RBI floats draft norms on capital needs for counterparty risk

In order to enhance risk management system of banks, the Reserve Bank of India (RBI) has proposed tweaking norms for capital adequacy with regard to their exposure in derivative instruments.

Under the new framework, banks’ exposure to central counterparty (CCP), a clearing house, arising from OTC derivatives, exchange traded derivatives and Securities Financing Transactions (SFTs) will be subjected to capital requirements for counterparty credit risk, the RBI said in a draft guidelines.

The central bank has invited feedback from the banks on the draft guidelines on ‘Capital requirements for bank exposures to central counterparties’ by end of this month.

A CCP is a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts.

For the purpose of regulatory capital calculation, CCPs will be considered as a financial institution.

The draft norms noted that one of the lessons learnt from the recent crisis has been that OTC derivatives market may be one of the channels for contagion during the crisis.

It was, therefore, decided by the G20 leaders that standardised OTC derivative contracts should be settled through CCPs.

Central clearing will reduce systemic risk by reducing the contagion risk as problems at one institution will not be transmitted to other institutions through OTC derivatives market.

However, requirement of central clearing also concentrates too much risk within the CCPs and any failure of a CCP may be catastrophic for the entire financial system, it said.

The draft norms propose amendments in the Guidelines on Implementation of Basel III Capital Regulations issued in May last year.

The effective date of implementation of Basel III guidelines has been deferred to April 1, 2013

Allahabad Bank, small-businesses body sign pact

Allahabad Bank has signed a memorandum of understanding with the Chamber of Indian Micro, Small and Medium Enterprises to shore up its priority-sector lending. The Chamber will get proposals from its members for consideration of the bank. Once a loan is sanctioned, the organisation will support the bank in follow-up and recovery and provide early warning signals.

Bank of Bahrain appoints new CEO for India operations

Bank of Bahrain and Kuwait has appointed Mallikarjun Kota as its Chief Executive Officer and Country Head-India Operations with effect from January 1, 2013.

Prior to this appointment, Kota was Country Head of Business and Corporate Banking and Branch Head in Hyderabad.

Vijaya Bank deposit scheme

Vijaya Bank has launched a deposit scheme, ‘V-Abhivriddhi’.

The scheme offers higher returns to depositors and is for a three-month period from 2013 January 1 to March 31.

The minimum amount of deposit is Rs 10 lakh and the maximum amount Rs 100 crore with a maturity period ranging from seven days to 180 days. The scheme does not attract any pre-closure penalty charges.

ItzCash ties up with HDFC Bank, Visa

ItzCash Card, a multi-service prepaid card company of the Essel Group, has tied up with HDFC Bank and Visa to launch corporate gift cards. The HDFC Bank ItzCash Visa Gift Card offers a wide range of products and can be used at over a million outlets where Visa cards are accepted. Employers can use the card to reward staff members, customers or pay commissions. The card can be purchased for any value. It comes with a range of security features designed to protect cardholders from unauthorised purchases if their card is stolen. The gift card, which is valid for one year, cannot be reloaded by paying at bank branches and cannot be used in ATMs for withdrawal of cash. The card can be used for purchases at shops and online transactions over the Internet. 

RBI set up Working Group to review Banking Ombudsman Scheme

The Reserve Bank of India in the month of January 2013 had set up a working group to evaluate and make improvements in the grievance redressal mechanism for bank customers. 

The working group constituted in the Reserve Bank of India is going to review, update, and revise the Banking Ombudsman Scheme, 2006. 

As per the RBI annual report of the Banking Ombudsman Scheme 2011-12, In Financial Year 2011-12, the banking ombudsman’s office of the RBI received around 72889 complaints. It disposed off 94 per cent of the customer complaints, About one-fourth of the total customer complaints were about banks’ failure to meet commitments and non-observance of fair practices code. 

Also, it was seen that the Banking Ombudsman received 14492 card-related complaints in the reporting year. Unsolicited cards and charging of annual fee in spite of being offered ‘free’ card formed the basis of some of the complaints against the banks. 

Presently, we have 15 Banking Ombudsmen with unambiguous jurisdiction covering the 29 States and seven Union Territories in India.

Allahabad Bank Signed MoU with Chamber of Indian Micro, Small and Medium Enterprises

Allahabad bank signed a Memorandum of Understanding (MoU) with Chamber of Indian Micro, Small and Medium Enterprises (CIMSME) in Kolkata on 4 January 2013. The MoU was signed to support the priority sector lending. 

CIMSME is basically a body that represents interest of the companies in the Micro, Small and Medium Enterprises (MSME) sector, with the financial institutions, banks, concerned ministries as well as other organisations. 

According to the agreement, CIMSME would help in activating the proposals from the members for the due consideration of the bank. Once the bank sanctions the loan, CIMSME would help the bank in following-up as well as recovering the dues. CIMSME would also help in providing the early signs of warning, if they exist. 

MoU signed between the two will basically help in accelerating the process of faster clearance of loan proposals which lie under MSME. It would additionally, also enable the bank in acquiring quality proposals as well as boosting up the credit flow to this sector. 

MoU signed between CIMSME and Allahabad Bank was executed by General Manager (SME & Retail Credit) as well as the President of CIMSME in the presence of CMD of Allahabad Bank.

R.K. Dubey is Canara Bank CMD

R.K. Dubey, 59, has been appointed the Chairman and Managing Director of Canara Bank. Dubey’s was areas of expertise include planning and budgeting, resource mobilisation, credit, risk management, human resources (HR), IT and marketing. A post-graduate in English, Dubey also has a degree in law and management in HR practices. He is also a certified associate of the Indian Institute of Bankers. Dubey joined Punjab National Bank in 1977 as a management trainee and moved up the ranks to become a general manager in 2008 and was appointed as executive director of Central Bank of India in 2010.

Cabinet approves capital infusion in PSU banks

The Union Cabinet has approved a capital infusion package of Rs 12,517 crore for about 10 public sector banks. According to the Cabinet Committee on Economic Affairs (CCEA), the move will enable the banks to maintain a minimum tier-1 CRAR (capital to risk weighted assets ratio) at comfortable level under international bank capital adequacy standard norm BASEL-III. This will ensure compliance to the regulatory norms on capital adequacy and will cater to the credit needs of productive sectors of the economy, as well as, to withstand the impact of stress in the economy. This additional availability of credit will cater to the credit needs of our economy and will also benefit employment oriented sectors, especially agriculture, micro and small enterprises, export, entrepreneurs." Earlier the government has infused about Rs 20,117 crore in public sector banks during 2010-11, and Rs 12,000 crore in 2011-12. According to the Economic Survey for 2011-12, the capital infusion had enabled PSBs to "maintain a minimum tier 1 CRAR at eight percent on 31st March, 2012, and also increased shareholding of the government in PSBs to 58 percent".

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.