while bond yields have not come off due to the lack of sufficient permanent liquidity in the local system,” Mehta indicated.


M V Srinivasan, vice-president, south operations at Mecklai Financial Services, said that the Indian currency’s depreciation on Thursday was led by FPI outflows, possibly sales in the debt market. “The central bank seems to have intervened today at 68.74 levels to the dollar. However, the intervention has not been very aggressive because of which the currency has stayed at lower levels during the day,” Srinivasan said.


Meanwhile, the onshore forwards are also at levels comparable with the lows of late August 2013 with the one-month forward hitting 69.15 level and the three-month forward hitting 69.98 on Thursday. The rupee non-deliverable forward (NDF) market has also seen momentum with the one-month NDF trending at 69.28 and the three-month NDF touching 70 levels as on Thursday evening.


The yield on the 10-year benchmark government bonds closed five basis points up at 7.86% on Thursday even as the old benchmark G-sec continues to remain above the 8% mark, according to data from the NDS-OM platform of the Reserve Bank of India.


While a shortage of liquidity has been cause for concern over the last few weeks due to a combination of demand-supply mismatch in debt securities, the RBI on Thursday announced Rs 12,000 crore of open market operations (OMO).


“The market is not expecting a cooling-off of yields in the near term with additional supply of government securities set to hit the market and no signs of any open market operation purchases by the central bank. As a result, foreign investors want to keep away from putting in fresh funds in this rising yield trajectory,” said a banker on condition of anonymity.



 From E-Group, Banking-News



Banks may have to issue swipe

machines in proportion to cards


Mayur Shetty

The Times of India

Published on February 26, 2016



Mumbai, February 25: Cardholders can look forward to making cashless transactions at many more retail outlets with the RBI set to issue a direction to banks for improving the acceptance infrastructure. Besides asking banks to install point of sales (POS) terminals in proportion to the number of cards they have issued, the RBI will also come out with regulations rationalizing the merchant discount rate - the charges imposed by card companies on retailers.


The guidelines will be announced following the Cabinet decision to do away with surcharge, service charge and convenience fee on card payments by various government departments. At present, high-frequency and high-volume transactions which attract surcharge and convenience fees are those conducted for oil marketing companies through petrol pumps and IRCTC, which sells online tickets on behalf of Indian Railways.


While the surcharge imposed by petrol pumps and IRCTC will be withdrawn, it is not clear whether LIC and Air India, both of which impose a fee on online payments, will also drop these charges.


"Under the Payments and Settlement Systems Act 2007, the RBI has the authority to issue directions relating to charges on card payments," said A P Hota, MD & CEO, NPCI. He said even rationalization of the merchant discount rate (MDR), mentioned in the government note following the Cabinet decision on Wednesday, was the domain of the RBI.


To increase acceptance of cards, the RBI will issue a directive to banks asking them to install point of sales machines in line with the number of cards they have issued. After the launch of the Jan-Dhan Yojana, nearly 17.4 crore additional Rupay debit cards have been issued but the number of POS machines that accept card payments have gone up only marginally to 12.6 lakh as against the total card population of 64 crore (debit and credit).


It is likely that the guidelines on surcharge, service and convenience charge will be imposed on the private sector as well, including schools. "If a web aggregator is charging a convenience fee for online payment, that would have to be discontinued. If the fees are not related to the mode of payment but to aggregation charges, it may not have any effect," said Hota.


According to RBI sources, one of the concerns is that electronic acceptance has proliferated only in stores in Tier I and Tier II centres. The Jan-Dhan Yojana has resulted in cards being issued even in the remotest parts of the country where there is no acceptance infrastructure. To encourage retailers to put in place a card-acceptance infrastructure, the RBI plans to cap the MDR, which is around 2% on regular cards and goes up to 3% on high-end credit cards.


To reduce the cost of setting up POS infrastructure, banks might be allowed to put in place smartphone-based machines. According to bankers, POS terminals are now much more than mere payment infrastructure and can double as touch-points for the bank. "During the Chennai floods, we used the POS terminals to provide cash withdrawal facilities at various locations where our ATMs were not operational," said a senior official with the State Bank of India.



From E-Group, Banking-News



The disruption in the job market


Shyamal Majumdar

The Business Standard

Published on February 26, 2016



Many countries are close to a point when it would be

cheaper to use a robot than to employ a human worker


Apart from doing repetitive work, can robots think as well? The answer should be easy, as artificial intelligence is the buzzword now: We already have a smiling robot that can comfort people and software that can drive cars.


Now, answer this: Can robots understand emotions? If that's a tough one, read the report on techtimes.com on Wednesday: IBM's Watson, a supercomputer that could compete with humans on the quiz show Jeopardy!, and beat them, has just received a significant upgrade that can detect a multitude of emotions in your writing, including sadness and joy. This means that once you tell somebody that you are okay when you are really sad, the technology is now able to detect your true emotion. IBM is also offering a text-to-speech engine, which provides responses in a correct tone. When callers are angry, for example, the engine will not answer back in an upbeat voice.


Think about the impact this would have on the future workforce. A large number of health care, travel and insurance services companies are already using this for one simple reason: A call centre using Watson gets the caller to the right solution more quickly and makes for a less frustrating consumer experience.


India has been slow in warming up to robots - only 2,500 robots were bought by Indian companies in 2014 compared to around 60,000 in China, the world's largest buyer. But the trend is obvious. As prices of these robots slide with more usage, India's market for robots used in the workplace is expected to surge. A Bank of America Merrill Lynch study has set the tone by saying that several countries are approaching the crucial inflection point when it would be 15 per cent cheaper to use a robot than to employ a human worker.


The use of robots in India is restricted so far to automobile companies - Ford's Sanand plant has around 500 robots compared to 2,500 manual workers, Hyundai India's plant in Sriperumbudur has around 400 compared to 5,000 workers and Volkwagen's Chakan plant has at least 125 robots and more than 2,000 workers.


Other automobile companies such as General Motors, Maruti Suzuki, Tata Motors and Mahindra & Mahindra have also started automating their plants in a small way - which means robots have started doing a significant portion of functions such as welding and foundry operations at modern car plants in the country. Several auto parts makers supplying to these factories have also started "employing" robots for two reasons: one, they have to catch up with the speed and perfection of work; two, they don't want to expand permanent staff.


Several other Indian companies may still take time to go in for a large number of robots at their plants, but all global manufacturing firms intending to set up big plants in the country will surely opt for them. This could aggravate the problems for the 13 million people or so, who enter the workforce every year in India. In any case, even now, most of them do not get any meaningful jobs because of their low skill levels.


The fear is real. The 300-page BankAm report outlining the opportunities for investors in robotics and artificial intelligence says robots are expected to perform 45 per cent of manufacturing tasks worldwide by 2025, up from around 10 per cent now. South Korea is currently in the lead with 44 industrial robots per 1,000 employees in the manufacturing industry, followed by Japan and Germany.


Many experts, however, say those fears are misplaced, because although robots will replace humans in many industries, they will also likely free people from performing menial and repetitive tasks. There have always been fears of mass destitution with each sudden shift in technology, but the so-called losers have eventually been absorbed back into new industries. Also, research from the McKinsey Global Institute has concluded that, indeed, the application of these technologies will force millions of workers to acquire new skills, as the jobs they perform are rendered obsolete. Yet, rapid advancements in the same technologies will create new opportunities for millions of workers, including many less-skilled ones.


McKinsey may be correct in its conclusion from a global perspective, but in a country where even a large number of "qualified engineers" are considered unemployable by industry, who will give them the new skills required in a rapidly automated environment?



From E-Group, Banking-News



Indian Economy for Dummies - I


S Gurumurthy

The New Indian Express

Published on February 18, 2016



It’s that time of the year when ‘experts’ throw around intimidating economic jargon to ‘advise’ the government and ostensibly enlighten us all on what’s wrong with our economy. Starting today, we bring to you well-known commentator on political and economic affairs S Gurumurthy’s three-part series, Indian Economy for Dummies, to make the subject intelligible and less intimidating. In the first part, he lays bare hidden truths behind some obvious facts that are the most difficult to detect and missed in the Indian economic discourse, policy and budget-making.


Truths hidden in facts about India that are obvious to the naked eye are missed in Indian economic discourse and budget-making. Do you know that the share of corporate sector in national GDP is just about 15% after drawing Rs 18 lakh crore credit? And that it created just 2.8 million jobs? The informal sector on the other hand generates 90 per cent of jobs in India


Obvious fact, hidden truth


Look at some of the obvious facts about the Indian economy. Household savings have been rising post-liberalisation despite average interest rates falling since the 1990s. Most of household savings get into low-yielding bank deposits even though the Indian stock market has been growing at a compounded rate of 14 per cent a year since 1991. The growth in Indian per capita spending is slower as compared to the rising per capita income despite the intense consumerist agenda powered by liberalisation. Indian households trust banks, gold and properties and not stocks as much. Indian public and private — domestic and foreign, listed and unlisted — corporates put together improved their share of national GDP from a mere 12% in 1991 to a mere 15% — by just 3% in over two decades of a policy regime that red-carpeted the corporates, particularly foreign. The share of listed corporates in the national GDP is just about 5% even now. And the share of the companies figuring in the Sensex is minuscule. These obvious facts hide some basic truths about the Indian economy. But economists tend not to see the hidden truth behind obvious facts. They even blame the obvious facts for the economic ills of India. They fault Indians for not investing in stocks and for not producing risk capital. Indians invest in gold, thus making their savings unproductive, they charge. And yet, they turn blind to the under-performance of corporates altogether. Hidden truths behind obvious facts are the most difficult to detect. Because unless one asks why it is so, the truth behind the obvious will remain hidden. Only critical minds can ask why and get at the truth — like only Isaac Newton did not blame the apple for falling but asked why apples were falling and brought out the truth of gravitational pull hidden in the obvious fact of the falling apple. The truths hidden in facts about India that are obvious to the naked eye are missed in Indian economic discourse. And therefore in policy and budget making in India. The elitist nature of the guild of economists in India, who look to the West for handling the problems of India, is the reason for their ignorance about the hidden truth behind obvious facts.


Insulated, arrogant


The profession of economists had become so respectable in the 20th century West that economists became more respected than elected leaders, who even fear them. After the 2008 crisis, The Economist magazine [July 19-24, 2009] wrote, “On the public stage, economists were seen as far more trustworthy than politicians” but added, “in the wake of the biggest economic calamity in 80 years that reputation had taken a beating. In the public mind, the arrogant profession has been humbled.” But despite that, economists still have an intimidating influence over politicians. But who are economists and what is economics? Decades ago [1973] J K Galbraith, a celebrated economist himself and a diplomat, wrote that economic services are ‘ideological’ and ‘consist in instructing several hundred thousand students every year’; the instruction is ‘inefficient’ but nevertheless ‘implants imprecise, but serviceable, set of ideas’ in the minds ‘of even those who are opposed to it’; they are ‘led to accept what they might otherwise criticise’. Galbraith concluded: “As such, it serves as a surrogate for the reality for legislators, civil servants, journalists, television commentators, professional prophets, — all, indeed, who speak, write or act on economic questions”.  The subject of economics and the guild of economists could not have been demystified more eloquently. What Galbraith meant is that the profession of economists is an oligarchy which perpetuates its own agenda by enforcing conformity within, not just to dominate over the elected political system, but to direct the whole public discourse. Is it not time then that the subject, economics, which has been monopolised by a self-perpetuating set of experts, is demystified, made less intimidating and less elitist? Is it not time that all intelligent people are made to understand the hidden truth behind obvious facts? The popular book series ‘For Dummies’, which claims to present non-intimidating guides for readers new to different subjects, deals with all subjects under the sun. With more than 200 million books sold, the series now covers over 2,700 titles, but surprisingly the subject of economics is not one of them! Therefore, economics for dummies is long overdue. Here is a first edition of it — an essay on Indian economy for dummies to start with. Just take one obvious and undisputed fact and see how the economic establishment looks the other way.


Jobless corporate growth


A study [July 2013] by Credit Suisse Asia Pacific India Equity Research Investment Strategy revealed that after more than two decades of economic liberalisation, the share of the formal sector, (namely the public and private corporate sectors together) in national GDP stood at just 15 per cent and that of listed corporates was just 5 per cent. Despite all the pampering by the government and economists, the formal sector's share of the nation’s GDP improved by just 3 per cent in more than two decades. In this period, the sector had received foreign investment by debt and equity of over $550 billion and also drew over Rs 18 lakh crore from banks as credit. But how many jobs did it add in this period? Believe it, just 2.8 million! Economists would never mention the huge investment into the formal sector nor the insignificant number of jobs added by it, so that they need not answer either why it produced such jobless growth or ask who else provided the jobs. When I brought this to his notice, a shocked N R Narayanamurthy told me that as the software sector itself had added 3.5 million jobs, it meant that the rest of the corporate sector had actually cut jobs by over 700,000, rather than adding any. Did any economist or prime minister ever speak this hard truth that the big corporates do not provide jobs to the people? Prime Minister Narendra Modi spoke this truth when he unveiled the Mudra finance scheme to the non-corporate sector on April 9, 2015. He said: “People think it’s big industries and corporate houses that provide higher employment. The truth is, only 12.5 million people are employed by big corporates, against 120 million by MSME sector.” He reiterated it when he wrote to small businessmen on April 15, 2015.


Unfunded job rich sector


And where from then did the jobs and people’s livelihood come? The Credit Suisse study says that 90 per cent of the total of 474 million jobs in India is generated by the non-corporate sector which contributes half the national GDP. The study labels this sector in the global language as the informal sector. But it adds that unlike in the West, where the informal sector is largely an illegal sector, in India it is legal business which remains informal only because the government has been unable to reach out to it. The Economic Census (2013-14) says that some 57.7 million non-farming and non-construction businesses yield 128 million jobs. The census classifies them as Own Account Enterprises (OAEs), implying it is self-employment. The census finds that over 60 per cent of OAEs are run by entrepreneurs belonging to Other Backward Castes, Scheduled Castes and Scheduled Tribes; more than half the OAEs and as many jobs provided by them are in rural areas; and nine out of 10 OAEs are unregistered. But this sector, which ensures both social justice and is rich in generating jobs, gets just 4 per cent of its credit needs from the formal banking system and the rest at usurious rates of interest. Here is a paradox. The banks fund corporates which add very little jobs. They are unable to fund the OAEs which generate ten times the jobs the corporates provide.


Citing the Credit Suisse study, The Economist magazine (August 2013) wrote that the best way the Indian informal economy may be formalised is to provide formal finance to them. The capital employed in the 57.7 million units is about Rs 11.4 lakh crore, according to the Economic Census. This informal (cash) financing takes place outside the formal monetary system supervised by the Reserve Bank. The Mudra finance scheme is based on the experience that banks cannot fund this sector. It has devised an innovative method of associating existing large Non Banking Finance Companies providing finance to this sector as National and State Level Coordinators and the small ones as Last Mile Lenders. Without co-opting the existing non-formal finance players, the OAEs cannot be funded.


This innovative effort is being effectively thwarted by a warped bureaucracy— Reserve Bank and the Department of Financial Services acting together. They are effectively scuttling the new Mudra Law promised in the 2015-16 Budget to institute the new financing model. Their objection is that if informal financing is formalised, that would add to the systemic risk. Is allowing close to Rs 12 lakh crore sub-monetary cash economy sourced in black and illegal monies to operate and gain interest rates ranging from 24 to 360 per cent, distorting formal savings, investment, and interest rates not systemic risk? Will the Raghuram Rajans and Department of Financial Services answer? Result, the Prime Minister’s Mudra finance scheme is being delayed, if not stymied by professionals who just want to keep their CV good for their career progress within the guild of economists.

(To be concluded)

The author is a well-known commentator

on economic and political affairs.


 From E-Group, Banking-News



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