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Archive for June, 2008

SHG’s to be included in the Farm Loan Waiver – 2008

Download the farm waiver package herefarm-loan-waiver-20081
The Indian Government has widened the scope of the farm loan waiver package. Finance minister P Chidambaram elaborated on the details of the new-look scheme on Thursday (19 June 08 )  to the country’s top bankers in a video conference.

As per fresh directions, all self-help groups (SHGs) of farmers are eligible for loan waiver even if disaggregated data of loan extended to each farmers of the group may not be maintained with branches. Banks offer loans to SHGs as group-loans, and therefore, no disaggregated data is maintained at branch level. Then, farmers who had availed of short-term gold loans for agricultural investment will be covered under the package.

However, the applicable interest to be waived will not be in excess of 7% in the corresponding year. Farmers who took direct agriculture investment loans for buying farm equipment like harvesters and combine will be entitled for waiver of loans.

In all these cases, farm loans overdue on December 31, 2007 and which remained unpaid until February 29, 2008, are eligible for both loan waiver and debt relief scheme.

However, the number of additional eligible farmers is not readily available. Banks have instructed their respective branches to review the list. The ministry of finance has elaborated on the details following queries raised by banks. “We’ve asked our officials to act accordingly. The finance minister has complimented the efforts of branch level people. However, the branch level officers need to put a few more days’ of hard work,” a top bank executive said.

In the circulated note, the ministry has clarified that Hindu undivided families will be covered under the package, although proprietary firms are excluded from the list. Farmers, who took short term production loans for sugarcane and banana cultivation will be covered under the scheme.

Interestingly, the ministry has also instructed banks to include insurance premium debited in the loan accounts in the eligible amount.

It categorically said: “The scheme does not apply to any loan disbursed by lending institutions prior to close of business on March 31, 1997.”

This cut-off date will, however, not apply to loans restructured and rescheduled by lending institutions in 2004 and 2006 through special packages and in the normal course as per RBI guidelines.





Sahara permitted to accept microsavings with conditions

RBI  has passed a fresh  order containing the following directions to SIFCL:
“(i) SIFCL is hereby directed not to accept any new  deposit which matures beyond June 30, 2011 and  to  stop accepting  installments of existing deposit accounts also with effect from that date.  The Aggregate Liability to Depositors (ALD) will not exceed Rs.15,000 crore (rounded off) as of June 30, 2009, Rs.12,600 crore (rounded off)  as of June  30, 2010 and Rs.9,000 crore (rounded off) as of June 30, 2011. 
(ii) SIFCL shall repay the deposits as and when they mature and bring the ALD to zero on or before June 30, 2015.
(iii) SIFCL shall not treat non-payment of installments under any running daily  deposit  or other recurring deposit schemes by depositors after June 30, 2011, as a default by depositor and SIFCL shall be liable to pay the agreed rate of interest on the amounts actually held by it for the entire term of the deposit as if there was no default.
(iv) SIFCL shall continue to comply with the requirements of directed investments under paragraph 6 of RNBC Directions with respect to its ALD.

(v) SIFCL shall ensure 100% compliance with KYC norms for all new deposits.

(vi) SIFCL shall subject to (i) (ii) (iii) above,  strictly comply with the requirements of all the applicable provisions of the RBI Act, the directions, guidelines, instructions and circulars issued by RBI there-under from time to time until such time as all the deposits are repaid with interest in full. For repaying the depositors, SIFCL shall first apply its income and investments other than the investments it is required to maintain under paragraph 6 of RNBC Directions.

(vii) SIFCL shall, without prejudice to the above, be entitled to carry on its other business activities in accordance with law.

(viii) SIFCL shall submit a comprehensive business plan before the close of business on 16th August 2008.”

RBI has incorporated in its order, the offer made during the personal hearing by the Managing Worker & Chairman of SIFCL and the senior executives of SIFCL. Keeping in view quality corporate governance, they offered to  (a) reconstitute the Board of Directors of SIFCL within a period of thirty days from June 16, 2008 so that  the Board shall consist of 50% of such independent directors as are acceptable to Reserve Bank of India; (b) get the appointment of these  independent directors  ratified at the ensuing Annual General Meeting of the company and to continue the said arrangement till such time as all depositors are repaid in full;  and (c) appoint  statutory auditors from  the panel of auditors suggested by Reserve Bank of India at the ensuing Annual General Meeting of the company envisaged by August 31, 2008 and  to continue to appoint statutory auditors each year from the panel suggested by Reserve Bank of India till all depositors are repaid in full. 







Higher CAR – RBI Draft Guidelines for NBFC’s ; WILL Impact MFI’s

Higher capital adequacy ratio (CAR) mooted by RBI in it draft guidelines for non-banking financial companies (NBFC), including microfinance institutions (MFI), will put the organisations under pressure to boost their capital requirements by half to 15% by April 2009. MFIs in the country are highly leveraged since they are dependent on borrowings. They could find it difficult to bring in additional capital to meet the norms.

The draft guidelines have increased CAR of systemically-important non-deposit-taking NBFCs from 10% to 12% immediately, and to 15% by April 1, 2009. This would limit the way the NBFCs leverage their capital. Some experts say that with a 15% CAR, MFIs can leverage only up to five times. 

The regulator’s concern was triggered because NBFCs raised short-term resources to fund their asset books.

So far, only deposit-taking NBFCs were subject to prudential regulations on income recognition, asset classification and provisioning capital adequacy, among others, while non-deposit-taking NBFCs were subject to minimal regulation. Most of the systemically-important NBFCs are those promoted by banks. There are 173 systemically-important non-deposit-taking NBFCs.

According to RBI, “In view of recent international developments, the risk associated with highly-leveraged borrowings and the reliance on short-term funds by some NBFCs, there have been concerns regarding the enhanced systemic risk associated with the activities of the entities.”

Non-deposit-taking NBFCs with an asset size of over Rs 100 crore would be considered NBFC-ND-SI, and a new regulatory framework involving prescription of capital adequacy and exposure norms for such NBFC-ND-SI was put in place from April 1, 2007. The companies were advised to maintain a minimum capital-to-risk weighted assets (CRAR) ratio of 10%.

Fitch – Risks in Microfinance ; the New Rating Criteria

Click the following link to download the Report:-  fitch-microfinance-12-jun1   

 Fitch says in a published today that the fast growing microfinance industry, which provides financial services to low-income populations in emerging markets, could be exposed to greater risks. Separately, the agency has published its rating criteria that formalise the agency’s existing approach to microfinance institutions (MFIs).

Fitch notes that high growth and transformation within the microfinance sector puts pressure on internal control systems, and places new demands on the quality of management and corporate governance. Increased access to commercial funding brings new demands in risk management, disclosure, and moves MFIs away from their traditional base of public or donor funding. Transformation to for-profit and regulated structures heightens the risk of “mission drift”, leading the MFI away from its traditional social mission.


Met Gaurav from INNOVITI  Anybody/bank considering deploying handhelds, INNOVITI  is providing a good solution. NO Smart Cards/No Mobiles, just the good ol’ magstripe card, the good ol’ EDC machine, a good o’ SIM card and all transactions can happen in real time.



Mobile Banking Transaction in India – Operative Guidelines (First Draft – June08)

Click the following link to download the draft guidelines:- 84978-rbi-mobile-payment-operative-guidelines 

 An estimated 750 million households worldwide don’t have a bank account. In Mexico, cash transactions constitute 79% of payments. In India, 91%. In China, 82%. Even in the U.S., 80 million people are in the category of the under-banked.

The potential for mobile micropayment has attracted other entrepreneurs as well.

Infact The Reserve Bank of India’s panel on Thursday recommended that banks when they offer mobile payments service must ensure that customers having mobile phones of any network operator should be in a position to request for service.

Restriction, if any, to the customers of particular mobile operator may be only during the pilot phase, the RBI stated in a draft operating guidelines for mobile payments in India.

Long-term goal

 The RBI panel recommended that banks should get the mobile payments scheme approved by their respective boards or local board (for foreign banks) before offering it to their customers.

The board approval must document the extent of operational and fraud risk assumed by the bank and the bank’s processes and policies designed to mitigate such risk.

Banks which have already started offering mobile payment service may review the position and comply to these guidelines within three months from the issuance of these guidelines, it stated.

The long-term goal of mobile payment framework in India, the RBI said, would be to enable funds transfer from an account in one bank to any other account in the same or any other bank on a real time basis irrespective of mobile network a customer has subscribed to.

This would require inter-operability between mobile payments service providers and banks and development of a host of message formats.

Banks may keep this objective while developing solution or entering into arrangements with mobile payments solution providers.


 To meet the long-term objective of a nation-wide mobile payment framework, a robust clearing and settlement infrastructure operating on a 24×7 basis would be necessary. Pending creation of such an infrastructure on a national basis, banks may enter in to multilateral arrangement and create mobile switches or inter-bank payment gateways with expressed permission from the RBI.

The RBI said that its guidelines on ‘Know Your Customer (KYC)’ and ‘Anti Money Laundering (AML)’ as prescribed by the RBI from time to time would be applicable to customers opting for mobile-based banking service. The RBI said that the services should be restricted to only to bank accounts and credit card accounts in India which are KYC and AML compliant and only Indian rupee-based services should be provided.


 Banks should offer mobile-based banking service only to their own customers and banks should have a system of registration before commencing mobile-based payment service to a customer. Prior registration of the customers would be necessary irrespective of the type of service requested.

For the standard level service, one time registration should be done through a signed document.

The Big Trouble In Small Loans – Time

 Interesting Article – Must Read,  Click here to read the article in TIME