29/06/96

The Central Bureau of Investigation (CBI) has questioned the stand taken by the Reserve Bank of India (RBI) on violation of the portfolio management scheme (PMS) by banks involved in the securities scam.

CBI has recently asked RBI to explain the circumstances leading to its decision to ask banks to treat PMS as normal deposit with CRR and SLR in 1994. CBI also said that this would affect the prosecution process of some of the banks which violated the guidelines blatantly.

RBI, however, has justified its stand saying that it had imposed penalties on several banks which were found to the violating PMS guidelines. Moveover, the treatment of PMS funds as normal deposits with CRR and SLR is in itself a matter of punishment and it was done after shaowcausing the guilty banks.

FI's increase their prime lending rate by 1%

29/06/96

The Economic Times 29/06/96 IDBI Hikes Rate By 1% Bank News Signalling the rise in the cost of funds, term-lending financial institutions (Fis) have decided to hike their prime lending rate by one percentage point from 16 to 17 per cent (excluding interest tax). This is 0.5 per cent higher than the prime lending rate of the public sector banks.

The revised rates would be effective from July 1. The rate for a particular loan will continue to be fixed within the existing interest band depending on the risk perception of hte bank in each case. An agreement between FIs restrict interest on all loans within a band of four per cent above the PLR.

When contacted, top-level Industrial Finance Corporation of India (IFCI) sources said that they would follow IDBI soon in hiking PLR to 17 per cent. On the other hand, the institution had already stealthily hiked PLR by one per cent. Although ICICI sources could not be contacted, industry sources said that ICICI has also hiked its PLR silently.

Six banks get one more year to meet capital adequecy ratio

29/06/96

Banks which have failed to meet the stipulated capital adequacy ratio target of eight per cent by March 31, 1996 have been extended a one-year relaxation period by the Reserve Bank of India (RBI).

In a circular to these banks, the RBI has said that the deadline for them now stands revised to March 31, 1997. The six banks that are likely to benefit from this decision are Central Bank of India, United Bank of India, Allahabad Bank, Indian Bank, Punjab and Sind Bank and Vijaya Bank.

The extension comes at a time when it was still not clear whether the budget would set aside an amount for recapitalisation of these banks. The extension means that these banks might get further capital contribution from the government or some method would be devised to plough back profits of 1996-97 into reserves and boost capital reserves.

RBI announces change in interest rates on FCNR deposits

30/06/96

The Reserve Bank of India (RBI) keeping in view the present level of interest rates in the overseas market has announced changes in interest rates on deposits under Foreign Currency (Non-Resident) Accounts - Banks - (FCNR) scheme with effect from July one.

Interest rates on Pound Sterling and Deutsche Mark deposits have been reduced by 0.50 per cent and one per cent respectively across the board for all maturities and on US dollar deposits increased by 0.25 per cent for one and two year maturities and 0.50 per cent for three years maturities. The interest rates for Japanese Yen deposits remain unchanged.

RBI announces 1% cut in CRR aimed at easing interest rates

02/07/96

In wide-ranging measures aimed at easing interest rates, the Reserve Bank of India (RBI) on Monday announced a one per cent cut in the cash reserve ratio (CRR) and greater freedom in the deposit rate structure of banks. The RBI has also withdrawn the refinance facility on government securities and further relaxed its selective credit controls with respect to sugar, gur, khandsari, cotton and kapas.

Effective June 6, the CRR requirement of banks would stand reduced from 13 per cent at present to 12 per cent. This move alone is expected to release Rs 4,100 crore. With this measure, the effective CRR for the banking system would be around 11.5 per cent. The relaxation comes close on heels of two half percentage cuts in CRR from 14 per cent to 13 per cent announced in the slack season credit policy on April 3. These cuts were effected on April 27 and May 11 and released Rs 3,800 crore into the system.

The revised domestic term deposit rates will apply only to fresh deposits and on renewals of maturing deposits. The apex bank also added that in order to make the money market mutual funds scheme more attractive to investors, the minimum lock-in period was also being reduced from 46 days to 30 days.

The RBI also said that it was terminating the refinance facility against the collateral of treasury bills and dated government and other approved securities with effect from July 6. Banks tend to utilise these limits when refinance rates are lower than the call money rates. At present, the call oney rate are ruling at levels lower than the rates at which such refinance is available and as such the average utilisation of this facility during the fortnight ended June 21, 1996 was nil.

CBI interrogates a key witness in NFL Urea scam

02/07/96

The Central Bureau of Investigation (CBI) on Monday interrogated a key witness, R S Randhawa, in the NFL urea scam. Randhawa only a deputy manager in the International Banking Division of the SBI's local head office was specifically assigned the task of sorting out the problems relating to irregular remittances amounting to about $ 38 million on November 14 last year and he did the same to the satisfaction of his bosses.

Randhawa, was instructed to visit the South Extension Part-1 branch of the SBI on the particular date and was also privy to conversation and the assurances given by the NFL officials regarding waiver of the bank guarantee clause by the Reserve Bank.

They also mentioned the details of what had happened on November 14, 1995 in a note to the now suspended deputy general manager K Vikram which was later placed before the Central Committee of the SBI comprising the then chief general manager P K Bhattarchjee.

RBI acts tough regarding defence purchase payments

02/07/96

In the wake of the urea import scandal, the Reserve Bank of India (RBI) has clamped down on payments made overseas for defence for purchase. Highly-placed sources say that the RBI is insisting on more details about the purchases before sanctioning payments which deviate from the exchange control manual (ECM) governing forign exchange (Forex) transactions.

The exchange control departement (ECD) of the RBI in Delhi is sitting on sanctions sought by the defence ministry for some purchase on the ground that adeuate details have not been provided. The payments are in the region of Rs.100-150 crore.

RBI deregulates short term depost interest rates besides cutting CRR ratio by 1%

02/07/96

The Reserve Bank of India (RBI) has completely freed interest rates on domestic term deopisits of maturities of above one year besides cutting the cash reserve ratio (CRR) by another percentage point to 12 per cent. These formed part of a series of measures, widely perceived by industry to be a delayed announcement of the slack season credit policy.

Other announcements made on Monday include removal of refinance facility on government securities and reduction in interest rate ceiling to 11 per cent on term deposits with maturities of up to one year. Selective credit controls have also been heavily slashed for the agricultural sector with a general cut of 15 per cent cut in the minimum margins on lending against cotton and sugar.

The RBI fixed a ceiling of 11 per cent on interest that can be paid on domestic term deposits for maturities of up to one year. Moreover, it also reduced the minimum deposit period to 30 days from the present minimum maturity of 46 days. The cut in CRR from 13 per cent to 12 per cent is also keeping in line the RBI's previous policy announcements.

World Bank projects darker days for industries because of chronic power shortage

19/06/96

With the Centre's private power initiative failing to result in even a single mega-watt of additional generating capacity till date after five years of policy implementation, the World Bank has projected darker days ahead for India, with industrial growth likely to take a cruel blow.

The chronic power shortage in the country as a whole is likely to touch 30,000 MW at the beginning of the Ninth Plan, starting April 1997. As a result, there will be power cuts for a longer duration in most of the States. Already, power cuts have become endemic in most southern States, as also Delhi, with the no-power duration ranging from eight to 10 hours a day. During the Ninth Plan period, the total addition to the installed generating capacity is likely to be only 20,000 MW against a fresh requirement of 50,000 MW. The official capacity addition figure, on the other hand, is in the region of 56,000 MW as the Eighth Plan is now certain to close with an addition of about 19,000-20,000 MW agianst the target of 30,538 MW.

As much as 50,000 MW will be required during the Ninth Plan...and India may not be able to add more than 20,000 MW.

Deutsche Bank leads in fixing higher interest rates on one year deposits

03/07/96

Deutsche Bank has taken the lead in fixing a high rate of interest on term deposits for a period of one year and above. The board of the country's premier bank, State Bank of India, is meeting on Thursday to take a decision on the new rates. SBI is expected to set a benchmark for all other public sector banks.

In Deutsche Bank's case, the new rates are 14.5 per cent for a 12-15 month deposit and 14 per cent for a 15-24 month deposit. As required by RBI the interest on the 30 day to 12 month period remains at the specified 11 per cent maximum. The bank has not as yet taken a decision on reviewing the prime lending rate, the rate will be brought down slightly.

RBI to create strong bank rates on the lines of discount rates of Federal reserves

02/07/96

The measures taken by Reserve Bank of India yesterday are seen as a move to create a strong bank rate which will function on the lines of discount rate of the Federal Reserve of the US. The bank rate is supposed to act as a signal rate through which the Reserve bank controls the interest rate in the economy. The RBI's bank rate is, however, ineffective for a variety of reasons and the steps taken yesterday will go towards removing those hurdles, bankers feel.

Theoretically, the bank rate is the lowest rate in the economy. At present, the Reserve Bank has sector-specific interest rates that are lower than the bank rate. For instance, the bank rate is currently 12 per cent but the export refinance rate is 11 per cent. The Reserve Bank yesterday scrapped one refinance i.e. refinance against government securities. Another requirement for the bank rate to be effective is that there should be no administered rates in the economy.

RBI monetary policy announcements refer to the advantages of reduction in CRR with reduction in refinance

02/07/96

In monetary policy announcement for the first half of 1996-97 (Ref No CPC BC 155/07.01.279//95-96 dated April 3, 1996), they referred to the advantages of a rationalisation by way of a reduction in the cash reserve ratio (CRR) together with a reduction in refinance as it impacts favourably on bank profitability.

Under section 42(1) of the Reserve Bank of India Act, 1934 scheduled commercial banks (excluding Regional Rural Banks) are at present required to maintain with the Reserve Bank of India a cash reserve ratio (CRR) of 13.0 per cent of their net demand and time liabilities (excluding liabilities subject to zero CRR). With effect from the fortnight beginning July 6, 1996, the CRR is being reduced by one percentage point from 13.0 per cent to 12.0 per cent. As a result of the CRR reduction, an amount of Rs 4,100 crore of the resources of banks would be released. With this measure, the effective CRR for the banking system would be around 11.5 per cent. Scheduled commercial banks are provided refinance under two separate limits each equivalent ot 0.5 percentage point of the fortnightly average outstanding aggregate deposits in 1994-95 (April-March), viz, against the collateral of treasury bills at an interest rate of 12.5 per cent per annum and against the collateral of dated government and other approved securities at an interest rate of 14.0 per cent per annum. The aggregate limits under this refinance facility amount to Rs 3,385 crore. Banks tend to utilise these limits when refinance rates are lower than the call money rates. At present the call money rates are ruling at levels lower than the rates at which such refinance is available, and as such the average utilisation of this facility during the fortnight ended June 21, 1996 was nil.

RBI decision to free the interest rates starts the deposit war

03/07/96

The deposit rate war has begun. The Reserve Bank of India decision to free interest rates on deposits saw the ICICI Bank leading the bandwagon of private banks hiking deposit rates. Other private banks like the UTI, Indus Ind, Centurion and Global Trust Bank have indicated a revision in their rates within the next two weeks.

ICICI Bank yesterday fixed the interest rates for deposits in the band of 30 days and less than one year at 11 per cent. Indus Ind, GTB and UTI have followed suit by pegging deposits in this band at 11 per cent. The board of directors of ICICI Bank which met yesterday agreed to revise the interest rates for deposits. P H Ravikumar, senior vice-president (treasury) said the interest rate on deposits above one year to two years is 13 per cent and 14 per cent for those above two years but less than 60 months.

Indian Banks Association to work out common strategy on prime lending rate for public sector banks

03/07/96

The public sector bank chiefs are meeting next week under the aegis of Indian Banks' Association to work out a common strategy on the prime lending rate (PLR). The chief executive officers of the major PSU banks will also chalk out a common framework on the realignment of deposit slabs now that the RBI has freed the interest rates on domestic term deposits over one year and reduced the minimum maturity period from 46 days to 30 days.

At present, the PLR of the public sector banks is a uniform 16.5 per cent excluding interest tax. The major financial institutions have already raised their lending rate floor by one percentage point to 17 per cent, thereby overtaking the bank PLR. However, the PSU banks are likely to increase their PLR at this juncture. Last week, State Bank of India chairman P G Kakodkar categorically ruled out the possibility of raising the PLR. Against the back-drop of fresh one percentage point cut in the cash reserve ratio - which will release an additional Rs 4,100 crore into the system the public sector banks are unlikely to hike their PLR.

Power shortfall to result in big crisis for Indian Industrial sector

19/06/96

With the Centre's private power initiative failing to result in even a single megawatt of additional generating capacity till date after five year of policy implementation, the World Bank has projected darker days ahead for India, with industrial growth likely to take a cruel blow.

The chronic power shortage in the country as a whole is likely to touch 30,000 MW at the begining of the Ninth Plan, starting April 1997. As a result there will be power cuts for a longer duration ranging from eight to 10 hours a day. During the Ninth Plan period, the total addition to the installed generating capacity is likely to be only 20,000 MW against a fresh requirement of 50,000 MW. The official capacity addition figure, on the other hand, is in the region of 56,000 MW as the Eighth Plan is now certain to close with an addition of about 19,000-20,000 MW against the target of 30,538 MW.

RBI seeks co-ordination with SEBI

22/06/96

The Reserve Bank of India (RBI) seeks to bring about coordination in areas where the functions of the Securities and Exchange Board of India (Sebi) and the central bank overlap. The note, which was comminicated to Sebi the need for coordination has arisen with several banks diversifying into capital market-related activities and the consequent blurring of distinction between banking and nonbanking finance companies.

A proposal to enter into a formal agreement by both the regulators in various overlapping areas is being talked about informally in RBI circles. However, Sebi chairman D R Mehta said,"Sebi is yet to make up its mind on whether it should at all enter into any memorandum of understanding with RBI in this regard.

World Bank willing to work with stae govt., if they carry out power sector reforms

20/06/96

The World Bank is willing to work with any State Government which agrees to carry out power sector reforms and said some State Governments are already involved in negotiations with it in the area.

The World Bank is highly satisfied with the Orissa Power sector reforms programme which has been implemented with a World Bank loan of $350 million. Orissa has split the State electricity board into separate generation, transmission and distribution companies. It will transfer its distribution system to private distribution companies by the year 2000. According to experts India will need massive investment in the power sector to the tune of nearly $ 100 billion (about Rs 3,50,000 crores) to meet the likely shortfall of 50,000 MW power by the end of the ninth plan.

RBI to regulate the acceptance of public deposits by Non- Banking Finance companies

20/06/96

The Department of Financial Companies (DFC) of the Reserve Bank of India has decided to "regulate the acceptance of public deposits" by the non- banking financial companies, the miscellaneous non-banking financial companies and the residuary non-banking financial companies from the current financial year. The decision has been taken in the wake of innumerable complaints of depositors being cheated by the non-banking financial companies. The DFC is framing a new policy relating to all kinds of non-banking financial companies. The new policy is being framed in view of the "fast changing economic scenario".

In another significant move the apex bank has decided to restructure the functioning of the DFC. It has now been decided that while DFC will concentrate on all work relating to the policy of regulation of the non-banking financial companies and deal with statute related matters, however, the enforcement and the supervisory work of the DFC will now be conducted by the DOS.

RBI detects the lapses in Bill Discounting operations by private sector banks

23/06/96

The Reserve BAnk of India (RBI) has detected lapses in bill discounting operations of some newly-fomed private sector banks.

RBI has observed that the conduct of bills portfolio by some of the private banks in not in conformity with its guideliness in as much as these banks are offering export bill discounting facilities to exporters who have exhausted their maximum permissible bank finance (MPBF) with their existing bankers. The RBI circular points out three specific lapses by the private sector banks. These are: The private sector banks are extending bill discounting facility to exporters who did not avail of regular limit from them; They do not even obtain no objection certificates from the banks which had earlier appraised their bills limit and sanctioned an MPBF limit; and They do not observe the usual safeguards stipulated by RBI instructions in this regard from time to time.

Banks cannot give bill discounting facility to any exporter who have exhausted their MPBF with their existing bankers. The MPBF limit has been defined by the Tandon Committee and it depends on certain factors such as capital adequacy, debt equity ratio and interest cover ration of the company.

Tea Plantatin industry seeks legal opinion on tax deductability of cess dues

24/06/96

The tea plantation industry, which is required to pay cess dues to the West Bengal government for the period 1981-89 is seeking legal opinion on whether the payments can be claimed as deduction from income tax paid during the period.

Depending on legal advice, the industry may move a petition against the Central Board of Direct Taxes for tax refunds, where applicable. The state government is collecting these dues in the shape of rural employment and primary education cess on green leaf produced by the tea gardens. While some of the comapnies are paying these dues as per the schedule worked out by the government, others, especially the small garden owners, are finding it difficult to fufill their commitments.

RBI not to pay commission to primary dealers for devolved govt. loan

24/06/96

The Reserve Bank of India has informed the primary dealers (PDs) in Government securities that it would not pay any commission to them for subscribing to the devolved portion of the fresh loans issued by the Government.

In its "Terms and Conditions for primary dealers' sent to the PDs, the RBI has said that "no commission will be payable by the Reserve Bank of India on account of the devolvements falling on the primary dealers as a result of shortfall in subscription to new loans".

According to the system of PDs outlined by the central bank, the dealers are required to underwrite a pre-determined part of the devolved amount on Central and State Government loans. The RBI has also instructed the PDs to maintain a strict reporting schedule, which would include daily, monthly and annual reporting. Among the daily reports, the PDs would have to submit a detailed report of operations, which is to be sent in by the forenoon on the subsequent working day, and a daily market intelligence report to the Internal Debt Management Cell which would include a forecast of the condition in the money and securities market and the likely rate and yields for the next day, as well as for the current and the next reporting fortnight.

The PDs would also be required to submit a monthly report of their operations within a week of the following month and an annual performance review report with un-audited balance sheet and profit and loss accounts to be submitted before April 15 for the preceding financial year.

RBI lashes American Express Bank for over-extending itself to Reliance and ITC

26/06/96

The Reserve Bank of India (RBI) has censured American Express Bank (Amex) for breaking prudential norms pertaining to corporate exposure by over- extending itself to Reliance and ITC. The central bank's inspection report has made extremely adverse remarks on the credit management by Amex. As per the guidelines of the central bank, a bank can have an exposure of only 25 per cent of its capital funds, which is Tier-1 plus Tier-2, to a corporate and 50 per cent of the same in the case of group exposures.

A hihgly placed official in Amex admitted that the bank's capital funds (approximate) worked out to around Rs 150 crore, while its exposure to both Reliance and ITC were much in excess of the 25 per cent of capital funds ceiling which is Rs 37.5 crore. Sources revealed that in the case of ITC, Amex's exposure is over Rs 100 crore while in the case of Reliance, the same is substantially higher than Rs 100 crore. Amex refused to divulge the exact figures on Tier-1 and Tier-2 capital or the exposures to Reliance and ITC, but confirmed that the RBI had indeed hauled them up for breaching exposure ceilings.

Power tariff raised in Maharashtra to meet World Bank stipulation

26/06/96

Power tariff in Maharashtra will go up by 6-7 per cent for small-scale industries, 12 per cent for domestic consumers, 15 per cent for high-tension consumers and 20 per cent for commercial users with effect from July 1. Industrial organisations, including the Indian Merchants' Chamber, have protested against the decision and demanded an end to cross-subsidisation of power for agriculture by the industrial sector. The state cabinet yesterday approved the Maharashtra State Electricity Board's proposal to hike the tariff to generate a rate of return of 4.5 per cent on assets, as required by the World Bank. The bank is expected to extend a loan for the Rs 2,000 crore high-voltage direct current project of the board at Chandrapur. "The All India Association of Industries has reacted strongly to the tariff hike. The industry is already confronting a severe liquidity crunch and the hike in power tariff will add to the cost of production", said the association, and predicted a recession in the small and medium-scale sectors which contribute greatly to exports.

SBI top brass ignored RBI warning in Urea scam

27/06/96

The controversial remittances of $ 38 million was not only made at the behest of the then chief general manager of the SBI, Delhi circle, P K Bhattacharjee, but also the central committee of the bank was fully aware of the transaction and violation of the Exchange Control Manual (ECM).

The suspended deputy general manager of the SBI, K Vikram, had written to the Chairman, P G Kakodkar, that he had acted under instructions from Bhattacharjee who was later promoted as the deputy managing director (DMD) at bank's central office at Mumbai. He had made this point in a letter to the Chairman seeking review of his suspension at a time when the top management was trying to wash its hand of the deal.

IDBI close to finalise $100m deal with consortium of Asian Banks at all time low cost

26/06/96

Riding the incessant hunger for Indian paper, Industrial Development Bank of India (IDBI) is close to finalising a $100 million club deal at an all- time low all-in cost of 65 basis points above the London Inter-Bank Offered Rate (Libor).

The seven year loan - with call and put options after five years - has a $50 million green shoe option and is being subscribed to by at least six Japanese and one Malaysian banks. The loan has been struck at the lowest-ever rate by any financial institution and triggers a further strengthening in overseas interest for Indian debt. IDBI's previous lowest rate on any foreign currency loan was 70 basis points above the Libor. This is the first deal arranged by Association of Development and Industrial Banks in Asia (ADIBA) after IDBI joined as a member this month.

The lead arrangers include names like Industrial Development Bank of Japan and Korea Development Bank. While both these banks are picking up a chunk of the loan, four other Japanese banks and one Malaysian bank are also believed to have committed participation in the club deal. IDBI is scheduled to clear the loan at its board meeting on June 27. The loan forms the first tranche of IDBI's $550 million external commercial borrowing quota for 1996-97. The FI plans to finalise $400 million out of this total amount by September. The institution has also drawn up plans to raise another Rs 7,000 crore in rupee resources in the current fiscal year.

Out of this, Rs 2,500 crore will be raised through certificates of deposit. This is equal to its permissible CD limit according to the Reserve Bank of India norms. Another Rs 350-400 crore is expected to come from the oversubscription to its recent Rs 1,000-crore `flexibonds' issue.

RBI to integrate 3 key departments to avoid irregularities and frauds

27/06/96

In a move to plug irregularities and frauds, Reserve Bank of India (RBI) is integrating its three key departments - the public debt office (PDO), public accounts department (PAD) and deposit account department (DAD). Top sources confirmed that the move has been recently initiated in a few zonal offices of RBI, and Price Waterhouse has been assigned to develop a common system that will inter-link the three crucial offices of the central bank. The exercise is expected to take some six months.

That the move will serve as an experiment before extending it to other RBI centres, including the central office in Bombay. It may be mentioned that a number of activities within each of these departments have already been computerised after the securities scam was unearthed.

However, delays and certain loopholes in the functioning of these departments have prevailed. The apex bank now feels that interlinking these offices through a fresh software will help it to cross-check the large transactions between RBI and commercial banks on a daily basis.

RBI pulls MMTC for not bringing back foreign exchange within stipulated period

27/06/96

Public sector trading giant Minerals and Metals Trading Corporation (MMTC), was recently pulled up by the RBI for not bringing back into the country dollar proceeds within the stipulated six months after executing exports.

RBI, of late, has become very stringent with exporters who fail to bring back into the country export earnings on time. The Central Bank has also reprimanded another public sector company, Handloom and Handicraft Export Corporation (HHEC) for the same reason. The RBI sent a circular to all public sector banks, who are also authorised dealers in foreign exchange, not to accept export documents furnished by either MMTC or HHEC because of their failure to realise timely export earnings.