307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA

Year 6. Issue 47
Page | 1

SINCE 20.06.07 ISSUE NO- 307

BANK OF MAHARASHTRA OFFICERS ASSOCIATION

(AFFILIATED TO AIBOA) Mumbai Office: Jiva Devashi Niwas, Ranade Rd, Dadar, Mumbai 029. Pune Office: 1501, Lokmangal, Shivajinagar, Pune 005.

BY VASANT PONKSHE SECRETARY AIBOA CHAIRMAN BOMOA

BANKING NEWS 29th April to 04th May 2013

RBI cuts repo rate by 25 bps, CRR unchanged at 4% MUMBAI: The Reserve Bank of India Governor Duvvuri Subbarao spooked investors and businesses with just a small reduction in key interest rate cut and leaving the cash reserve requirement unchanged. The warning that bad external economic conditions and chances of revival in inflationary pressures may force its had to even raise interest rates has cast a cloud on outlook. Repo rate, the rate at which the RBI lends to banks, is cut to 7.25%, from 7.5% earlier. All other rates such as the reverse repo, the rate which the RBI pays banks for depositing excess funds, the penal interest rate and the bank rate, fall by similar amount. The Cash Reserve Ratio, the proportion of deposits to be kept with RBI is left unchanged at 4%. "With upside risks to inflation still significant in the near term in view of sectoral demand supply imbalances, on-going correction in administered prices and pressures stemming from minimum support price increases, monetary policy cannot afford to lower its guard against the possibility of resurgence of inflation pressures," Governor Duvvuri Subbarao said in probably his last annual monetary policy statement. "Monetary policy will also have to remain alert to the risks on account of the CAD (current account deficit) and its financing, which could warrant a swift reversal of the policy stance." The benchmark Sensex fell 0.2% to 57.3, yields on government bonds rose 0.87% to 7.79% and the Indian rupee fell to 53.96 to the US dollar. Governor Subbarao who had frustrated the corporate as well as the government lobby is still guarded in going for aggressive interest rate cuts despite sharp fall in commodity prices, including Crude oil in the last month or so. In fact, food prices, the main culprit behind steeply growing consumer prices, could also climb slower if the monsoon prediction of the met department proves right. "The RBI is still accommodating, and when they say there is little room to cut, it suggests there is one more cut, maybe not in the next policy review but possibly in July provided inflation continues to come down," said A. Prasanna, economist, ICICI Securities Primary Dealership Ltd. The governor forecast an economic growth of 5.7% for the fiscal, higher than the 5.1% expected in 2013. Inflation is expected at 5.5%, lower than 6.8% in 2012-13. It averaged at 7.3% in fiscal 2013. RBI expects economic activity to show only a modest improvement over last year, with a pick-up likely only in the second half of the year. "With global growth unlikely to improve significantly from 2012, growth in services and exports may remain sluggish. Accordingly, the baseline GDP growth for 2013-14 is projected at 5.7%," RBI said. The governor believes that the pricing power has waned substantially and that core manufacturing prices are no more a threat to inflation with a slowing economy and lower commodity prices. The Wholesale Price

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA Index fell to 5.96% in March 2013 from 7.69% in March last year and the Index of Industrial Production is at 0.6%, down from 4.3% in February 2012. "Keeping in view the domestic demand-supply balance, the outlook for global commodity prices and the forecast of a normal monsoon, WPI inflation is expected to be range-bound around 5.5 per cent during 2013-14, with some edging down in the first half on account of Page | 2 past policy actions, although there could be some increase in the second half, largely reflecting base effects," said RBI. But the transmission of policy rate cut remained a worry given the tight liquidity situation. RBI forecast deposits to grow 14% this year, down from 15% last year. Loans may rise 15% this year, down from 16% last year. "Conditional upon a normal monsoon, agricultural growth could return to trend levels the outlook for industrial activity remains subdued, with the pipeline of new investment drying up and existing projects stalled by bottlenecks and implementation gaps," RBI said. " Declining inflation will raise scope for further rate cut: FM NEW DELHI: Accepting Reserve Bank's stance on policy rate for what it is, Finance Minister P Chidambaram today expressed hope that declining inflation would increase the scope for rate cut by the central bank. "Let's accept what has been done today and let us see what the future holds", he said while commenting on the RBI's monetary policy for the current financial year. "RBI reduced policy rates by 25 basis points. It also announced rather liberal OMO ( Open Market Operations). If the inflation trend down further...that will decide scope for further policy action", Chidambaram said. The central bank in its monetary policy for 2013-14 marginally lowered the short-term lending rate by 0.25 per cent and kept the Cash Reserve Ratio ( CRR), the portion of deposit that banks are required to keep with the RBI, unchanged. It has pegged the growth rate for current fiscal at 5.7 per cent, much below the Finance Ministry's projection of 6.1 to 6.7 per cent. On the growth prospects, RBI said, "economic activity during the current year is expected to show only a modest improvement over last year, with a pick-up likely only in the second half of the year". Not happy with RBI's projection, Planning Commission Deputy Chairman Montek Singh Ahluwalia had described its outlook as "pessimistic". "Reserve Bank is clearly more pessimistic than the government is. I think that the government forecast as of now is feasible. Critically what matters is, how effective we are in restoring the momentum of investment in the large projects", the Plan panel deputy chief said. RBI Monetary Policy: Highlights MUMBAI: The Reserve Bank of India cut its benchmark interest rate by 25 basis points on Friday for the third time since January, as expected, as growth slows and inflation ebbs, but said there is little room to ease monetary policy further, disappointing markets. Following are highlights from the monetary policy statement: POLICY MEASURES Cuts repo rate by 25 basis points to 7.25 per cent. Reverse repo rate falls to 6.25 per cent Cash reserve ratio unchanged at 4.00 per cent Marginal Standing Facility rate adjusted to 8.25 per cent Bank rate adjusted to 8.25 percent with immediate effect POLICY STANCE

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA India cbank says there is little space for monetary easing Says to actively manage liquidity to reinforce monetary transmission Says biggest risk to economy is current account deficit Page | 3 Says monetary policy cannot afford to lower guard against possibility of resurgence of inflationary pressures Says risks from current account deficit could warrant swift reversal of policy stance Says will use "all instruments" at command to condition inflation at 5 percent by March 2014 FORECASTS Baseline GDP growth forecast for 2013/14 at 5.7 per cent Wholesale price index inflation projection during 2013/14 at around 5.5 per cent M3 growth projection for 2013/14 at 13 per cent Credit growth projection at 15 per cent, deposit growth at 14 per cent

PRUDENTIAL MEASURES Says banks must cut hold-to-maturity bond portfolio by 50 bps every quarter starting June quarter Proposes to restrict gold import on consignment basis by banks only to meet genuine need of jewellery exporters. Guidelines to be issued by May 31 Proposes to restrict bank loans against security of gold coins of up to 50 gram weight. Guidelines to be issued by end-May Proposes to raise capital risk weight, provisioning requirement on loans to corporates in case of unhedged forex exposures. Guidelines will be issues by end-June Proposes to allow foreign institutional investors to hedge currency risk with domestic exchange traded futures. Draft guidelines will be issued by end-July Proposes to increase loan limit for micro and small enterprises in the services sector. Guidelines to be issues separately. Rate cut measured response to current economic situation: Rangarajan NEW DELHI: The Reserve Bank's decision to cut the key interest rate by 0.25 per cent to 7.25 per cent is a measured response to the current economic situation, Prime Minister's Economic Advisory Council (PMEAC) Chairman C. Rangarajan said today. "It is a measured response to the current economic situation. WPI inflation has shown signs of decline and the retail inflation still remains at a high level, CAD is also high," Rangarajan said. The overall inflation in March fell to 5.96 per cent. He added that further policy rate cut by RBI will depend on how inflation behaves. "At this particular point, one has to be somehow cautious because there are many adverse factors operating in the system. Going ahead what RBI will do depends to a large extent on how inflation behaves," Rangarajan said. RBI Governor D Subbarao in the annual monetary policy review today cut the key

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA interest rate by just 0.25 per cent to 7.25 per cent and kept the liquidity enhancing cash reserve requirement unchanged, disappointing the industry and stock market. The RBI said there would be modest improvement in the country's economic growth to 5.7 per cent in the current fiscal, as against the decade's low of 5 per cent in 2012-13. However, RBI's growth projection for the current fiscal is lower than Rangarajan headed panel's (PMEAC) growth projection of 6.4 per cent for 2013-14. The central bank said it expects inflation to hover Page | 4 broadly around the 5.5 per cent mark in the current fiscal and will deploy "all instruments at command" to bring it down to 5 per cent by March next year. RBI widens scope for PSL, steeply hikes cap on MSME credit MUMBAI: The Reserve Bank today announced three changes to the priority sector lending norms and more than doubled the limit for MSME advances to the services sector to Rs 5 Cr. In its annual policy statement, the RBI proposed an increase in the loan limit for micro and small enterprises in the services sector to Rs 5 Cr. per borrower from Rs 2 Cr. earlier. Similarly, the regulator also suggested an increase in loan limit to Rs 5 Cr. from the earlier Rs 1 Cr. in case of lending to dealers/sellers of fertilisers, pesticides, seeds, cattle and poultry feeds, agricultural implements and other inputs which are classified as indirect finance to the agriculture sector. The reclassifications of the priority sector lending (PSL) regime have been done based on the feedback received from stakeholders regarding enhancement in certain loan limits to be classified as PSL advances "within the broad contours of the priority sector architecture," the apex bank said. Governor D. Subbarao said detailed guidelines for the same will be issued shortly. The policy statement also proposed to raise the limit on pledged loans to Rs 50 lakh from the current Rs 25 lakh as direct agricultural lending in the case of individual farmers and as indirect agriculture loans in the case of corporates, partnership firms and institutions engaged in agriculture and allied activities. P Chidambaram to attend bankers meet in Bihar on May 11 PATNA: Union Finance Minister P Chidambaram will participate in the state-level bankers meet (SLBM) at Rajgir on May 11 to motivate banks to further improve their functioning in the state, a state official said. Chief Minister Nitish Kumar along with Chairman and Managing Director of lead banks would also participate in the important meeting, said Deputy Chief Minister and state Finance Minister Sushil Kumar Modi after a review meeting for SLBM committee for 2013-14 here. Modi said during the bankers meet on May 11, the state government would tell Chidambaram about problems related to the banks functioning in the state. Against a target of Rs 51,400 Cr. in 2012-13 under Annual Credit Plan (ACP), banks have achieved a success of Rs 44,520 Cr. which is 86 per cent of the target, Modi said in a statement. He said except UCO bank, rest other six lead banks in the state recorded a achievement of over 90 per cent of the target under ACP. UCO banks success was 85 per cent, he added. For 2013-14 fiscal, the ACP annual target has been determined at Rs 62,000 Cr. He said the state government's stringent condition put before banks for deposit of state government's money has yielded good results as credit deposit ratio has risen to 40.17 per cent. Government examining all possibility to raise FDI ceiling: Chief Economic Advisor Raghuram Rajan GREATER NOIDA: Chief Economic Advisor Raghuram Rajan on Friday said the government is examining all possibility of raising foreign direct investment ceiling in various sectors to help increase inflows and prop up economic growth. "We are examining all possibilities for FDI," Rajan said when asked on the sectors he would like to see investment coming in. "But really, what we need is FDI in areas where we can benefit from technology. Technology in logistics is what we begin with in retail... If logistics chains can help us bring produce from the farmer to the table top in a much more effective way with less inefficiency

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA less wastage that would a boon for everybody, the consumer, the farmer and the country as a whole," he said on the side lines of a seminar at the ADB annual meet here. "More investment will help...more investment from the western manufacturers and domestic retail. All that will help. So, our main job is to get back to high growth," he added. Yesterday, the government approved Swedish furniture major IKEA's proposal to invest Rs 10,500 Cr.-- the biggest ever FDI proposal in single brand retail-- for setting up home furnishing stores in the Page | 5 country. In order to re-energise growth, he said "we are trying to get those (stalled) projects back on track that would be the most immediate thing we can do...we are also trying to resolve coal pricing.. there are a number of non-legislative actions that the government can do in the next few weeks." Asked about the RBI's projection of 5.7 per cent growth for the current fiscal, Rajan said, he is hopeful that economy will grow over 6 per cent. "Different organisations have different forecasts, the world bank recently said, above six, ADB says 6. I think everybody centred plus or minus few basis point around the 6 per cent number. We gave the wide band and we are still sticking to that. On inflation, he said, CPI inflation is still high and there is room for moderation. "There are two aspects on inflation...WPI inflation has already come down a fair way. But yes, maybe there is less room there. What we do hope is that food inflation will come down, that would give some relief on CPI side, which can also help, because after all, that is the inflation that people see." During March, consumer price index was in double digit at 10.39 per cent. On tax, Rajan said "We have to be very careful about raising marginal tax rates too high. So across the world, certainly India, the focus is on can we broaden the base, can we make people, who should be paying taxes actually, those pay taxes." If you broaden the base, resources will increase, he said at the seminar. Rajan also said that there is need to create business friendly environment and protect interest of workers. "We need to create a more business friendly environment. We are working on it. We need to work on our labour laws to make it business friendly and protect interest of workers," he said India needs structural reforms to get back to 8-9% growth: ADB GREATER NOIDA: The Asian Development Bank today said India should continue to undertake structural reforms and increase investments in order to get back to 8-9 per cent growth track in the long term. "Momentum in India is positive. Structural reforms should continue. If we get the investment story right, get to lower the fiscal deficit, get GST through legislative system then India can get back to 8-9 per cent growth rate," Asian Development Bank (ADB) Managing Director General Rajat Nag told a media conference. ADB estimates Indian economy to grow at 6 per cent in the current fiscal and 6.5 per cent in 2014-15. The growth story in India would be driven mainly by the domestic demand, but supply side remains a constraint, Nag said. "India growth story is going to be the story of investments," he said, adding fast track clearances by the CCI, partial deregulation of sugar prices and other measures would help improve investment climate. As per the official estimates, the economic growth in the current fiscal is likely to be between 6.1-6.7 per cent. However, the RBI estimates it a tad lower at 5.7 per cent. The government has set up a Cabinet Committee on Investment (CCI) to remove infrastructure bottlenecks and accord fast track clearances to large projects. Besides, it has also taken various reforms initiatives like deregulating diesel prices, partial decontrol of petrol and liberalising the FDI norms for various sectors. Nag said the CAD, which is the difference between the outflow and inflow of foreign currency, would be about 4.4 per cent in the current fiscal, diminishing a bit further to 4 per cent in fiscal 2014-15. The CAD was above 5 per cent as per ADB's estimate in 2012-13. "Current account deficit still remains high ... Fiscal deficit is still a bit high but again that 4.8 per cent target is achievable, though, not easy. All of this basically say that the growth momentum in India is positive, but there are challenges...," Nag said. On global commodity prices, Nag said a fall in prices would be positive for India and the biggest impetus would be the decline in oil prices. He, however, said that he doesn't see a further dramatic fall in commodities prices. On Inflation, Nag said going forward food price pressure

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA should diminish. The WPI inflation for March stood at 5.96 per cent, but the food inflation remained in double digits. Finance Minister P. Chidambaram hopeful of pushing through insurance reforms GREATER NOIDA: Notwithstanding the logjam in Parliament, Finance Minister P Page | 6 Chidambaram on Friday exuded confidence that the government would be able to move ahead with the proposal to raise the Foreign Direct Investment (FDI) cap in insurance and pension sectors. In his address at a seminar at the 46th ADB conference, he assured delegates that the country's economic growth rate would accelerate to over 8 per cent in the next three years, from about 5 per cent during 2012-13. "FDI regime in areas like multi/single brand retail, airlines etc. have been further liberalised and I am confident there will be forward movement in areas like insurance and pensions," Chidambaram said. The Insurance Amendment Bill to raise FDI cap in the insurance sector from 26 per cent to 49 per cent has been pending in the Rajya Sabha since 2008. Parliament has not been able to function properly with the Opposition raising the issue of coal and other scams and disrupting the sittings. As regards the economic growth, Chidambaram said, "between 2004 and 2008 we grew at an average of 8.5 per cent. We have slipped in the last couple of years. Why should not we climb back to 8 (per cent)? I am giving myself three years to get back to that." Referring to other reforms initiatives, the minister said that an independent regulatory authority would be announced shortly for the road sector and coal sector and for tariff setting in the Railways. Chidambaram further said the government would be addressing the issues related with shortage of coal. "Alleviation of coal shortages affecting power generation is being addressed by importing coal and assuring supply of definite quantities of domestic coal," he added. RBI did not cut cash reserve ratio as liquidity deficit frictional: chief D Subbarao MUMBAI: The Reserve Bank of India did not cut the cash reserve ratio as it felt the liquidity deficit in the banking system was 'frictional' in nature due to a build-up of cash balances and the credit-deposit wedge, its chief Duvvuri Subbarao said on Friday. He said the bank would announce open market operations as and when it was necessary. Lenders had been asking the RBI to cut the cash reserve ratio as banking system liquidity deficit has been hovering around Rs 1 trillion. RBI to ask banks to hold Aadhaar `melas' MUMBAI: To help the government meet its objective of covering the maximum number of people under the direct benefit transfer (DBT) scheme, the Reserve Bank today asked banks to hold camps to open Aadhaar-based accounts. Unveiling the annual monetary policy today, RBI Governor D Subbarao said, "With a view to facilitate the DBT it is proposed to advise banks to open accounts for all eligible individuals in camp mode with the support of local government authorities." The banks would be asked to seed the existing accounts or the new accounts with Aadhaar numbers and also put in place an effective mechanism to monitor and review the progress in the implementation of DBT. Implementation of the financial inclusion plan (FIP) 2010-13, introduced for the first time in April 2010, has led to the establishment of banking outlets in over 2 lakh villages, the apex bank said. To take it to the next stage -- providing universal coverage and facilitating electronic benefit transfer (EBT) -- banks have been advised to draw up the next FIP for 2013-16. To link the financially excluded segment with the banking system, a model for conduct of literacy camps by banks has been designed, it said. To ensure consistency in the financial literacy material reaching the target audience, Reserve Bank has also prepared comprehensive financial literacy material consisting of a financial literacy guide, a financial diary and a set of 16 financial literacy posters. Difficult to say if rate cut will revive investment: Urjit Patel, Deputy Governor, RBI

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA MUMBAI: The Reserve Bank of India's (RBI) third straight rate cut so far in 2013 may not be a sure fire tool to revive investment unless supply constraints are eased, Deputy Governor Urjit Patel told reporters in a post-policy talk on Friday. Patel also said the cash reserve ratio, or the proportion of cash that banks must keep with the RBI, is not a liquidity management tool but a monetary policy instrument, without elaborating further. Earlier on Friday, the central bank cut the repo rate by 25 basis points to 7.25 percent, and kept the CRR Page | 7 unchanged at 4.00 percent, the lowest since 1976. RBI chief says OMOs 'as good as' CRR to manage liquidity MUMBAI: The Reserve Bank of India Governor Duvvuri Subbarao said open market operations are "as good as" a cash reserve ratio cut, "if not better", to manage banking liquidity. The RBI has infused trillions of rupees via OMOs while a CRR cut only has a onetime impact, he said. OMOs also target specific banks which have a liquidity shortage, Subbarao said. Banks will have to implement dynamic provisioning regime from June-end, says RBI MUMBAI: The Reserve Bank today said banks will have to implement the dynamic provisioning regime from the end of June in a phased manner, and it will issue detailed guidelines soon. The move will impact the profitability of banks, especially the state-run banks which have higher NPA levels. "Based on the new and updated data obtained from banks, which are under examination, it has been proposed to introduce the dynamic provisioning norms in a phased manner from June-end," RBI Governor said in the policy announcement today, adding that guidelines for the same will be issued soon. In dynamic provisioning, banks set aside reserves for solvency purposes according to the changing credit dynamics and the historical asset quality of individual banks. RBI, on March 30, 2012, had issued a discussion paper on the dynamic provisioning approach for comments. Currently, banks generally make two types of provisions: general provisions on standard assets and specific ones for non-performing assets. As the level of NPAs varies through the economic cycle, the resultant level of specific provisions also behaves cyclically and as a result, lower provisioning during upturns and higher provisioning during downturns have procyclical effect on the real economy. To address procyclicality of capital and provisioning, after the financial crisis, there have been efforts at the international level to introduce countercyclical capital and provisioning buffers. RBI has also said it will issue the final guidelines on the management of intra-group transactions and exposures (ITEs) by the end of June. The draft guidelines, issued last August, prescribed prudential exposure limits on the intra-group exposure of banks along with measures to ensure that banks maintain an arm's length relationship in their dealings with group entities and meet minimum requirements with respect to group risk management and group-wide oversight. The new measures are aimed at ensuring that banks engage in ITEs in a safe and sound manner for containing concentration and contagion risk arising out of ITEs, the RBI said. Current Account Deficit biggest risk to Indian economy: RBI MUMBAI: Describing high Current Account Deficit (CAD) as the biggest risk to Indian economy, the RBI today said any further deterioration of CAD could result in its policy reversal stance. "The biggest risk to the economy stems from the CAD which, last year, was historically the highest...Monetary policy will also have to remain alert to the risks on the account of the CAD and its financing, which could warrant a swift reversal of the policy stance," CAD, which is the difference between the inflow and outflow of foreign currency, had touched a record high of 6.7 per cent in the December quarter of last fiscal year. The CAD in 2012-13 fiscal is likely to be around 5 per cent of the GDP. Elaborating further, RBI said," the outlook for Advanced Economies (AEs) remains uncertain, and even if there may

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA be no event shocks, there could well be process shocks which could result in capital outflows from Emerging Developing Economies (EDEs)". It said even as the large CAD is a risk by itself, its financing exposes the economy to the risk of sudden stop and reversal of capital flows, should global liquidity rapidly tighten. "Further, with quantitative easing (QE), AE central banks are in uncharted territory with considerable uncertainty about the trajectory of recovery and the calibration of QE. Should global liquidity conditions rapidly tighten, India Page | 8 could potentially face a problem of sudden stop and reversal of capital flows, jeopardising our macro-financial stability. The apex bank also noted that a large CAD, appreciably above the sustainable level, year after year, will put pressure on servicing of external liabilities. It said sustained revival of growth is not possible without a revival of investment. Yesterday, the apex bank in its macroeconomic and Monetary Developments Report 2012-13 had said the CAD in FY14 was likely to benefit from the moderation in global commodity prices. Gold prices had fallen to a 21 month low at Rs 26,440 per 10 grams in the domestic markets on April 16 due to continued sell-off in the global markets. Though there have been some recovery in gold prices in the spot as well as futures market, uncertainty looms large over the way prices would move, going forward. Gold prices had touched all-time high of Rs 32,975 per ten grams on November 27, 2012. The apex bank had also expressed concern over rising external debt and short-term borrowings to meet the widening CAD. "Short-term debt on a residual maturity basis increased to 44 per cent of total debt and 56 per cent of the foreign exchange reserves by end-December 2012," it had said. No clean-chit to ICICI,HDFC,Axis;show-cause notices on way: RBI MUMBAI: The Reserve Bank today said it has not given clean-chit to ICICI Bank, HDFCBSE -1.06 % Bank and Axis Bank, which are accused of money laundering and flouting KYC norms, and stated the probe against the three banks is still on. "No we have not. And we are saying that we are (going) to issue show-cause notices. So, the inquiry is still in progress," RBI Governor D. Subabrao told reporters when asked whether the apex bank had given clean chit to the three banks. Subbarao, speaking at the customary post-policy media interaction, asserted that while money laundering, which involves use of criminal money, has not been observed in any of the banks, certain "specific transgressions" on the know-yourcustomer (KYC) front have been discovered. "We have talked to those banks, called those CEOs for a meeting, told them about what the deficiencies are and they have gone back and implemented some of the systemic improvements," Subbarao said, adding RBI officials have also spoken with forensic auditors appointed by these banks. Subbarao said RBI launched a suo motu probe following the sting operation by news portal Cobrapost early February showing officials from ICICI Bank, HDFC Bank and Axis Bank selling investment products without paying heed to the mandatory KYC norms. It later turned into a thematic study involving over 30 banks in the country, the Governor said. Deputy Governor K. C. Chakrabarty, who had in March given a near clean-chit to these banks saying there were no transactions, today said the show-cause notices will be sent not just to these three banks, but all erring lenders. "Whomsoever we find that there are mistakes, there are transgressions, violation of the thing, we will definitely issue show-cause notice and take the appropriate action," Chakrabarty said, adding there are no systemic issues. "The system is strong enough but there are aberrations and we are trying to improve that," Chakrabarty, who oversees banking regulation at the monetary authority, said. In its annual credit policy review, Subbarao said the RBI's probe into the allegations has revealed that the banks did not follow KYC norms while selling third-party products and also came out with a string of corrective advisories for banks. RBI cracks the whip over KYC lapses, to seek explanation from banks

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA MUMBAI: The Reserve Bank of India on Friday pulled up banks for flouting Know Your Customer (KYC) and anti-money laundering norms, after it probed private sector banks such as ICICI Bank, HDFC Bank and Axis Bank following allegations that their employees were involved in structuring transactions to aid tax evasion and fraudulent transfer of funds. "We had launched an investigation and the deficiencies have been conveyed to the chief executive officers of those banks. We have also talked to forensic auditors. Now, show Page | 9 cause notices will be issued to those banks and they will be asked to explain,'' said RBI governor D Subbarao. "An enquiry is in progress and we have not given clean chit to any of the banks involved," he added. The inspection by the central bank has revealed that banks are not carrying out customer due diligence as required under KYC, AML and Combating Financing of Terrorism (CFT) guidelines while marketing and distributing third party products as agents. Some banks were also not filing cash transaction reports ( CTR) or suspicious transaction reports ( STR) in cases where they are supposed to. "Bank officials should do field visits that will give more feedback. Spot checks will help they will help identify the black cat in a dark room," said Pratip Chaudhuri, chairman of State Bank of India. It was also found that banks did not have clear segregation of marketing personnel from other branch functions, and bank employees were directly receiving incentives from third parties such as insurance, mutual fund and other entities for selling their products. However, bankers claim it's not always possible to separate sales and service staff. "We tried, but we couldn't go very far on this. We treat customers, especially the bigger clients, on a relationship basis and try to provide a one-window service,'' said Chaudhuri. Cracking down on the incentive structure given to sales staff, the central bank has asked bank managements to ensure that its employees do not receive cash/non-cash incentives directly from insurance companies, mutual funds and other third party product providers. "Employees do not get paid by insurance companies or mutual funds this is part of their key responsibility area. The RBI stipulation will not change the way we do business,'' said Shikha Sharma, MD & CEO Axis Bank. Banks will also have to put in place a board approved policy to avoid mis-selling and conflict of interest in marketing and distribution of own or third party financial products. To ensure customer due diligence is adhered to, RBI has asked banks to extend KYC/AML/CFT norms to wherever third party products are sold as agents as a measure of abundant precaution. Banks would also have to maintain details of third party products sold and related records for a period and in the manner prescribed in the KYC/AML/CFT guidelines. The central bank has also asked banks to file CTRs and STRs wherever required while marketing and distributing third party products as agents. The banking regulator has decided to issue guidelines on wealth management services offered by banks, marketing of third party products like insurance and mutual funds and bring out a comprehensive policy on KYC/AML and CFT by June-end. Bankers rule out slashing lending rates post 25 bps repo cut MUMBAI: Bankers today virtually ruled out slashing their lending rates, saying the 0.25 per cent cut in repo rate by the Reserve Bank does not help them bring down their cost of funds, which is too high at present. Speaking on the impact of 0.25 per cent (25 basis points) shortterm lending rate reduction earlier in the day by RBI Governor D Subbarao on cost of funds, State Bank of India Chairman Pratip Chaudhuri said, "One basis point is too high (when it comes to deposit rates). There is no scope (for a lending rate cut now)." Chaudhuri has been calling for a 100 basis points cut in the banks' cash reserve ratio (CRR), which the Governor left unchanged at 4 per cent, for effective monetary policy transmission. A cut in the CRR will help banks release their funds stuck with the RBI on which they do not get any interest from the regulator. ICICI Bank Chief Chanda Kochhar conceded that the rates in the certificate of deposits have been going down, but termed it as a cyclical phenomenon. "The present downward movement in deposit rates will not be sustained. And a lending rate cut will depend only on the movement of cost of funds," she said.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA V. R. Iyer of Bank of India said a cut in the repo rate (at which RBI lends to banks) alone does not impact the cost of funds and pointed toward other factors like the elevated cost of deposits, which are holding on. Indicating towards liquidity tightness in the system, Aditya Puri of HDFC Bank said he does not see any impact on the cost of funds till the liquidity comes to a comfort level. "The overnight borrowings need to come down to the comfort level of Rs 60,000 Cr. before we see a decline in the deposit rates." The Government should also Page | 10 start spending, which has not been happening for months, and the government's cash balance with the RBI is hovering over Rs 1 trillion towards the end of the last fiscal, Puri said The banks have been borrowing from the RBI window to the tune of over Rs 84,000 Cr. a day of late. This had touched a whopping Rs 1.8 trillion in the last week of March, according to RBI data. Chaudhuri said credit demand from the corporate side is slowing but the same from retail end, especially home and car loans, is making up for it. On the alleged money laundering and non-compliance of KYC norms found in a recent sting operation by news portal Cobrapost which was also mentioned in the policy statement, Chairman of the industry's umbrella body IBA and head of Punjab National Bank K R Kamath said banks concerned will take the necessary corrective measures. HDFC Bank's Puri, whose bank was one among three private lenders at the centre of money laundering allegations, said "we should wait for the Reserve Bank's final report (on the expose) to come out. Household savings slip to 22.3 pc in 2011-12: RBI Reserve Bank today expressed concern over steadily falling savings and investment rates, especially the financial savings by households which slipped to 22.3 per cent in 2011-12 as households turned to physical assets as a hedge against inflation. According to the annual Macroeconomic and Monetary Developments report released here this evening by the Reserve Bank, household savings declined from a high 25.2 per cent in 2009-10 to 22.3 per cent in 2011-12. It had stood at 23.5 per cent in 2010-11. "Within household savings, while the financial savings rate declined, physical saving rate rose as households turned to physical assets as inflation hedge. Persistence of high inflation with average headline inflation at about 9 per cent in 2011-12 withered financial savings, as households attempted to stave off the downward pressure on their real consumption," the report said. While Gross savings during the reporting period declined to a low 30.8 per cent in 2011-12, down from 34 per cent in the previous year and 33.7 per cent in 2009-10, the gross capital formation declined to 35 per cent in the reporting period from 36.8 per cent in 2010-11 and 36.5 per cent in 2009-10, the RBI report said. The report also notes with concern that all the three core sectors--households, private and public sectors witnessed a slowdown in savings, apart from an overall decline in investment rates during 2011-12. Financial savings by households steeply declined to a paltry 8 per cent in 2011-12, from 12 per cent two years ago and 10.4 per cent in 2010-11, while their savings in physical assets have been on a steady rise and touched 14.3 per cent in the reporting year from 13.1 per cent a year before and 13.2 per cent in 2009-10, the report added. The decline in savings was more visible in the private corporates, at 7.2 per cent in the reporting period from 7.9 per cent a year before and 8.4 per cent in 2009-10. However, the public sector fared a tad better with their savings rate at 1.3 per cent, halving from 2.6 per cent the year before but a steady improvement from the dismal 0.2 per cent in 2009-10, according to the report. "The decline in the rate of investment in 2011-12 was mainly due to decline in the investment rate of the private corporate sector followed by that of the public sector even as the household investment rate increased. "The increase in investment in valuables continued in 2011-12 and exhibited a sharper rise, partly contributing to the high current account deficit in 2011-12." When it comes to gross capital formation, the decline was more visible at 35.5 per cent, against 37 per cent the year before

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA and 36.3 per cent the previous fiscal. Since the households kept on parking their money in physical assets, there was a tangible increase in the gross capital formation by households to 14.3 per cent during the reporting period, up from 13.1 per cent the year before and 13.2 per cent in 2009-10. Capital formation by the private corporate sector, however, declined massively to 10.6 per cent from 13.4 per cent in 2010-11 and 12.1 per cent in 2009-10, while the same for the public sector stood at 7.9, 8.4 and 9.2 per cent, respectively. The savings Page | 11 in valuables too rose from 1.8 per cent in 2009-10 to 2.1 per cent the next year to 2.7 per cent in 2011-12, says the report. Duncan Lawrie eyes private banking space in India KOLKATA: Duncan Lawrie, a part of the UK-based Camellia Group, is eyeing the private banking business from Indian high-networth individuals, an official of the company said. "We are eyeing the private banking business in India who will be able to invest in overseas markets in various asset classes", Managing Director of Duncan Lawrie Private Banking Matthew Parden said. He said that the company got the RBI licence in 2009 to start the private banking business in India by way of setting up of a representative office, he told reporters here. Parden said that since the Camellia Group had historical ties with India through Kolkata-based tea company Goodricke, the company decided to locate the representative office in the city. He said that after the RBI introduced the Liberalised Remittance Scheme, any Indian individual was able to invest up to USD two lakh per annum (or in any freely convertible currency like Pound or Euro) in the overseas markets and not only UK. "We are happy with our client base in India and hope to increase it gradually. We do not want to be aggressive in terms of numbers", he said. The company is in the business of wealth management, financial and tax planning. The operations of Duncan Lawrie were carried out from UK with offices in Belgravia, Kent, Bristol and Isle of Man and the newlyopened Kolkata one. The company has USD 1 billion as assets under management. New bank licences to come under new RBI Governor MUMBAI: New bank licences will not be distributed during the governorship of Duvvuri Subbarao at the Reserve Bank of India as the ground work and due diligence will not be completed by September when he completes his term. His successor will have the privilege of granting those long awaited licences to commence banking operations. "I doubt,'' said Subbarao on the possibility of his handing out new bank licences. "It is not possible. It will take longer than that. It is not practical. I have only four months to go.'' Subbarao's admission that new licences would move well into a new Governor's term could disappoint aspirants. Many such as the Shriram group, Anil Ambani Group, Aditya Birla Group, Infrastructure Development Finance Co. (IDFC) and Bajaj Finserv led by Sanjiv Bajaj are likely to apply for a licence. In fact, the central bank has said that it would come up with a discussion paper on possible bank structure in India including consolidation of large banks, financial inclusion to be achieved by local banks, the suitable structure for foreign banks and many such things. "We thought it appropriate to take stock of the changing situation in India, change in the assessment of banking around the world as a consequence of the crisis and put out a discussion paper on what sort of a structure we should have. We recognise that we do not have all the wisdom in this regard,'' Subbarao said. RBI asks NBFCs to give customers unique ID code MUMBAI: The Reserve Bank today asked non- banking financial companies (NBFCs) to allot customers unique identification code to avoid multiple identities. "The increasing complexity and volume of financial transactions necessitate that customers do not have multiple identities within a financial institution or across the financial system," RBI said in a notification. It has asked NBFCs to initiate steps for allotting Unique Customer Identification Code (UCIC) to all their customers while entering into any new relationships. Existing individual customers may also be allotted UCIC by end-June 2013, it added. A Working

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA Group by the government has proposed introduction of unique identifiers for customers across different financial institutions for setting up a centralised know your customer ( KYC) registry, it said. However, setting up such as system for the entire financial system is likely to take time, NBFCs can make an immediate beginning in this regard by putting in place such identification code for their own customers, it said. "The UCIC will help NBFCs to identify customers, track the facilities availed, monitor financial transactions in a holistic Page | 12 manner and enable NBFCs to have a better approach to risk profiling of customers. It would also smoothen NBFC's operations for the customers," it added further. 2 lakh villages get banking outlets The Reserve Bank of India (RBI) has said that the implementation of the financial inclusion plan (FIP) 2010-13 has led to the establishment of banking outlets in more than two lakh villages. The RBIs monetary policy statement for 2013-14 said that the banks have been advised to draw up the next FIP for 2013-16 to take financial inclusion to the next stage of providing universal coverage and facilitating electronic benefit transfer. The FIPs submitted by banks will be discussed in detail with the RBI. The monetary policy said that the banks are advised to disaggregate the FIPs to the controlling office and branch level. Sumitomo Mitsui Banking Corporation starts business in India MUMBAI: Sumitomo Mitsui Banking Corporation (SMBC), one of the leading Japanese bank, has launched its commercial banking business in New Delhi. The bank has received license in May 2012. "SMBC's re-entry into India is a sign of our commitment to the country and to its banking and finance sector. We are encouraged by the high growth potential of the region and believe that India is an important emerging market and will help us realize our mission of becoming a full-line global financial services group," said Takeshi Kunibe, President and CEO of the bank. SMBC has a significant exposure to India through foreign currency loan extended by their overseas offices and has advised several infrastructure projects. It is a partner with Delhi Mumbai Industrial Corridor Development Corporation for advising and bringing financing solutions to DMIC. RBI asks banks to bring metropolitan areas under lead bank scheme KOLKATA: The Reserve Bank of India has asked banks to bring in metropolitan areas under the lead bank scheme for the first time, a move aimed at providing to the urban poor doorstep banking and direct transfer of cash benefits under social welfare programmes. Financial exclusion is not merely a rural phenomenon, the central bank has admitted, noting that it is in fact widespread in the metros while directing that the lead bank scheme dating to 1969 be extended. Lead bank scheme is an integrated mechanism to extend banking facilities to consumers, especially those who belong to the economically weaker sections. The lead bank in every district assumes leadership role for coordinating the efforts of the lenders. The RBI has advised the banks to hold deposit camps for opening bank accounts of all eligible individuals and link these to Aadhaar numbers. It has also asked the banks that they should have an effective mechanism in place to monitor and review the progress of this drive. The central bank is in favour of empowering banks' regional offices and branches. Banks are preparing a comprehensive financial inclusion plan for 2013-16 to meet this objective. Over the past three years, banks have opened outlets in more than two lakh villages but these branches are yet to generate any meaningful business. The banking regulator has also emphasised on financial literacy, the lack of which led to the mushrooming of chit funds or companies running Ponzi schemes. These dubious companies are more active in regions which have gaps in banking access and financial literacy. "The triad of financial inclusion, financial literacy and consumer protection have been recognised as intertwining threads in the pursuit of financial stability," the RBI has said.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA RBI asks banks to follow uniform pricing policy The Reserve Bank of India has urged banks to follow a uniform, fair and transparent pricing policy and not discriminate between customers at home branch and non-home branches. In its 2013-14 monetary policy statement, the banking regulator has observed that some banks were discriminating their own customers by levying a charge on products and services, if the Page | 13 transaction is not done at the home branch. The home branch incidentally, is the branch where the account holder initially opens his/her account and the process of Know Your Customer (KYC) is completed. With the introduction of the Core Banking Solution (CBS) and provision of online facilities, anywhere anytime banking convenience, the so-called home branch seems to have lost its relevance. The levy of such charges has therefore been viewed by the banking regulator as discrimination against the banks own customer. This practice is contrary to the Reserve Banks guidelines on reasonableness of bank charges, particularly with the introduction of CBS (Core Banking Solution), the apex bank said, and advised banks to follow a uniform, fair and transparent policy. Detailed guidelines in this regard are expected to be issued by end-June. Q-4 RESULTS Performance Highlights of the Bank for Financial Year Ended March 2013 Shri Narendra Singh, Chairman and Managing Director, Bank of Maharashtra, announced the performance highlights of the Bank immediately after the adoption of financial results for Financial year ended 31st March 2013 by the Board of Directors. Operating Profit for FY 2012-13 increased to Rs.2148.71 Cr. compared to Rs. 1515.24 Cr. for FY 2011-12 with a growth rate of 41.81%. Net Profit for FY 2012-13 was at Rs.759.52 Cr. as compared to Rs. 430.83 Cr. for FY 2011-12 recording a growth rate of 76.29%. Total Income increased by Rs.2671 Cr. recording growth rate of 34% over FY 2011-12. Interest Spread for FY 2012-13 increased by Rs.516 Cr. to Rs.3033.35 Cr. recording a growth rate of 20.50% over FY 201112. Net Interest Margin (NIM) at 3.10% for FY2012-13. Non-Interest income for FY 2012-13 jumps by Rs.271.33 Cr. to Rs.912 Cr. recording growth of 42.35% over FY 2011-12. The Gross NPA ratio reduced to 1.49% as at March 2013 from 2.28% as at March 2012. Net NPA ratio reduced to 0.52% as at 31.03.2013 from 0.84% as at 31.03.2012. CASA deposits share in total deposits stood at 40.79% as on 31.03.2013. Business per employee was at Rs.12.56 Cr. and Profit per employee was at Rs.5.59 Lakh for FY 2012-13. Gross Advances jumped by 34.08% to Rs.76397 Cr. as at 31.03.2013. Total Deposits up by 23.27% to Rs.94337 Cr. as at 31.03.2013. Operating Profit for Q4 increased to Rs.710.60 Cr. as against Rs.249.99 Cr. for Q4 of FY 2011-12 recording a growth rate of 184.25%. Net Profit for Q4 of FY 2012-13 is at Rs.258.99 Cr. as against Rs.72.83 Cr. for Q4 of FY 2011-12 registering a growth rate of 255.60%. Total Income for Q4 increased to Rs.3163.88 Cr. recording growth rate of 52.76% over Mar 12 [Q4]. Interest Spread for Q4 increased to Rs.871 Cr. recording a growth rate of 34.57% over Mar 12 [Q4]. Non-Interest income for Mar 13 Q4 is at Rs.382 Cr. up by 121.21%. The Yield on advances stood at 11.23% for Mar 13 [Q4]. Results at a Glance - March 2013 (Q4) Performance Highlights: Business Growth: a. Total Business: Total Business of the Bank as on 31.03.2013 stood at Rs.170734.12 Cr. The total business increased by Rs.37226.60 Cr. from Rs. 133507.52 Cr. as on 31.03.2012 registering a growth of 27.88% on y-o-y basis. b. Deposits: Total Deposits of the Bank increased by Rs.17808.28 Cr. to Rs.94336.93 Cr. as on 31.03.2013 from Rs.76528.65 Cr. as on 31.03.2012 recording a growth of 23.27% on y-o-y basis. The share of CASA deposits to total deposits stood at 40.79% as on 31.03.2013.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA c. Advances: Gross Advances increased from Rs.56978.87 Cr. as on 31.03.2012 to Rs. 76,397.09 Cr. as on 31.03.2013 recording growth by Rs. 19,418.31 Cr. (34.08%) on y-o-y basis. Page | 14 Priority Sector Credit stood at Rs.24719 Cr. at the end of March 13 which worked out to 43.20% of ANBC. Agricultural advances of the Bank stood at Rs.7972 Cr. as at the end of Mar 13 as against Rs.6,089.21 Cr. as at Mar 12, showing a growth of 30.92%. MSE advances of the Bank stood at Rs.11289 Cr. at the end of Mar 13 as against Rs.8,630 Cr. at Mar 12, showing a growth of 30.80%. Retail advances of the Bank stood at Rs. 9102 Cr. at the end of Mar 13 as against Rs.6,576.65 Cr. at Mar 12, showing a growth of 38.39%. d. Business per employee has gone up from Rs.9.67 Cr. as at 31.03.2012 to Rs.12.56 Cr. as at 31.03.2013. e. Business per Branch was Rs.98.80 Cr. as on 31.03.2013 as against Rs.84.02 Cr. as at 31.03.2012. a. Total Income: The total income of the Bank was at Rs.10525 Cr. for the FY 2012-13 as compared to Rs.7,855 Cr. for FY 2011-12 showing an increase of Rs. 2671 Cr. [34%] on y-oy basis. During Q4 of 2012-13, the total income stood at Rs.3163.88 Cr. in comparison with Rs.2,071 Cr. in Q4 of previous fiscal showing an increase of Rs.1093 Cr. [52.76%]. b. Net Interest Income: The Net interest income increased by Rs.516 Cr. from Rs.2,517.09 Cr. in FY 2011-12 to Rs.3033.35 Cr. in FY 2012-13, recording an increase of 20.51% on y-oy basis. The Net interest Margin (NIM) works out to 3.10%. As compared to Q4 of 2011-12, the Net interest income increased by Rs.224 Cr. from Rs. 647.30 Cr. to reach Rs.871 Cr. [34.57%] during Q4 of FY 2012-13. c. Non-Interest Income: The non-interest income increased to Rs.912 Cr. (42.35%) as compared to Rs.640.66 Cr. in FY 2011-12. 1. NPA: Gross NPA ratio reduced to 1.49% as on 31.03.2013 from 2.28% as on 31.03.2012. Net NPA ratio reduced to 0.52% at the end of FY 2012-13 from 0.84% a year ago. In absolute terms the Gross NPAs stood at Rs.1137.55 Cr. as on 31.03.13 . Net NPA stood at Rs. 392.93 Cr. as on 31.03.2013 as compared to Rs.469.57 cr as on 31.03.2012. 2. Provision Coverage: The NPA provision coverage ratio stood at 83.68% as at 31.03.2013 as against 80.36% as at 31.03.2012. Shedding bulk business pushes Canara Bank Q4 net down 12.5% Canara Bank profits declined by 12.5 per cent to Rs 725.38 Cr. for the fourth quarter (Q4) 2012-13, compared with the previous year's fourth quarter. However, the banks total income for Q4 is up 4.81 per cent to Rs 9,471.57 Cr. (Rs 9,036.75). While the EPS (basic) was Rs 16.37 in Q4 financial year 2012-13, it was Rs 18.72 for the previous years period. R.K. Dubey, the banks CMD, said: The lower business growth of the bank was due to a conscious decision taken to de-risk the balance sheet by shedding a substantial portion of bulk business, both on preferential rate deposits and certificates of deposit (CDs) (Rs 74,500 Cr.) as well as short-term unsecured loans (Rs 22,000 Cr.), totalling Rs 96,500 Cr. The

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA banks operating profit before provisions and contingencies increased by 13.88 per cent to Rs 1,697.73 Cr. compared with Rs 1,490.70 Cr. the previous year. Asset quality Page | 15 In terms of asset quality, gross NPAs were Rs 6,260.16 Cr. (Rs 4,031.75 Cr. in the same period the previous fiscal), and the percentage of gross NPAs is 2.57 per cent (1.73 per cent). Net NPAs stood at Rs 5,278.07 Cr. (Rs 3,386.31 Cr.), while the percentage of net NPAs is 2.18 per cent (1.46 per cent). Net interest income (NII) for the quarter was Rs 2,091 Cr. better than the 2.5 per cent over Q4-FY12 (Rs 2,040 Cr.). Net interest margin (NIM) of the bank as at March 2013 is 2.40 per cent (2.5 per cent end March 2012). Provisions and contingencies other than tax increased to Rs 752.35 Cr. from Rs 461.61 Cr. in the corresponding quarter of the previous year. The banks total deposits at the end of FY 201213 stood at Rs 3,55,856 Cr. compared to Rs 3,27,053.73 Cr. the previous year. Advances of the bank reached a level of Rs 2,42,177 Cr. (Rs 232489.82). Enough headroom The banks current and savings account (CASA) deposits to domestic deposits stood at 25.1 per cent, the same level as in the previous fiscal. As at March 2013, the capital adequacy ratio (CAR) was 12.4 per cent (against the mandatory 9 per cent), with Tier I capital ratio at 9.77 per cent (mandatory level - 6 per cent). Canara Bank has made adequate headroom available under both Tier-I and Tier-II options to raise capital and support business growth momentum. Andhra Banks Q4 net up 1.5% at Rs 345 Cr. Andhra Banks net profit increased 1.5 per cent at Rs 345 Cr. in the fourth quarter ended March 31, 2013 compared with Rs 340 Cr. in the same period last year. Total income grew 15 per cent at Rs 3,713 Cr. (Rs 3,229 Cr.). Deposits and advances grew at 17 per cent and 18.4 per cent respectively while net interest margin was in the range of 3.04 per cent. Profit came under pressure due to provisions for new non-performing assets, wage settlements and pension, its Chairman and Managing Director, B.A. Prabhakar told news-persons here on Thursday. The net NPAs increased to 2.45 per cent from 0.91 per cent previous year due to some slippages in the corporate segment, he said. Non-corporate credit For the financial year 2012-13, net profit declined to Rs 1,289 Cr. from Rs 1,345 Cr. in the previous year. Last years environment was not conducive for growth. We focused on noncorporate credit growth, which is not vulnerable to economic shocks, he said adding that agriculture, MSME and retail would be focus areas for bank. We will contain corporate credit and avoid project-based funding, Prabhakar said. The operating profit would be better in the current quarter due to an expected credit growth at 18 per cent and increase in other come due to continued good performance by the treasury, he added. The net interest margin could be around 3 per cent for FY14 with a targeted business growth of 20 per cent. The bank plans to open 200 new branches this year. Last year, it opened 160 branches. It will recruit 2,400 officers and clerks this year. Andhra Banks scrip gained 2.19 per cent on the Bombay Stock Exchange on Thursday to end at Rs 93.20. Syndicate Bank profit jumps 91.42% Syndicate Bank profits shot up 91.42 per cent to Rs 592.34 Cr. for the fourth quarter of 2012-13, compared with Rs 309.43 Cr. posted in the same period the previous year. The

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA banks total income for Q4 is up 8.05 per cent to Rs 4,780.75 Cr. (Rs 4,424.33 Cr.). The EPS stood at Rs 9.84 in Q4, over Rs 5.39 for the last fiscal. M.G. Sanghvi, CMD, told reporters that the bank has pursued the strategy of reducing dependence on high-cost bulk deposits. We have shed Rs 3,718 Cr. during the year 2012-13 (11.12 per cent) and brought down the level to Rs 29,715 Cr. from a high of Rs 33,433 Cr. Page | 16 Profitability Considering the profitability and taxable positions in subsequent years, the bank management has recognised the MAT credit entitlement of Rs 573.59 Cr. (previous year nil and during the quarter Rs 114.02 Cr.) as assets by crediting to profit and loss. The banks operating profit before provisions and contingencies increased by 2.34 per cent to Rs 901.13 Cr. over Rs 880.45 Cr. last year. As for the asset quality, gross NPAs were at Rs 2,978.50 Cr. (Rs 3,182.70 Cr.), while the gross NPA ratio fell to 1.99 per cent from 2.53 per cent. Net NPAs stood at Rs 1,124.77 Cr. (Rs 1,185.43 Cr.), while the net NPA ratio declined to 0.76 per cent from 0.96 per cent. The net interest income (NII) for the quarter is marginally lower at Rs 1,336.66 Cr. from Rs 1,344.34 Cr. in the previous corresponding quarter. Net Interest Margin (NIM) was at 2.97 per cent in Q4, against 3.6 per cent in the corresponding quarter last year. Provisions and contingencies other than tax were reduced to Rs 363.79 Cr. from Rs 671.49 Cr. in the similar previous quarter. Total business increased by 18.06 per cent to Rs 3, 34,779 Cr. at the end of this fiscal (March 31, 2013) over last year. Capital adequacy Deposits increased by 17.36 per cent to Rs 1, 85,356 Cr. Total advances went up by 18.95 per cent to touch Rs 1, 49,423 Cr. In terms of capital adequacy, the bank raised capital of Rs 1,000 Cr. in the form of Tier II bonds during 2012-13 and is comfortable with capital requirements under the forthcoming Basel III norms. Oriental Bank net up 16% in FY 12-13 Oriental Bank of Commerce (OBC) may go in for a rights issue this fiscal to raise capital to support business growth, its Chairman and Managing Director S. L. Bansal has said. We are keen on a rights issue. But a final call will be taken around September or October, Bansal told Press soon after a Board meeting here. OBC on Thursday reported a 16.33 per cent increase in net profit for the financial year ended March 31, 2013 at Rs 1,327.95 Cr. (Rs 1,141.56 Cr.). The Board of Directors has declared a dividend of 92 per cent (Rs 9.2 for every share of Rs 10 each). Bansal said that the bank is aiming at a net interest margin of 2.9 per cent for 2013-14. It had achieved a NIM of 2.82 per cent in 2012-13. For the current fiscal, the bank is eyeing deposit growth of 17 per cent and advances growth of 15 per cent. In 2012-13, OBC saw its advances increase by 15 per cent and deposits go up by 17 per cent. Bansal expects RBI Governor D. Subbarao to cut the repo rate by at least 50 basis points on Friday. The street expectation is, however, for a 25 basis point cut in repo rate. Kotak Mahindra Bank net profit up 47% Kotak Mahindra Banks (KMB) standalone net profit in the three months to March 2013 rose by 47% y-o-y to Rs436 Cr. The bottom line was helped by a 31% y-o-y rise in net interest income to Rs903 Cr. Other income grew 43% y-o-y to R364 Cr. while total income grew 29% y-o-y to Rs2,572 Cr. The banks net interest margin (NIMs) was up 10 bps sequentially at 4.7%. For FY14, our broad view on NIMs is about 4.5% mark, said Uday Kotak, executive vice-chairman and managing director, KMB. Shares of KMB climbed as much as 2% to Rs725, a 52-week high, on Thursday on the Bombay Stock Exchange, before closing at R716.90. The asset quality of the private sector bank deteriorated slightly with gross net

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA performing assets (NPAs) sequentially rising 10 bps to 1.30%, and net NPAs marginally rising to 0.63% in the January-March period from 0.62% in the October-December period. The bank restructured Rs10.7 Cr. worth assets in the quarter, while it had restructured assets worth Rs20 Cr. in the corresponding quarter last year. Provisions and contingencies rose to Rs37 Cr. against Rs4 Cr. last year. In the third quarter, provisions and contingencies stood at Rs43 Cr. ICICI Bank Q4 net up 21% at Rs 2304 cr, proposes 200% dividend ICICI Bank today reported 21 per cent jump in net profit at Rs 2,304.07 Cr. for the fourth quarter ended March 31. It had earned a net profit of Rs 1,902 Cr. in the same period last year, ICICI Bank said in a statement. Total income of the country's largest private sector bank rose to Rs 12,573.52 Cr. in January-March quarter as compared to Rs 11,403.10 Cr. in the same period previous fiscal. The bank proposed a dividend of 200 per cent, or Rs 20, per share for 2012-2013. On consolidated basis, the net profit of the bank during the fourth quarter improved by 38 per cent at Rs 2,492 Cr. against Rs 1,810 Cr. in the same period of the previous fiscal. For the entire fiscal ended March 31, 2013, the bank's net profit on a standalone basis rose by 29 per cent at Rs 8,325 Cr. compared to Rs 6,465 Cr. in 2011-12. At the same time, total income increased to Rs 48,421 Cr. during the year from Rs 41,045 Cr. in the previous fiscal. Net Interest Margin (NIM) rose to 3.11 per cent for 2012-13 as compared to 2.73 per cent in the previous fiscal. On asset quality front, gross nonperforming assets (NPAs), as a proportion of advances, declined to 2.68 per cent at the end of March 2013, as against 3.04 per cent in the previous fiscal. However, net NPAs rose marginally to 0.64 per cent during the year from .062 per cent at the end of March 2012. ICICI Bank's consolidated profit increased by 26 per cent to Rs 9,604 Cr. during the fiscal as against Rs 7,643 Cr. in 2011-12. Its shares were, however, trading 3 per cent down at Rs 1,141.45 apiece in late afternoon trade on the BSE.

Page | 17

INTERVIEW OF THE WEEK

When the Reserve Bank of India (RBI) increases rates, banks happily raise rates. But when RBI cuts rates, banks are stuck with high-cost deposits. RBI Governor D. Subbarao tells that banks response to the central banks monetary intervention is asymmetric. Edited excerpts: Do you see a disconnect between what the policy says and action on the ground? While the policy document talks about calibration of policy rate in either direction, you have still gone for a rate cut... I dont think so. If communication is seen as an instrument of policy, our communication through the document should be seen as a part of the action. So, we reduced rate today but communicated about what we might or might not do in the future. I dont think you should see that as a disconnect. Rather, you should see it as our endeavour to use communication to guide the market. Are you using communication to temper the exuberance of market participants? We take that into account but we have no view about the exuberance of the market. I know that one central bank governor had famously commented on that. Do you believe growth has bottomed out? I believe so. If we grew at five per cent last year and believe that we will grow at 5.7 per cent this year, by inference it says that growth has bottomed out. Please note that RBIs estimate is the most conservative among all the estimates. But thats not saying very much. This

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA country needs to grow much faster. We got to do all the right things at the right time. How difficult is it to manage the expectations of the market, the government, and media? Page | 18 Well, I would not be less than honest to say that it does not complicate decision-making. All stakeholders, including the government, have expectations about what the central bank might do. So that does add to the complexity of the decision making. But, I dont think at a fundamental level, it changes the decision that you make. At least, I tried to be objective about the decisions irrespective of expectations around. Do you expect monetary transmission to happen? If you are thinking of monetary transmission in the next one week, you may not see any dramatic announcements. But the cumulative monetary transmission, as a consequence of the easing that was done by RBI in the last one year, is still in progress. I believe that will continue to take place, if not immediately, but over the next few months. There is a view that when rates were hiked, banks responded with lending rate hike. But when rates are lowered, the response from banks is not that prompt. Do you agree? Yes, experience shows response of banks is asymmetric. When we are raising rates, they are happy to raise rates, but when we are cutting, they are stuck with high-cost deposits. So the flexibility of the response is restricted. So, its a problem there. RBI had said the credit flow to productive sectors will be ensured. What has refrained you from cutting CRR? We believe that liquidity deficit is not structural in nature. There is a liquidity deficit, but that is with only a few banks. Also, banks have liquidity buffer. So we believe there was no case for a CRR cut. RBI has restricted the import of gold on consignment basis by banks only to meet the genuine needs of exporters of gold jewellery. What was the motive behind this action? The idea was to put some sands into the wheels of imports of gold by banks. Now banks import on a consignment basis. They have no credit risk, no exchange rate risk, and they dont have to provide for capital. The idea in prohibiting gold import on consignment basis is to restrain banks from importing gold. Do you think there was gold coin import for speculative purpose? Yes, certainly some people were speculating, but that demand was not very high. There is consumption demand, there is also demand for gold to hedge against inflation. RBI has said it will issue some clarifications on banking licence issues raised by the stakeholders. When is that expected? It is expected by the end of May.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA Why is granting a banking licence a single-window opportunity and not a continuous process? You must note we have not given any licence in the past 10 years. So there was a lot of pent-up demand. So, this time we have to go through a batch process. But once this is Page | 19 completed, we will have to review the question whether we can keep banking licensing as a tap. You had said earlier you wish to take the country back to the high growth path before you retire as RBI governor. At this point in time, it seems that may not be possible. Would you be open to any proposal for continuing in the Reserve Bank for some more time? No. I dont think taking the economy back to the high growth trajectory depends on one governor. I think there is enormous amount of talent here. I dont think one person is crucial for that.

INTERESTING TO KNOW THIS WEEK

Asian nations say global liquidity may lead to asset bubbles GREATER NOIDA: A global liquidity infusion risks leading to asset bubbles, China, Japan, South Korea along with a host of Southeast Asian nations said on Friday. Many emerging nations are cautious about easier monetary policy in advanced economies, including Japan, fearing it may result in disruptive bubbles and currency appreciation, and make their exports less competitive. The ASEAN group of nations, plus China, Japan and South Korea are strongly committed to enhancing efforts to respond to risk from global monetary easing, they said in a joint statement at the Asian Development Bank's annual meeting in India. SBI comes to aid of Hyderabad blast victim kin The kin of an unfortunate victim of Dilsukhnagar bomb blasts had an unexpected support in the form of a scheme of State Bank of India (SBI). The parents of Harish Karthik Kadechur, who succumbed to injuries he sustained in the terror strike here on February 21 this year, approached SBIs Gaddiannaram branch for closure of his savings bank account. They, however, were not aware that his account was covered under a personal accident insurance policy for a cover of Rs 4 lakh from SBI General Insurance on premium of Rs 100 a year. The branch manager informed the parents of insurance coverage and guided them to SBI General Insurance for claim Settlement. The claim cheque of Rs 4 lakh was handed over to Indrani, the mother of Karthik on Thursday by bank officials, according to a release. Unclaimed dividend with companies at Rs 1,101cr NEW DELHI: With Rs 113 Cr. Reliance Industries (RIL) tops the list of companies that have unpaid and/or unclaimed dividends lying with them, Parliament was informed on Thursday. Dividend payments of a little over Rs 1,101 Cr. are lying unclaimed with 1,406 companies, corporate affairs minister Sachin Pilot said in a written reply to Lok Sabha. Payments are required to be made to investors within 30 days of the dividend being declared. Any unpaid or unclaimed amount needs to be transferred to an 'unclaimed dividend account' within the next seven days.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA

INTERNATIONAL NEWS THIS WEEK

Setting up BRICS bank not going to be easy: Takehiko Nakao NEW DELHI: The Asian Development Bank (ADB) on Thursday said that setting up the proposed development bank by BRICS (Brazil, Russia, India, China and South Africa) is not Page | 20 going to be easy as banking is a very 'complex' issue. "Setting up banking business is not easy as it involves finding new projects, financing them and then monitoring the use of these funds and repayments," said new ADB President Takehiko Nakao, adding that ADB would, however, welcome the initiative, considering that there's huge investment requirement in emerging Asian economies. "We are willing to cooperate as there's huge requirement of funds in emerging economies including India, particularly in infrastructure like roads, ports, airports that require $8 trillion investment in the next ten years," Nakao added. It is widely feared that BRICS engagement with ADB would take a hit once its own development bank becomes operational in the next one year, considering that the five-member countries play a critical role in the Manila-based ADB. Admitting that the scope of ADB for financing is restricted because of which maintaining the current levels of lending will be a challenge, the ADB chief said that governments across emerging countries should mobilise resources for infrastructure development through taxation and by mobilising the savings of the country besides encouraging private-public partnership across various infrastructure projects. Heads of BRICS countries had met in Durban, South Africa, last month and decided to go ahead with setting up the development bank despite differences among member countries on the location of the bank. While India, Brazil and South Africa have been campaigning to get the proposed bank headquarters located in their respective countries, China is pushing for a larger contribution by member-countries towards equity capital, leading to delay in the ambitious project, which is expected to meet a significant part of the investment requirements of emerging economies once it is set up. The proposed BRICS development bank will be along the lines of existing multilateral financial institutions and will mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies. India growth story intact, will continue to grow faster on domestic demand: ADB President NEW DELHI: Growth in emerging Asian economies, including India and China, is likely to remain robust and resilient even after the global crisis due to strong domestic demand, Asian Development Bank's new president Takehiko Nakao said. Speaking on Thursday, ahead of the ADB's annual meeting, Nakao conceded that the current account surpluses in emerging economies had depleted to 2% from 10% because of the economic crisis. However, he said, "India, China and other emerging economies would continue to grow faster than other developed economies because of strong domestic demand and strong production capacity in the region." The way forward for these economies is to continue attracting investments, especially in infrastructure development, Nakao said, adding that this can be done by good taxation and mobilising domestic savings. Admitting that private sector has been a key contributor to Asia's economic boom and a powerful tool in the fight against poverty, he said there still remains considerable untapped potential for drawing on the entrepreneurship, talent and productivity in our region. "India needs to upgrade its services sector to absorb millions of workforce that gets generated each year. Besides, government needs to enhance private sector participation by creating conducive business environment to expand the sources and volume of available infrastructure financing," he said. Chanda Kochhar, chief executive and managing director of ICICI Bank, echoed the ADB chief, saying that India's growth story was intact for the next two decades considering the country enjoyed a huge demographic advantage and had the potential to keep investing and add capacity. Kochhar said the Indian economy faced the challenge of decelerating growth, high inflation and fiscal deficit, and widening current account deficit and the biggest requirement was to revive the

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA investment pipeline by speeding up clearances for projects stuck at the last mile. "In the last 12-14 months, a lot of projects have been set up in the country but most of them have not been able to generate cash flows because of delays in last mile clearances," she said, adding that the country should continue to focus on the growth and development to help retain its competitiveness. However, she cautioned that the country's quest for investments might result in an asset bubble due to high capital inflows. Amando M Tetangco, governor Page | 21 and chairman of the monetary board of BangkoSentralngPilipinas, also said that emerging economies should remain cautious of strong credit growth as it can lead to an increase in asset prices.

RBI THIS WEEK

Macroeconomic and Monetary Developments in 2012-13 The Reserve Bank of India today released the Macroeconomic and Monetary Developments in 2012-13. The document serves as a backdrop to the Monetary Policy Statement 2013-14 to be announced on May 3, 2013. Highlights: Overall Outlook Macro-financial risks require cautious monetary policy stance ahead

In view of macro-financial risks that stay significant, headline inflation remaining above the threshold and consumer price inflation remaining high, the space for action for 2013-14 remains very limited. If some of the risks come to fore, policy recalibration may become necessary in either direction. Slow-paced recovery is likely later in 2013-14, contingent on improved governance and concerted action to resolve structural bottlenecks, especially in infrastructure sector. Output gap is likely to reduce, but remain negative. Headline inflation is likely to remain range-bound in 2013-14, with some further moderation in H1 due to subdued producers' pricing power and falling global commodity prices, before it increases somewhat in H2 largely due to base effects. Reserve Bank's survey of outside professional forecasters shows anticipation of a modest recovery with growth in 2013-14 at 6.0 per cent from 5.0 per cent and average WPI inflation to moderate to 6.5 per cent from 7.3 per cent. Surveys show that inflation expectations have moderated slightly, while business expectations remain subdued.

Global Economic Conditions Global growth likely to stay sluggish, commodity price inflation soft

Global growth turned weaker in 2012 and is expected to stay sluggish in 2013. Fiscal adjustments will drag growth down in advanced economies and delay cyclical recovery in emerging market and developing economies. Outlook for global commodity prices, including metals and oil, remains benign. It should help reduce imported inflation, subject to broadly stable exchange rate. However, some risks remain from the large and continuous doses of quantitative easing.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA

Global financial market conditions have improved as a result of unconventional monetary policy easing and supportive policy actions. However, tail risks remain significant, calling for committed action to reduce balance sheet exposures and prepare adequate buffers against possible contagion risks.

Page | 22

Indian Economy Output Slowdown persists in the economy with services sector witnessing moderation

During 2012-13, slowdown persisted as mining and manufacturing activity stalled, agriculture output was affected by temporal and spatial deficiency in rains and services sector witnessed moderation. Growth is likely to have stayed low in Q4 of 2012-13. Growth is hobbled by structural bottlenecks. Shortages of power, coal and natural gas, stoppage of mining activity in some states following legal enforcements on illegal mining have emerged as a major constraining factor for industrial growth. Core industries have underperformed in this backdrop. The Reserve Bank's Order Books, Inventory and Capacity Utilisation Survey show that the slack in capacity utilisation persisted in Q3 of 2012-13. New orders picked up marginally. Inventory as a ratio of sales, reached its lowest for finished goods, but highest for raw materials in the past five quarters.

Aggregate Demand Investment cycle downturn continues, consumption moderates

Aggregate demand remained sluggish with inflation adversely impacting real consumption and cyclical and structural factors impeding investment. Investment decline was accompanied by decline in saving rate as persistence of inflation eroded financial savings of the households. Corporate sales growth moderated in Q3 of 2012-13 to its lowest level since Q3 of 2009-10. Operating profits grew at a positive rate. Planned corporate investment moderated sharply in Q3 of 2012-13, thus continuing with the downturn that began in H2 of 2010-11. There is urgency for addressing bottlenecks in coal, power, road and telecommunication sectors to revive investment and growth. Momentum towards fiscal consolidation since middle of 2012-13 continues. As a result, fiscal risks have been lowered but they have not waned. If growth slows down further, it could result in revenue shortfalls and a resurgence of fiscal risks. Removing structural impediments and public investment stimulus to crowd-in private investment can turn around falling investment. However, this would need to be balanced by offsetting reductions in government's current expenditures.

External Sector CAD risks stay though fall in global commodity prices bring temporary respite

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA

Page | 23

Modest pick-up in exports in Q4 of 2012-13 and some deceleration in imports are likely to help moderate current account deficit (CAD) in Q4 of 2012-13 after a record high of 6.7 per cent of GDP in Q3. Despite this, the CAD/GDP ratio for the year 201213 is expected to be around 5.0 per cent, twice the sustainable level. High CAD in Q3 of 2012-13 was adequately financed by capital inflows, without any reserves depletion. CAD in 2013-14 is likely to benefit from moderation in global commodity prices. Yet, its sustainability continues to face risk from event shocks that may cause a sudden stop or reversal of capital inflows. External vulnerability indicators worsened further in Q3 of 2012-13. India's external debt rose, reflecting continued dependence on ECBs and short-term borrowings to meet the widening CAD. Short-term debt on a residual maturity basis increased to 44 per cent of total debt and 56 per cent of the foreign exchange reserves by endDecember 2012.

Monetary and Liquidity Conditions Monetary conditions may evolve with macroeconomic developments and shifting growthinflation dynamic

Using the limited monetary space, the Reserve Bank eased monetary policy during 2012-13 in a calibrated manner by cumulatively reducing policy rates by 100 basis points and injecting ` 1.5 trillion of primary liquidity through outright open market operations. Besides, it injected ` 1.3 trillion of primary liquidity through reductions in cash reserve ratio since January 2012. During 2012-13, broad money growth remained on the indicative trajectory and reserve money adjusted for CRR changes grew at a reasonable pace. However, nonfood credit growth remained below the indicative trajectory, reflecting growth slowdown and risk aversion among banks from deteriorating asset quality.

Financial Markets Strong FII flows augured well for Indian rupee and equity markets

Strong FII inflows, especially in H2 of 2012-13 augured well for the Indian equity markets and the rupee. Money markets remained orderly, despite year-end liquidity pressures. G-sec yields softened during Q4 of 2012-13, although with some increase at the year-end. Primary markets remained subdued during 2012-13, though resource mobilisation through mutual funds and Qualified Institutional Placements gathered some momentum during the year. The Reserve Bank's House Price Index increased 26 per cent y-o-y during Q3 of 2012-13, with annual increase hovering around 20 per cent for the past eight quarters. Transaction volumes registered a growth of 14 per cent during Q3.

Price Situation Inflation risks remain despite moderation in headline inflation

Headline inflation and demand-side pressures have moderated, but inflation risks remain reflected in double-digit consumer price inflation, food supply constraints and suppressed inflation in energy segment, including diesel, coal and electricity.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA

Persistent pressures from wages remain a major risk to inflation moderation. Although the pace of increase in rural wages moderated a bit, it remains high. Divergence between WPI and CPI inflation has widened on account of higher food inflation and other factors such as increase in housing rents and transportation costs.

Page | 24

Monetary Policy Statement for 2013-14 Statement by Dr. D. Subbarao, Governor, Reserve Bank of India "First of all, on behalf of the Reserve Bank, a hearty welcome to you all to this dissemination of the Monetary Policy Statement for 2013-14, which we put out a short while ago. 2. Based on an assessment of the current and prospective macroeconomic situation, we have decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5 per cent to 7.25 per cent. 3. Consequently, the reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, gets calibrated to 6.25 per cent. Similarly, the marginal standing facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, and also the Bank Rate, stand adjusted to 8.25 per cent. 4. These changes have come into effect immediately after the announcement. Considerations Behind the Policy Move 5. Todays decision to further ease the monetary policy stance was informed by two considerations. 6. First, growth has decelerated continuously and steeply, more than halving from 9.2 per cent in the fourth quarter of year before last, 2010-11, to 4.5 per cent in the third quarter of last year, 2012-13. The Reserve Banks current assessment is that activity will remain subdued during the first half of this year with a modest pick-up in the second half, subject to appropriate conditions ensuing. 7. The second consideration that went into the policy decision was the inflation outlook. Although headline WPI inflation had eased by March 2013 and came close to the Reserve Banks tolerance threshold, it is important to note that food price pressures persist, and supply constraints are endemic. These could lead to generalisation of inflation and strains on the balance of payments. Monetary Policy Stance 8. The policy document also spells out the three broad contours of our monetary policy stance. These are:

first, to continue to address the accentuated risks to growth; second, to guard against the risks of inflation pressures re-emerging and adversely impacting inflation expectations, even as corrections in administered prices release suppressed inflation; and third, to appropriately manage liquidity to ensure adequate credit flow to the productive sectors of the economy

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA Guidance 9. As per standard practice, we have also given the following guidance for the period forward: Page | 25 10. Todays decision to further cut the repo rate carries forward the measures put in place since January last year towards supporting growth in the face of gradual moderation of headline inflation. Nevertheless, it is important to note that recent monetary policy action, by itself, cannot revive growth. It needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping up public investment, alongside continuing commitment to fiscal consolidation. 11. Upside risks to inflation in the near term are still significant in view of sectoral demand supply imbalances, the ongoing correction in administered prices and pressures stemming from increases in minimum support prices. In view of this, monetary policy cannot afford to lower its guard against the possibility of resurgence of inflation pressures. Monetary policy will also have to remain alert to the risks on account of the current account deficit (CAD) and its financing, which could warrant a swift reversal of the policy stance. 12. Overall, the balance of risks stemming from the Reserve Banks assessment of the growth-inflation dynamic yields little space for further monetary easing. The Reserve Bank will endeavour to actively manage liquidity to reinforce monetary transmission, consistent with the growth-inflation balance. Global and Domestic Developments 13. Our policy decisions have been based on a detailed assessment of the global and domestic macroeconomic situation. Let me comment first on the global outlook. Global Economy 14. Since the Reserve Banks last quarter Review in January 2013, near-term risks in the advanced economies (AEs) have receded. This improvement, however, is yet to fully transmit to economic activity which remains sluggish. Risks in policy implementation and uncertainty about outcomes continue to threaten the prospects of a sustained recovery in advanced economies. 15. Emerging and developing economies (EDEs) are in the process of a multi-speed recovery. However, weak external demand and domestic bottlenecks continue to restrain investment in some of the major emerging economies. Inflation risks in EDEs appear contained, reflecting negative output gaps and the recent softening of international crude and food prices. Indian Economy 16. Moving on to the domestic economy, with output expansion of only 4.5 per cent inthird quarter of last year, the lowest in 15 quarters, cumulative GDP growth for the period AprilDecember 2012 declined to 5.0 per cent, down from 6.6 per cent a year ago. This was mainly due to the protracted weakness in industrial activity aggravated by domestic supply bottlenecks, and slowdown in the services sector reflecting weak external demand. 17. The Central Statistics Office (CSO) put out the advance estimate of GDP growth for last year, 2012-13, of 5.0 per cent, lower than the Reserve Banks January 2013 baseline

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA projection of 5.5 per cent. The CSOs lower estimate reflects slower than expected growth in both industry and services. 18. Looking ahead, economic activity during the current year is expected to show only a modest improvement over last year, with a pick-up likely only in the second half of the year. Agricultural growth could return to trend levels if the monsoon is normal as recently forecast. Page | 26 The outlook for industrial activity remains subdued because the pipeline of new investment has dried up and existing projects remain stalled by bottlenecks and implementation gaps. Growth in services and exports may remain sluggish too, given that global growth is unlikely to improve significantly from 2012. Accordingly, the Reserve Banks baseline projection of GDP growth for 2013-14 is 5.7 per cent. Inflation 19. Let me now turn to inflation. Headline inflation, as measured by the wholesale price index (WPI), moderated to an average of 7.3 per cent last year from 8.9 per cent in the year before. The easing was particularly significant in the fourth quarter of last year. We ended the year with WPI inflation of 6.0 per cent in March 2013, the lowest in the last three years. 20. Even as headline inflation eased, there were upside pressures on food inflation through the year owing to an unusual spike in vegetable prices early in the year followed by rise in cereal prices. 21. Fuel inflation averaged in double digits during 2012-13, largely reflecting upward revisions in administered prices and the pass through of high international crude prices to freely priced items. 22. Non-food manufactured products inflation ruled above the comfort level in the first half of 2012-13 but declined in the second half, reflecting easing of input price pressures and erosion of pricing power. 23. Even as WPI inflation eased, retail inflation, as measured by the new consumer price index, averaged 10.2 per cent during 2012-13, largely driven by food inflation. Even after excluding food and fuel groups, CPI inflation remained sticky, averaging 8.7 per cent. 24. In the Reserve Banks assessment, WPI inflation is expected to be range-bound around 5.5 per cent during 2013-14. This assessment factors in the domestic demand-supply balance, the outlook for global commodity prices and the forecast of a normal monsoon. 25. It is critical to consolidate and build on the recent gains in containing inflation. Accordingly, the Reserve Bank will endeavour to condition the evolution of inflation to a level of 5.0 per cent by March 2014. Monetary and Liquidity Conditions 26. Let me now turn to monetary and liquidity conditions. 27. Consistent with the growth projections and the Reserve Banks inflation tolerance threshold, M3 growth for 2013-14 is projected at 13.0 per cent for policy purposes. Consequently, aggregate deposits of scheduled commercial banks (SCBs) are projected to grow by 14.0 per cent. Keeping in view the resource requirements of the private sector, the growth in non-food credit of SCBs is projected at 15.0 per cent. We would be guided by the

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA evolution of monetary aggregates along these indicative trajectories in the conduct of monetary policy. 28. Liquidity remained under pressure throughout last year because of two factors first, persistently high government cash balances with the Reserve Bank, and second, elevated incremental credit to deposit ratio for much of the year. In order to alleviate liquidity Page | 27 pressures, last year, the Reserve Bank lowered the cash reserve ratio (CRR) cumulatively by 75 bps on three occasions and the statutory liquidity ratio (SLR) by 100 bps. In addition, the Reserve Bank injected liquidity to the tune of `1.5 trillion through open market operations (OMO). The net injection of liquidity under the LAF peaked at `1.8 trillion on March 28, 2013 reflecting the year-end demand. However, it reversed sharply to `800 billion by end-April 2013. 29. The Reserve Bank will endeavour to actively and appropriately manage liquidity to ensure adequate credit flow to the productive sectors of the economy and to reinforce monetary transmission consistent with the growth-inflation balance. Risk Factors 30. The macroeconomic outlook for this year, as set out in the Policy Statement, is subject to a number of risks. Let me briefly address them.

First, the biggest risk to the economy stems from the CAD which, last year, was historically the highest, and well above the sustainable level of 2.5 per cent of GDP as estimated by the Reserve Bank. A large CAD, appreciably above the sustainable level year after year, will put pressure on servicing of external liabilities. Second, even as the large CAD is a risk by itself, its financing exposes the economy to the risk of sudden stop and reversal of capital flows should global liquidity rapidly tighten. The global liquidity situation could quickly alter for EDEs, including India, for two reasons. First, the outlook for AEs remains uncertain, and even if there may be no event shocks, there could well be process shocks which could result in capital outflows from EDEs. Second, with quantitative easing (QE), AE central banks are in uncharted territory with considerable uncertainty about the trajectory of recovery and the calibration of QE. The third risk factor is that a sustained revival of growth is not possible without a revival of investment. But investment sentiment remains inhibited owing to subdued business confidence and dented business profitability. Both borrowers and lenders have become risk averse. Borrowers have become risk averse because of governance concerns, delays in approvals and tighter credit conditions. For lenders, risk aversion stems from the erosion of asset quality, deteriorating cash flow situation of borrowers eroding their credit worthiness and heightened risk premiums. And finally, the effectiveness of monetary policy in bringing down inflation pressures and anchoring inflation expectations could be undermined by supply constraints in the economy, particularly in the food and infrastructure sectors. Without policy efforts to unlock the tightening supply constraints and bring enduring improvements in productivity and competitiveness, growth could weaken even further and inflationary strains could re-emerge.

Developmental and Regulatory Policies 31. Since this is the Annual Policy, as per standard practice, it also includes developmental and regulatory policies. Let me briefly indicate some of important initiatives in this regard.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA 32. I will begin with initiatives for further strengthening the regulatory and supervisory framework.

Page | 28

We have finalised the prudential guidelines on restructuring of advances by banks and financial institutions based on the Mahapatra Committee recommendations. They will be issued during the month. The unhedged portion of the foreign currency exposure of corporate has been a source of concern. To address this, we have decided to increase the risk weights and provisioning requirements on banks exposure to corporates on account of corporates unhedged forex exposure positions. As indicated in the guidelines for new bank licenses, we are in the process of preparing a discussion paper on the banking structure for India. The discussion paper will cover issues such as consolidation of large sized banks with a view to having a few global banks, the desirability and practicality of having small, localised banks as preferred vehicles for financial inclusion, the need for a differentiated licensing regime for investment banks, and conversion of urban cooperative banks into commercial banks. The discussion paper will take into account international experience as well as our domestic situation.

33. Let me now turn to a few initiatives for furthering financial inclusion.

The Reserve Banks website contains FAQs on KYC/AML/CFT requirements. The Reserve Bank has also made active efforts to disseminate these requirements. However, recent developments, as also the needs of financial inclusion, have made it necessary for us to disseminate the requirements in a more lucid way. We will revise the FAQs accordingly. The Reserve Bank attaches great importance to speedier branch expansion in unbanked rural centres for ensuring seamless roll out of the Direct Benefit Transfer Scheme of the Government. Towards this end, banks are being advised to front load the opening of branches in unbanked rural centres over a 3 year cycle co-terminus with their Financial Inclusion Plans (FIP). Furthermore, instructions are being issued to banks to open bank accounts for all eligible households. Improving credit delivery to micro and small enterprises is a focus area. In light of the feedback received from the stakeholders, we are enhancing the loan limits to micro and small enterprises for priority sector classification. In order to extend the institutional mechanism for financial inclusion to urban areas, we have decided to bring all districts in metropolitan areas under the fold of the Lead Bank Scheme.

34. The Statement contains several initiatives to strengthen the financial market infrastructure.

We felt that there is a need to improve the interface of exporters with banks and financial institutions to cut delays and streamline procedures. Towards this end, we reported earlier that we would constitute a technical committee to study various issues such as availability of credit, transaction costs, insurance, factoring and other procedural aspects. The Technical Committee chaired by Executive Director Padmanabhan submitted its report last month. We are examining the recommendations and will put out the report on our website shortly.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA

In a move towards further liberalization, we have decided to allow Foreign Institutional Investors to hedge their currency risk by using exchange traded currency futures in the domestic exchanges.

35. As envisaged in the Reserve Banks vision document on Payment Systems in India, we have decided to allow non-bank authorised entities to be part of the payment system Page | 29 infrastructure. Separately, we will prepare a discussion paper for examining the measures to be taken to mitigate and eliminate concentration risk in the payment system infrastructure. 36. Finally a comment on meeting the growing demand for banknotes and coins in the country. We are streamlining the system of distribution of banknotes and coins and are exploring alternative avenues for their distribution by banks. The mechanism for detection and reporting of counterfeit banknotes is also being improved. To further this, we will shortly introduce a scheme of incentives for banks. 37. I have highlighted only a few of the developmental and regulatory initiatives. There are a host of other initiatives in Part B of the policy document. I urge you to go through the policy document in detail. 38. Let me conclude by summarising our macroeconomic concerns. Growth slowed much more than anticipated, with both manufacturing and services activity hamstrung by supply bottlenecks and sluggish external demand. Most lead indicators suggest a turnaround this year, albeit at a slow pace. Inflation eased significantly in the fourth quarter of last year although upside pressures remain, both at wholesale and retail levels. The growth-inflation outlook indicated in the Policy Statement is also beset with risks such as the still high twin deficits, the vulnerability of our external sector to sudden stop and reversal of capital flows, inhibited investment sentiment and tightening supply constraints, particularly in the food and infrastructure sectors. The challenge for the Reserve Bank is to calibrate monetary policy to address these risks and bring inflation down to the tolerance threshold in order to return the economy to a sustainable high growth trajectory in the years ahead. 39. Thank you for your attention." Priority Sector Lending-Targets and Classification Revision of Limits Please refer to paragraph 65 of the Monetary Policy Statement for the year 2013-14. The following limits under priority sector stand revised upward with effect from April 01, 2013. 1. Agriculture (i) The limit of loans to farmers against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months stands increased from ` 25 lakh to ` 50 lakh both under direct and indirect agriculture. [Effect on July 20, 2012 circular: Paragraph III 1.1 (iv) and Paragraph 1.2.1 (iv) would stand amended accordingly] (ii) The limit of loans to dealers/sellers of fertilizers, pesticides, seeds, cattle feed, poultry feed, agricultural implements and other inputs has been raised to `5 Cr. per borrower from `1 Cr. [Effect on July 20, 2012 circular: Paragraph III 1.2.2 (i) would stand amended accordingly]

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA 2. Micro and Small Enterprises The limit of bank loans to Micro and Small Service Enterprises (MSEs) engaged in providing or rendering of services has been increased from `2 Cr. to `5 Cr. per borrower/unit, provided they satisfy the investment criteria for equipment as defined under MSMED Act, 2006. Page | 30 Bank Rate As announced in the Annual Monetary Policy Statement 2013-14, the Bank Rate stands adjusted by 25 basis points from 8.50 per cent to 8.25 per cent with effect from May 3, 2013. 2. All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, also stand revised as indicated in Annex. Penal Interest Rates which are linked to the Bank Rate

Item

Existing Rate

Revised (Effective 2013) 3.0 per 5.0 per

from

Rate May 3,

Penal interest rates on shortfalls in reserve requirements (depending on duration of shortfalls).

Bank Rate plus percentage points (11.50 cent) or Bank Rate plus percentage points (13.50 cent).

Bank Rate plus 3.0 percentage points (11.25 per cent) or Bank Rate plus 5.0 percentage points (13.25 per cent).

FINMIN THIS WEEK

SPEECH OF THE UNION FINANCE MINISTER SHRI P.CHIDAMBARAM AT INDIA DAY: INDIA - NEXT WAVE OF INCLUSIVE GROWTH Following is the Speech of the Union Finance Minister Shri P.Chidambaram at India Day: India - Next Wave of Inclusive Growth today at ADB Meeting at IEML, Greater Noida today: President, ADB, President, FICCI, delegates to the ADB Annual meeting and friends, 1. I am happy to be here today, when there is renewed optimism in India s growth story. Seven years ago, when I addressed the opening session of the India Day at the ADBs Annual Meeting at Hyderabad, I had exhorted you to participate in our efforts. Today, my confidence stems from the fact that while India may not be insulated from the difficulties plaguing the world, Indias economic fundamentals are strong. With the economic and fiscal reforms already put in place including those on the anvil, I expect Indias growth to be robust and sustainable. I am confident that it will gather further momentum in the coming years. India has become an attractive destination for foreign investors. We have opened up the economy further to foreign direct investments. 2. The Indian growth story is fascinating. Lets look at it in the global context: The global economy is yet to recover from the economic meltdown of 2008 which has impacted on both growth and employment opportunities across countries. Compounding the problems further is the European debt crisis.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA Recent signs of economic recovery have been weak and is uncertain. Global economic growth has slowed down from 3.9 percent in 2011 to 3.2 percent in 2012. According to IMF projects, it is expected to recover only to 3.5% in 2013. The growth rate in the advanced economies, which are our major markets, declined from 1.6 per cent in 2011 to 1.3 per cent in 2012. The US fiscal difficulties continue, with sequestration and the prospect of yet another fight over debt still holding back growth. The crisis in the Euro-zone also continues Page | 31 to pose serious risks for the global economy, notwithstanding the OMT announced by the ECB. Actions in even a tiny economy like Cyprus, have ripple effects across the world. 3. While, the Indian economy grew at 6.7%, 8.6%, 9.3% and 6.2% in the four years from 2008-09 to 2011-12, respectively, GDP growth is expected to decline to 5.0 to 5.5 per cent in fiscal 2012-13. Clearly, the persistence of the global slowdown has finally impacted us significantly. I must, however, candidly admit that some of the reasons for our slowdown are home-grown. The boost to demand given by the monetary and fiscal stimulus following the global crisis of 2008 was significant. This helped in strong recovery with final consumption growing at an average of over 8 per cent annually between 2009-10 and 2011-12. An unfortunate consequence of this, however, was somewhat high and stubborn inflation. It is this that led to a strong contractionary monetary response that slowed consumption demand. Starting 2011-12, corporate investments have been adversely affected. As the growth slowed down and Government revenues failed to keep pace with welfare spending, the fiscal deficit emerged as a matter of concern. With Government savings falling and private savings also shrinking, the current account deficit (CAD) widened to 4.6 per cent in H1 of 2012-13 from 4.0 per cent in H1 of the previous year. 4. We are addressing this problem proactively. However, we must remember that even in face of worst possible confluence of adverse global and domestic factors, we remained, even in 2012-13, one of the fastest growing large economies in the world. Nevertheless, I am not satisfied with the 5%+ growth rate. Indias potential growth rate is 8%+ and we cannot afford to become complacent and sit back. We are a mature and vibrant democracy. We have taken effective steps to rein in economic slowdown and fiscal stress in the past few months. These measures have begun taking effect. 5. Indias Inherent Strengths: At the forefront of all this is the focus on inclusive growth. What is inclusive growth? It is growth that is broad-based, shared and one that focuses on the poor. A recent estimate was that for every one percent of GDP invested in infrastructure, India creates almost three and a half million direct and indirect jobs. With our focus on investments in the infrastructure sector, I want you to consider the reasons why I think Indias growth is likely to be high and sustained for decades: First, Indias population is young. According to a recent IMF study, Indias demographic dividend could add about 2% to per capita GDP growth over the next two decades. Second, India is focusing on building world class infrastructure. This policy thrust has spin-offs in terms of job creation and enhanced investments in the manufacturing. For instance, the Delhi Mumbai Industrial Corridor, entailing over $ 90 billion in investment, will link Delhi to Mumbais ports, covering an overall length of 1483 km passing through six States. This project will have nine mega industrial zones of about 200-250 sq. km. each, high speed freight lines, three ports, six airports, a six-lane intersection-free expressway connecting the countrys political and financial capitals, and a 4000 MW power plant, and provide a plug and play environment for manufacturing investment. Third, India has a large portion of its population engaged in agriculture. We intend drawing this large workforce into the high value addition jobs created by investments in manufacturing. An ambitious skill development programme is underway to equip our populace with requisite skills and integrate into the emerging job market.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA Fourth, Indias household final consumption is a healthy 57 percent of GDP. As incomes grow, a significant portion of it will be spent. In recent years, growing rural demand has added to healthy urban middle class consumption demand growth, buffering India somewhat, though not entirely, from paucity of aggregate demand that plagues the world. 6. These factors underlying Indias growth prospects are supported by many other drivers Page | 32 like the energy and vibrancy of our entrepreneurs, a strong services sector, emerging knowledge spheres and sunrise sectors, and a large and growing number of engineers and scientists. o Our fiscal deficit in 2012-13 is estimated at 5.2%. We may better this target. The Budget 2013-14 estimates a fiscal deficit of 4.8% at the end of the financial year. I am confident that this will steadily reduce to 3% or even less by 2016-17. o For fiscal consolidation, we have focused on controlling outgo on subsidies through better targeting. These include rationalisation of fertilizer subsidies, capping of the number of subsidized LPG cylinders, decontrol of petrol prices, gradual rationalisation of diesel prices and introduction of direct benefit transfer system to substantially eliminate leakages and to help better targeting of subsidies in various programs. Measures to pass through fuel prices will also help reduce demand for oil imports, and thus the CAD. However, let me stress that our fiscal consolidation has a human face and the Government will continue to provide support for the poor and the needy. o We have set up a Cabinet Committee on Investment to address and resolve bottlenecks impacting implementation of large projects. It has already cleared investments to the tune of USD 27 billion. o FDI regime in areas like multi / single brand retail, airlines etc. have been further liberalized and I am confident there will be forward movement in areas like insurance and pensions. o A 15% investment allowance for capital investment exceeding Rs. 100 Cr. or about USD 20 million within a specified timeframe has been announced. This is in addition to the normal depreciation available for new plant and machinery. o Tax incentives for first-time home buyers have been provided. This is expected to give impetus to construction industry. o Public Sector Units have been advised to accelerate their capex investments. o Concerted steps have been taken to provide impetus to P&NG exploration and coal production (with likely medium term benefits for the CAD). o An independent regulatory authority will be announced shortly for the road sector and coal sector, and for tariff setting in the Railways. o Alleviation of coal shortages affecting power generation is being addressed by importing coal and assuring supply of definite quantities of domestic coal. o The Bengaluru-Chennai Industrial Corridor and Begaluru-Mumbai Industrial corridor have been conceived to provide robust infrastructure support for industrial growth in these high potential areas. o MSME sector is being given special attention. o Two new major ports have been identified for development. o Fillip is being given to green, sustainable energy projects.

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA o Steps have been taken to address CAD by moderating gold demand through higher import duties and efforts to monetize idle gold stocks lying with citizens and Gold ETF AMCs. o Steps are also being taken to address food price inflation through efforts targeting higher production of protein foods, and improved supply chain logistics to enable comprehensive procurement, processing and distribution of agri produce that would potentially reduce Page | 33 wastage and control food price inflation. 7. Simultaneously, steps are being taken to cover the most remote, least developed areas and populations in the widening infrastructure and financial scope. Integrated action is being taken in primary health, education, low-cost housing and food distribution. Pilot schemes are being launched through innovative public private partnership models. 8. For financial inclusion, the central bank, the RBI, has asked rural banks to set up 25% branches in un-banked regions. As on March 31, 2012, regional rural banks had a network of 16,914 branches in the country. Roll-out plans have been drawn up for opening upwards of 1700 more per year. Private banks have also started rural branches. A private bank opened 101 rural branches in December last, across six states as part of its financial inclusion plan to provide banking services in unbanked villages. 9. The government is, separately, aiming at skilling 500 million youth by 2022 through the ambitious Skill Development Program. About USD 2.5 billion is spent on training rural belowthe-poverty-line youth. 10. I am sure that todays discussions will lay out the contours of the half a trillion dollar opportunity available to the private sector to invest in our infrastructure during the next four years as well as demonstrate how this is going to be a transformational change that will benefit the lowest rungs of society.

IMF THIS WEEK

World Experts Share Experiences to Better Implement Macroprudential Policies An international workshop jointly organized by the Bank of Thailand and the International Monetary Fund (IMF) was held on April 27-28 in Bangkok to discuss and share experiences on progress and challenges of implementing Macroprudential policies to prevent future systemic financial crises. The workshop brought together representatives from central banks of Brazil, Chile, China, Colombia, Korea, Hong Kong, India, Indonesia, Malaysia, Peru, the Philippines, Poland, Sweden, Turkey, and the United Kingdom. Representing cohosts, senior staff of the Bank of Thailand and the IMF also participated in the workshop. Participants at the workshop highlighted the progress achieved in their respective countries and identified areas where there is still some way to implement macro prudential policy effectively. Participants debated about models and indicators that work better at identifying and monitoring the build-up of vulnerabilities in financial systems and discussed the experience of their respective countries using macro prudential tools to tackle systemic risks and, in general, to strengthen surveillance of financial stability. They further discussed the diverse experiences of countries in establishing the institutional arrangements for effective macro prudential policy making, as well as how policies among various public institutions are coordinated and conflicts resolved. Finally, the participants addressed some of the challenges that have arisen with the implementation of policies, including the interaction between macro prudential policies and monetary policy and how to use the Macroprudential toolkit to cope with volatile international capital flows. This is not a gathering of new recruits but rather of veterans to share and exchange thoughts and views on macro prudential policies, stressed Deputy Governor of the Bank of Thailand, Krirk Vanikkul. This will help us in building the block for an effective implementation of macro prudential policies

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA IMF Holds High-Level Roundtable on Structural Banking Reform On April 22, 2013, the International Monetary Fund (IMF) held a High-Level Roundtable on Structural Banking Reform with participation of senior officials from finance ministries, central banks, and supervisory authorities from many regions of the world. This is the first time a discussion on this important policy issue was held on a global scale involving G20 and other Page | 34 countries. The event was opened by IMF Managing Director Christine Lagarde, who observed that structural measures could be a useful addition to the financial stability policy toolkit. Ms. Lagarde emphasized that since these measures, applied to internationally active banks, are likely to have a far-reaching global impact, their design should reflect an equally extensive cost-benefit exercise. She encouraged policy makers to work cooperatively and structure such measures in a manner that increases their effectiveness and complements the global reform agenda. The roundtable discussion was chaired by Jos Vials, Financial Counsellor of the IMF, and was kicked off by the heads of commissions that developed the policy proposals, among them Paul Volcker, former Governor of the Federal Reserve, and Erkki Liikanen, Governor of the Bank of Finland. The ensuing debate covered coordination of alternative proposals from within the EU, the impact on host countries and emerging markets, and the interaction of these policies with the new Basel rules as well as the G20-led international reform agenda. A number of participants felt that ensuring the mutual consistency of national policies is vitally important to attenuate complexity of implementation and avoiding unintended cumulative costs on the global financial system. IMF First Deputy Managing Director David Lipton closed the event and emphasized that the design of national structural measures should complement the international reform agenda and balance costs and benefits at a global level, a task that is pending and needs to be taken up.

WORLD BANK THIS WEEK

India: World Bank Approves $255 Million for National AIDS Control Support Project WASHINGTON, May 1, 2013 - The World Bank today approved the fourth of a series of credits aimed at supporting Indias AIDS control program which seeks to curb the spread of HIV by 2017. The $255 million credit to the National AIDS Control Support Project will help accelerate AIDS prevention programs by targeting vulnerable groups at high risk of infection So far the World Bank has provided a total of $525 million under the last three projects. The new project will support the government of Indias National AIDS Control Program IV (NACP IV- 2012-2017) that focuses on prevention, behaviour change communications and institutional strengthening. NACP IV will build on the successful experience of NACP III (2007-2012), which was focused on prevention programs, complemented by care, support, and treatment of people living with HIV and AIDS. The rate of new HIV infections fell by nearly 10 percent during the National AIDS Control Project III (NACP III). India has made impressive progress and is on track to meet the Millennium Development Goal (MDG) of halting and reversing the HIV and AIDS epidemic. However, with some 2.4 million Indians living with HIV-AIDS, it still ranks third after South Africa and Nigeria. The Indian HIV epidemic scenario is characterized by concentrated epidemics among the high risk groups. It is a highly diverse and heterogeneous epidemic scenario, driven by sex work, unprotected sex among men who have sex with men, and injecting drug use. The National AIDS Control Support Project aims to reduce new HIV infections by expanding the reach and coverage of quality targeted prevention interventions to these high risk groups over the next five years. India is fortunate in having successfully safeguarded 99 percent of its population from HIV but the low prevalence rate should not lull us into complacency. Without strongly sustained prevention programs among those at highest risk, the gains made in the fight against this epidemic could yet be lost, said Onno Ruhl, World Bank Country Director for India. HIV

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA and AIDS also have an enormous disproportionate impact on vulnerable groups and on poor households with less access to information, preventive services and treatment. he added. Although the prevalence rate in India is low (up to 0.5 percent), there are varying trends within and between states, which require scaling up of targeted interventions among vulnerable groups at high risk for HIV infection. By scaling up targeted interventions and prevention services, it is estimated that the project will cover about 90 percent of the high risk groups and avert about three million new infections by 2017, said Sameh El-Saharty, Senior Health Policy Specialist, World Bank and the Projects Team Leader. The project will support NACP IV to further strengthen the institutional capacity of NACO and continue to innovate across different components of the program, he added. The project will support the Department of AIDS Control and the National AIDS Control Organization in undertaking prevention programs as well as expand communication and advocacy programs that promote safe behaviour and discourage stigma and discrimination against people living with HIV and AIDS. The project will be financed by a credit from the International Development Association (IDA) the World Banks concessionary lending arm which provides interest-free loans with 25 years to maturity and a grace period of five years.

Page | 35

BASLE THIS WEEK

Financial sector ups and downs and the real sector in the open economy: Up by the stairs, down by the parachute by Joshua Aizenman, Brian Pinto and Vladyslav Sushko Working Papers No 411 April 2013 We examine how financial expansion and contraction cycles affect the broader economy through their impact on real economic sectors in a panel of countries over 1960-2005. Periods of accelerated growth of the financial sector are more likely to be followed by abrupt financial contractions than are periods of slower financial sector growth. Sharp fluctuations in the financial sector have strongly asymmetric effects, with the majority of real sectors adversely affected by contractions, but not helped by expansions. The adverse effects of financial contractions are transmitted almost exclusively through the financial openness channel, with precautionary foreign exchange reserve holdings serving as a key buffer. Structural bank regulation initiatives: approaches and implications by Leonardo Gambacorta and Adrian Van Rixtel Working Papers No 412 The paper examines the basic rationale and features of the proposals adopted to separate specific investment and commercial banking activities (Volcker rule, Vickers and Liikanen proposals). In particular, it focuses on the likely implications of such initiatives for: (i) financial stability and systemic risk; (ii) banks' business models; and (iii) the international activities of global banks. Central bank finances

307th Issue Banking News 29th April to 04th May 2013 By Vasant Ponkshe, Secretary, AIBOA by David Archer and Paul Moser-Boehm BIS Papers No 71 This paper looks at the relevance of a central bank's own finances for its policy work. Some central banks are exposed to significant financial risks, partly due to the environment in which they operate, and partly due to the nature of policy actions. While financial exposures and losses do not hamper central banks' operational capabilities, they may weaken the Page | 36 effectiveness of central bank policy transmission. Against this backdrop, the paper analyses the determinants of a central bank's financial position and the possible implications of insufficient financial resources for policymaking. It also provides a conceptual framework for considering the question of whether central banks have sufficient financial resources. 04.05.2013 BY VASANT PONKSHE SECRETARY AIBOA CHAIRMAN BOMOA MOBILE 9422319827