Fiscal cliff

Fiscal cliff is a newly coined term in USA, referring to the effect of a number of laws which, if unchanged, could result in tax increases, spending cuts, and a corresponding reduction in the budget deficit beginning in 2013. These laws include tax increases due to the expiration of the so-called Bush tax cuts and across-the-board spending cuts under the Budget Control Act of 2011. The year-over-year changes for fiscal years 2012–13 include a 19.63% increase in tax revenue and 0.25% reduction in spending. The US Congressional Budget Office estimates that allowing certain laws on the books during 2012 to expire or take effect in 2013 (the baseline scenario) would cut the 2013 deficit approximately in half and significantly reduce the trajectory of future deficits and debt increases for the next decade and beyond. However, the 2013 deficit reduction would adversely impact the economy in the short-run. On the other hand, if Congress acts to extend current policies (the alternative scenario), deficits and debt will rise rapidly over the next decade and beyond, slowing the economy over the long run and dramatically increasing interest costs. Many experts have argued that the U.S. should avoid the fiscal cliff while taking steps to bring the long-term deficit and debt trajectory under control. For example, economist Paul Krugman recommended that the US focus on employment in the short-run, rather than the deficit. Federal Reserve Chair Ben Bernanke emphasized the importance of balancing long-term deficit reduction with actions that would not slow the economy in the short-run. Charles Konigsburg, who directed the bi-partisan Domenici-Rivlin deficit reduction panel, advocated avoiding the fiscal cliff while taking steps to reduce the budget deficit over time. He recommended the adoption of ideas from deficit panels such as Domenici-Rivlin and Bowles-Simpson that accomplish these two goals.

Cheque Truncation System (CTS)

Cheque Truncation System (CTS) is a process that will give banks the freedom to avoid transporting a physical cheque from the presenting bank (where the cheque is deposited) to the drawee bank (where it is issued). As per the CTS, instead of a physical cheque, an electronic image of the cheque will be sent to the drawee bank. Of course, this image will have all the necessary information needed to process the cheque. Right from the nine-digit MICR code, the date of the cheque and the details of the presenting bank, like branch, etc.

Banks get 3 more months to implement Basel III norms

 The Reserve Bank of India has extended the date for implementation of Basel III, the global capital norms for banks, by three months to April 1.

“The Reserve Bank of India has rescheduled the start date for implementation of Basel III to April 1, 2013 from January 1, 2013,” the central bank said.

The RBI, however, did not provide reasons behind the rescheduling.

The move, experts said, will provide additional time to some banks that need to enhance their capital base in line with the new norms for strengthening the resilience of the global banking system.

The RBI further said that India will closely monitor the progress on Basel III implementation in other countries, particularly the major ones, who are members of the Basel Committee.

The RBI had issued guidelines on the implementation of Basel III capital regulation in India in May this year. These guidelines were to be implemented from January 1, 2013 in a phased manner and were to be fully implemented by March 2018.

As per the new global norms, banks will have to hold core capital of at least 7 per cent of risk weighted assets by 2018.

In September, the RBI Governor, D. Subbarao, had said that Indian banks will require an additional capital of Rs 5 lakh crore to meet the new global banking norms.

Of the total Rs 5 lakh crore, equity capital will be Rs 1.75 lakh crore, while Rs 3.25 lakh crore will have to come as the non-equity portion.

The government, which owns 70 per cent of the banking system, alone will have to pump in Rs 90,000 crore equity to retain its shareholding in the public sector banks at the current level to meet the norms.

The Basel Committee recently said that the 11 member jurisdictions including India, Australia, Canada, China and Japan, have published the final set of Basel III regulations effective from the start date of January 1, 2013.

Seven other jurisdictions including the European Union and the US have issued draft regulations, and have indicated that they are working towards issuing final versions as quickly as possible. 

First Indian Bank to launch the e-Gift card facility

Axis Bank, India’s third largest private sector Bank announced the launch of ‘Axis Bank e- Gift Card’, thereby becoming India’s first bank to offer to all bank’s domestic customers an option to buy an e- Gift Card. The Axis Bank e- Gift Card offers customers an alternate channel through which they can buy a gift card for their dear ones. The facility of e- Gift Card can be availed at www.gogiftacard.com where a
customer can buy and send a card of his choice by either e-mailing it or sending it via SMS to their loved ones. Domestic customers can purchase these online e- Gift Cards using their credit / debit card issued by their respective bank. All purchase transactions shall be limited to sites that support verified by Visa and MasterCard Secure Code for two factor authentication.

Zero Balance Account for Beneficiaries of Government Programmes

The Reserve Bank of India (RBI) has advised all Scheduled Commercial Banks (SCBs) on 10.8.2012 to offer a ‘Basic Savings Bank Deposit Account’ and also convert existing basic banking ‘no-frills’ accounts’ to ‘Basic Savings Bank Deposit Account’. Such accounts do not have the requirement of any minimum balance and comes with the facility of ATM Card or ATM-cum-Debit Card. However, the holders of such accounts are not eligible to open any other savings bank deposit account in that bank. Under Financial Inclusion, banks have already opened 3.16 crore accounts by March 31, 2012.

Chandrashekhar panel to frame rules for foreign investors

Market regulator SEBI on December 12 said it has appointed a committee under ex-Cabinet secretary K M Chandrashekhar to frame a single set of guidelines for all types of foreign investors.

The committee will suggest ways to simplify the investment process for all overseas entities like foreign institutional investors, foreign venture capital investors (FVCIs), qualified financial/institutional investors (QFIs), and NRIs, among others, and also to strengthen surveillance over them.

NBFCs may need prior RBI nod for ownership change

Non-banking financial companies (NBFC) would need RBI’s prior approval before making changes in their ownership control, a draft guideline of the central bank said on December 12.

The draft guidelines, based on the Usha Thorat Committee report, also seek to make mandatory for all deposit-taking NBFCs to obtain credit rating.

Appointment of CEOs of NBFCs with asset size of Rs.1,000 crore and above would require the RBI approval, it added.

“In the interest of good governance and the sensitivities associated with NBFCs... such companies, whether listed or not, will need to comply with Clause 49 of SEBI’s listing agreement on corporate governance including induction of independent directors,” the draft said.

The draft norms said existing unrated NBFCs-D will be given one year to get rated, “thereafter, they would not be allowed to accept any fresh deposits or renew existing deposits, till they get themselves rated,” it said.

On change in control or transfer of shareholding, the draft said that all registered NBFCs should take prior approval from the RBI where there is a change in control and increase of shareholding to the extent of 25 per cent by individuals or groups, directly or indirectly.

Regarding non-performing assets (NPAs), the RBI has proposed that asset classification and provisioning norms should be made similar to that of banks for all registered NBFCs irrespective of the size.

At present, the period for classifying loans into NPAs in case of NBFCs is higher at 180/360 days compared to 90 days for banks.

The RBI has sought stakeholder comments on the draft norms by January 10.

Reserve Bank tightens norms for issue of debit cards

The Reserve Bank of India (RBI) on December 12 stipulated that debit cards would be issued to customers having Savings Bank and Current Accounts but not to cash credit or loan account holders.

Banks may issue only online debit cards, including co-branded debit cards where there is an immediate debit to the customers’ account, and where straight through processing is involved, RBI said.

“Banks are, henceforth, not permitted to issue offline-debit cards. Banks which are now issuing offline debit cards may conduct a review of their offline debit card operations and discontinue operations of such cards within a period of six months from the date of this circular,” RBI said in a notification to all banks.

Banks were also asked to ensure that customers were duly informed regarding switching over to online debit cards. However, till such time as offline cards were phased out, the outstanding balances / unspent balances stored on the cards would be subject to computation of reserve requirements.

Banks should undertake review of their operations/issue of debit cards on half-yearly basis. The review would include, inter-alia, card usage analysis, including cards not used for long durations due to their inherent risks.