Monetary and Credit Information Review - ಆರ್ಬಿಐ - Reserve Bank of India
Monetary and Credit Information Review
Volume VII MONETARY AND CREDIT INFORMATION REVIEW Exchange-traded Interest Rate Futures It has been decided to permit trading of interest rate futures on 91- Day treasury bills issued by Government of India. Features of 91-Day T-Bill Futures The 91-Day T-Bill futures shall have features as follows:
Methodology for Computing the Weighted Average Discount Yield It was decided by the RBI-SEBI Standing Technical Committee on Currency and Interest Rate Futures that the methodology of computation and dissemination of the weighted average discount yield would be publicly disclosed by the Reserve Bank. Accordingly, for the purpose of final settlement of 91-day T-bill futures, SEBI recognised stock exchanges may use the weighted average price obtained from the weekly auction of 91- day treasury bills on the day of expiry of the contract (notified by the Reserve Bank in its press release announcing the auction results of the day) for arriving at the weighted average discount yield. The formula for arriving at the weighted average discount yield shall be:
WAY = weighted average discount yield WAP = weighted average price obtained from the weekly auction of 91-day treasury bills on the day of expiry of the contract (notified by the RBI in its press release announcing the auction results of the day). Mid-Quarter Review of Monetary Policy 2010-11 The Reserve Bank released the Mid-Quarter Review of the Monetary Policy 2010-11 on March 17, 2011. In the Review, the Reserve Bank expressed concern on the emerging inflation scenario. The statement indicated that - ‘After a slight moderation in January, headline WPI inflation reversed in February 2011 accompanied by a sharp increase in non-food manufactured products inflation. As expected, the food article prices have declined substantially since January 2011. However, the prices of protein sources such as milk and ‘eggs, meat and fish’ continued to remain high reflecting structural demand-supply imbalances. A number of measures contained in the Budget for 2011-12 to improve the agricultural supply response in the medium-term will aid in redressing these imbalances. Fuel prices remain high, reflecting the global trend, with potential for further rise. Significantly, non-food manufactured products inflation, an indicator of demand side pressure, rose sharply from 4.8 per cent in January to 6.1 per cent in February and continues to stay well above its medium-term trend. The acceleration was spread across manufacturing activities, indicating that producers are able to pass on higher input prices to consumers. In its Third Quarter Review, the Reserve Bank had projected year-on-year WPI inflation for March 2011 at 7 per cent. However, further upside risks have stemmed from high international crude prices, their impact on freely priced petroleum products, the increase in administered coal prices and pick-up in non-food manufactured product prices. The March 2011 WPI inflation is now estimated to be higher - around 8 per cent.’ In the light of this, the repo rate and the reverse repo rate under the liquidity adjustment facility (LAF) have been increased from March 17, 2011 as indicated below : Repo Rate : by 25 basis points from 6.50 per cent to 6.75 per cent. Reverse Repo Rate : by 25 basis points from 5.50 per cent to 5.75 per cent. Expected Outcomes The policy action in this Review is expected to:
Standing Liquidity Facilities for Banks/PDs The standing liquidity facilities provided to banks (export credit refinance) and primary dealers (PDs) (collateralised liquidity support) from the Reserve Bank would be available at the revised repo rate, i.e., at 6.75 per cent from March 17, 2011. Implementation of Compensation Guidelines deferred The Reserve Bank has deferred the implementation of the guidelines on compensation for whole time directors/chief executive officers/risk takers and control function staff of private sector banks and foreign banks operating in India to 2012-13. This was done to give banks sufficient time to formulate their policies. The guidelines were slated for implementation for 2011-2012. The Reserve Bank has advised banks to refer, in the meantime, to the Basel Committee on Banking Supervision (BCBS) consultative document on Methodologies for Risk and Performance Alignment of Remuneration and start preparatory work. The document was issued in October 2010. The Reserve Bank has also stated that it would issue the final guidelines on compensation after the publication of the final paper by the BCBS. It may be recalled that the Reserve Bank had, in July 2010, placed on its website draft guidelines on compensation for whole time directors/chief executive officers/risk takers and control function staff of private sector banks and foreign banks operating in India. A large number of comments/suggestions have been received on the draft guidelines. These are being examined. Meanwhile, the BCBS, in October 2010, brought out a consultative paper titled ‘Range of Methodologies for Risk and Performance Alignment of Remuneration’ for public comments. Banks advised to exchange Coins of 25 paise and below The Reserve Bank has instructed banks maintaining small coin depots to arrange for exchange of coins of denomination of 25 paise and below for their face value at their branches. Members of public can exchange small denomination coins at any branch of these banks. Exchange facility is also available at all Issue Offices of the Reserve Bank. The coins will be exchanged at the branches of these banks/offices of the Reserve Bank till the close of business on June 30, 2011. Advances to MSE Sector As per the Reserve Bank’s extant guidelines to banks, 60 per cent of medium and small enterprise (MSE) advances should be directed towards micro enterprises. Banks have been advised that the allocation of 60 per cent of MSE advances to micro enterprises is to be achieved in stages viz., 50 per cent in the year 2010-11, 55 per cent in the year 2011-12 and 60 per cent in 2012-13. Coins of denomination of 25 paise and below will not be accepted for exchange at the bank branches from July 1, 2011 onwards. It may be recalled that in exercise of powers conferred by Section15A of the Coinage Act, 1906 (3 of 1906), the Government of India has decided to withdraw coins of denomination of 25 paise and below from circulation from June 30, 2011. From this date, these coins shall cease to be legal tender for payment as well as on account. WG on Operating Procedure of Monetary Policy - Report The Reserve Bank has, on March 15, 2011, placed on its website www.rbi.org.in the Report of the Working Group on Operating Procedure of Monetary Policy (Chairman: Shri Deepak Mohanty). The key recommendations of the Working Group are:
Background The Working Group on Operating Procedure of Monetary Policy was constituted on October 1, 2010 in pursuance of the First Quarter Review of Monetary Policy for 2010-11 announced on July 27, 2010. Members of the Working Group were drawn from financial markets, academia and the Reserve Bank. The Working Group was assigned the following terms of reference: (i) to survey the operating procedures of major central banks; (ii) to review the current operating procedure of monetary policy in India, in particular, the LAF; (iii) to examine the operation of the LAF with regard to:
(iv) to assess the role of the Bank Rate; (v) to examine the role of standing facilities, such as, the export credit refinance; and (vi) to suggest changes to the current operating procedure of monetary policy in India in the light of international practices and domestic experience, with particular reference to:
Working Group set up to examine NBFC Sector Issues The Reserve Bank has constituted a Working Group under the Chairmanship of Smt. Usha Thorat, Director, Centre for Advanced Financial Research and Learning (CAFRAL) to examine a range of emerging issues pertaining to regulation of the NBFC (non-banking financial companies) sector. The NBFC sector in India has undergone a significant transformation in the past few years and has come to be recognised as a systemically important element of the financial system. The recent global financial crisis has also highlighted the regulatory imperatives concerning the non-banking financial sector and the risks arising from regulatory gaps, arbitrage and systemic inter-connectedness. A need was, therefore, felt to reflect on the broad principles that underpin the regulatory architecture for NBFCs keeping in view the economic role and heterogeneity of this sector and the recent international experience. Other members of the Group are Shri Sanjay Labroo, Director, Central Board, Reserve Bank of India, Shri Rajiv Lall, Managing Director and Chief Executive Officer, Infrastructure Development Finance Corporation, Shri Bharat Doshi, Executive Director and Group Chief Financial Officer, Mahindra & Mahindra and Shri Pratip Kar, Director, Globsyn Business School, Kolkata. Ms. Uma Subramaniam, Chief General Manager-in-Charge, Department of Non-Banking Supervision will be the Member-Secretary. While examining a range of emerging issues pertaining to the regulation of the sector, the Working Group will focus on the definition and classification of NBFCs, addressing regulatory gaps and regulatory arbitrage, maintaining standards of governance in the sector and appropriate approach to NBFC supervision. The scope of examination will, however, be within the current legislative framework. Unclaimed Deposits/Inoperative Accounts In view of the increase in the amount of unclaimed deposits with banks year after year and the inherent risk associated with such deposits, the Reserve Bank has advised banks to play a more pro-active role in finding the whereabouts of the account holders whose accounts have become inoperative. Reviewing the instructions in this regard, the Reserve Bank has advised banks to follow the instructions detailed below while dealing with inoperative accounts:
The amount of unclaimed deposits lies with the respective banks and is utilised by them for their general business like any other deposits. The government has conceived a proposal, in consultation with the Reserve Bank, involving an amendment of the Banking Regulation Act, 1949, thereby providing that the deposit accounts which have not been operated upon for a period of ten years or any amount remaining unclaimed with any bank for more than ten years will be credited, within three months from the expiry of the period of ten years, to a fund called “Depositor Education and Awareness Fund” to be utilised for promotion of depositors’ interest and for such other purposes as may be specified by the Reserve Bank from time to time. Source: Parliament Questions Recognising the importance of mobile phones as a medium for providing banking services, the Reserve Bank issued operating guidelines to banks for mobile banking transactions on October 8, 2008, which were reviewed and further relaxed on December 24, 2009. The Reserve Bank has authorised 46 banks to offer mobile banking services to their customers and 33 banks have commenced mobile banking. Further, in September 2010, the Reserve Bank has extended the list of entities permitted to function as business correspondents (BCs) for banks, permitting banks to engage companies registered under the Indian Companies Act, 1956 with large and wide-spread retail outlets (excluding NBFCs) as BCs. This recent relaxation enables mobile operators to also become BCs of banks. The Indian Banks’ Association (IBA) has informed that the Indian mobile service provider Vodafone Essar will become a BC for ICICI Bank Limited, while Bharti Airtel has announced a joint venture with the State Bank of India. Union Bank of India has partnered with Nokia and Obopay to launch a mobile payment service called ‘Union Bank Money’ available to consumers across India. The services which are being offered by banks under their mobile banking services are : (i) alert services; (i) service requests (cheque book, statement request); (iii) account enquiry; (iv) intra-bank funds transfer; (v) inter-bank funds transfer - inter-bank mobile payment service by the National Payments Corporation of India (NPCI); and (vi) value added services, such as, bill pay, ticketing, etc. The Reserve Bank has also permitted scheduled commercial banks to operationalise mobile branches in Tier 3 to Tier 6 centres and in rural, semi urban and urban centres in the North Eastern States and Sikkim, subject to reporting. The mobile branch guidelines envisage the extension of banking facilities through a well protected van. The mobile unit would visit the places proposed to be served by it on specific days/ hours so that its services could be utilised by the customers. Some banks like Allahabad Bank, UCO Bank, Corporation Bank, have launched the mobile van bank services. Source: Parliament Questions
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