KYC norms to be relaxed to allow Aadhaar card

Reserve Bank of India, set to publish a circular allowing the use of Aadhaar Card in the  Know-Your-Customer (KYC) norms in order to simplify the KYC process.

Speaking on this matter, the Deputy Governor of RBI, Mr. H. R. Khan said that in the coming days, RBI could come up with simplified KYC norms and could make Aadhaar the address and identification proof for an individual.

Currently, then Aadhaar card carries a disclaimer that it cannot be used as an identity to conduct banking transactions. Once the KYC norms are relaxed  Aadhaar card can be used as proof of identity.

In the second-quarter review of the monetary policy last month, RBI had proposed to review the KYC norms, for simplifying these within the provisions of the Prevention of Money Laundering Act and according to international standards. RBI had also it would launch a pilot project, using the Aadhaar Card data collected by Nandan Nilekani-headed Unique Identification Authority of India, to authenticate banking transactions at ATMs and merchant terminals.

Finance minister, P. Chidambaram had said that the government plans to route payouts of direct cash subsidy to citizens through the Aadhaar-linked bank accounts with a view to improve the efficiency of government-sponsored programmes.

The government will begin direct cash transfers on a pilot basis to people in 51 districts in 16 states from 1 January 2013, Chidambaram said.

The Deputy Governor of RBI, Mr. H. R. Khan also said that the central bank is contemplating taking policy measures on the matter of International Bank Account Number, which will make the process of bank account portability easy. He said that the central bank is also making efforts to unite post offices and banks through an electronic fund management system. He said that there were ways by which payment system could accelerate the process of financial inclusion.

Moody’s says India’s rating outlook is stable

In its annual credit analysis on India Moody’s said that the outlook on its Baa3 rating for India is stable, as it’s economic growth and investment that’s are more than emerging-market averages.

India’s economy has expanded 5.5 percent in the three months through September from a year earlier, Finance Minister P. Chidambaram has a target of holding the government’s fiscal deficit for 2012-13 at 5.3 per cent of gross domestic product, matching the growth rate in the preceding quarter. Economists forecast a 5.2 percent increase in gross domestic product, according to the median estimate in a Bloomberg survey before data due Nov. 30.

Moody’s said the high household-savings rate and a relatively competitive private sector will help boost growth from 5.4 percent in the fiscal year ending March 2013 to 6 percent or higher the following year, it also said

“The rating is constrained by the credit challenges posed by country’s poor social and physical infrastructure, high government deficit and debt ratios, recurrent inflationary pressures and an uncertain operating environment.”

Moody’s notes that although India’s GDP growth remains above that of its rating peer, it has slowed from about 8.4% in FY 2010 and FY 2011 to 5.3% in the first half of 2012. Persistent domestic inflation and wide fiscal deficits precluded domestic policy loosening to combat the global growth downturn over the last year. Starting in September 2012, the government has announced measures to spur infrastructure development, allow increased foreign investment, and rein in the fiscal deficit. However, in Moody’s view, given the delayed timing and still modest scope of these measures, growth may remain subdued in the near term amid continued domestic political uncertainty and a global slowdown.

Last month, Standard & Poor’s warned India still faced a one-in-three chance of a credit rating downgrade over the next 24 months, although it said a series of reform steps launched in September had slightly improved the country’s prospects.

Fitch also has a negative outlook on India. Having faced a series of revenue-raising setbacks, the government is grappling with a widening fiscal deficit that threatens to undermine the country’s credit standing and possibly trigger a downgrade to junk status.

Chidambaram says India needs world-size banks

Finance Minister, P. Chidambaram stated that some consolidation in the banking system was inevitable and that India must have two or three world-size banks.
He said

We must create at least 2 or 3 world-size banks. China has done it. And if India wants to be and as it will be the third largest economy in the world…we must also have one or two world size banks and some consolidation is inevitable.

The finance minister said China has done it and if India wants to be the third largest economy in the next 15 years it must have one or two world size banks.

In December 2009, the finance ministry invited chiefs of five leading public sector banks, Namely Punjab National Bank, Canara Bank, Union Bank of India, Bank of Baroda and Bank of India—to take their views on consolidation. Banks, however, did not come up with any concrete proposal and Many small banks and trade unions strongly opposed the idea. The finance ministry later said the government would not force banks into mergers, but ‘bless’ any proposals in that direction.

Currently State Bank of India, India’s largest lender has acquired board approval for the merger of the its remaining five associates with itself. It has already amalgamated two of its subsidiaries State Bank of Saurashtra and State Bank of Indore in 2008 and 2010 respectively.

The Finance Ministry had recently asked large public sector banks (PSBs) to hand-hold smaller counterparts to improve the latter’s functioning. It has divided banks in seven pools, with a large bank appointed co-ordinator for each group, to improve internal policies, procedures, human resources, e-governance, internal audit, fraud detection and protection, recovery, asset-liability mismatch and business process re-engineering.

Speaking about new business models, Mr. Chidambaram said “may be because there is a regulator and there is a Department of Financial Services”, that there is an unintended tendency among banks to stress on uniformity.

Chidambaram said

I am opposed to uniformity. I don’t think one banks should be or can be clone of another bank. It will be a tragedy if we have got 19 clones (nationalised banks) in this country

While asking every chairperson of a bank to be a different banker, running a different bank and not become a clone of each other. He sayid that government would encourage them to follow new business models.

Uttar Pradesh gov announces Rs1650 crore worth agricultural loan waiver

Uttar Pradesh chief minister Akhilesh Yadav announced  a loan waiver package for the state’s farmers marking the occasion of the 74th birthday of his father and Samajwadi Party chief Mulayam Singh Yadav which fell one day ahead of the beginning of the Winter Session of the Uttar Pradesh Assembly

The agricultural loan waiver will only cover the farmers who had taken up to 50000 rupees of loan from the UP Sahkari Gram Vikas Bank (UPSGVB) against farm land as security and have repaid at least 10 percent of the principal amount by the end of 31 March, 2012. Under the waiver scheme, the remaining principal amount and the interest stand waived off. The CM did not give any assurances whether the farmers who have taken loans from nationalised commercial banks and other financial institutions would be covered by this scheme in future or not.

As of march 2012, UPSGVB had 323 branches across the state, with total deposits and advances at Rs 7,533 crore and Rs 3,820 crore, respectively, a credit-deposit ratio a little above 50 per cent. It recovery percentage was a poor 6.3 per cent, with overdues of Rs 1,716 crore.

This loan waiver will not only be beneficial to 7,20,000 farmers it will also reduce the non-performing assets of UPSGVB and strengthen its financial position.

Akhilesh Yadav also announced that a provision of Rs 500 crore in the budget has been made and the remaining amount will be allocated in the supplementary grants

Banks must share credit fresh/renewal of loans from January 1, 2013 onwards

Citing the recent increase of NPA’s and restructured loans of banks RBI has asked all the Banks to share information such as credit, derivatives and unhedged foreign currency exposures within themselves and further instructed that no fresh loans/ad hoc loans/renewal of loans to new/existing borrowers are to be sanctioned with effect from January 1, 2013 without obtaining/sharing necessary information. RBI has asked the banks to put in place an effective mechanism for information sharing by end-December 2012.

As the Reserve Bank had issued instructions in September and December 2008 regarding the same, there is yet a lack of effective information sharing among the banks. RBI has said that non-adherence to these instructions would be viewed seriously by the Reserve Bank and banks would be liable to action wherever considered appropriate.

It is believed that this would strengthen the information back-up about the borrowers enjoying credit facilities from multiple banks rather than depending on the declaration from the borrowers about the credit facilities already enjoyed by them from other banks.
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