MONETARY POLICY - 2013-14

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Feb 23, 2014 (3 years and 7 months ago)

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MONETARY POLICY
-

2013
-
14


SECOND QUARTER REVIEW


Dr. Raghuram Rajan, the Reserve Bank Governor has announced the second

quarter review which
can be summed up as pragmatic, modest and in the right

direction. The policy attempts a judicious
balance across
multiple objectives by

taking several steps to tackle inflation and ensuring economic
growth.

The reduction in Marginal Standing Facility (MSF) rate by 25 basis points

coupled with
enlarged liquidity provided through term repo window will ensure a

signific
ant decline in cost of
borrowings for the banks.

The policy stance and measures in this review are intended to curb
mounting

inflationary pressures and manage inflation expectations in a situation of weak

growth. The
measures announced will help strengthen

the environment for

growth by fostering macroeconomic
and financial stability. The Reserve Bank

will closely monitor inflation risk while being mindful of the
evolving growth

dynamics.


MACRO TARGETS:




Financial Year 2014, GDP growth estimate revised
downward to 5 per cent.



Growth likely to pick up in second half on good show in exports and

agriculture



Wholesale inflation expected to be higher than current levels;



Retail inflation to hover around 9 per cent.



Normalcy will restored in the forex market o
nly when OMCs fully return to

the market for their
demand
.


MONETARY MEASURES:

On the basis of an assessment of the current and evolving macroeconomic

situation, following
monetary measures have been announced:



REPO RATE: The policy Repo rate under the liq
uidity adjustment facility

(LAF) has been
increased by 25 basis points from 7.50 per cent to 7.75 per

cent with immediate effect.



REVERSE REPO RATE: The Reverse repo rate determined with a

spread of 100 bps points
below the repo rate, stands at 6.75%.



MARG
INAL STANDING FACILITY (MSF): The MSF rate reduced by

25 basis points from 9.0
per cent to 8.75 per cent with immediate effect.




BANK RATE: The Bank Rate stands reduced to 8.75 per cent with

immediate effect. With
these changes, the MSF rate and the Bank R
ate are

recalibrated to 100 basis points above the
repo rate.



CASH RESERVE RATIO: The Cash Reserve Ratio (CRR) of scheduled

banks has been
retained at 4% of their net demand & time liabilities (NDTL).



TERM REPOS: The liquidity provided through term repos o
f 7
-
day and 14
-
day tenor has been
increased from 0.25% of net demand and time liabilities

(NDTL) of the banking system to 0.5%
with immediate effect.


MONETARY POLICY STANCE:

a) As steps to contain the CAD started taking effect in an improving external

environment, volatility in
the foreign exchange market ebbed and it became

possible to unwind the exceptional liquidity
tightening measures. Keeping in view

the need to infuse liquidity into the system to normalise liquidity
conditions, term

repos will now

be conducted for a total notified amount equivalent to 0.5% of NDTL

of the banking system. In addition, the MSF rate will be reduced by 25 basis points.

b) With the more recent upturn of inflation, and with inflation expectations

remaining elevated
antici
pating the pass
-
through of exchange rate depreciation

and ongoing adjustment in administered
fuel prices, it is important to break the

spiral of rising price pressures in order to curb the erosion of
financial saving and

strengthen the foundations of
growth. It is in this context that the LAF repo rate
has

been increased by 25 basis points.

c) With the reduction of the MSF rate and the increase in the repo rate in this

review, the process of
re
-
aligning the interest rate corridor to normal monetary

pol
icy operations is now complete.


ASSESSMENT:

The policy decisions are based on a detailed assessment of the

global and domestic
macroeconomic situation. The outlook for global growth has

improved modestly and the prospect of
delay in the taper of the Feder
al Reserve’s

bond purchases has brought calm to financial markets.



Domestically, while industrial activity has weakened, strengthening export

growth, signs of
revival in some services along with the expected pick
-
up in

agriculture could increase the real
G
DP growth from 4.4 per cent in Q1 to a

central estimate of 5% for the year as a whole. The
revival of large stalled

projects and the pipeline cleared by the Cabinet Committee on
Investment may

stimulate investment and overall activity towards the close of
the year.



On inflation, both wholesale and consumer price inflation are likely to remain

elevated in the
months ahead, warranting an appropriate policy response.



The RBI have calibrated liquidity management to the system’s requirements.

The measures
provid
e liquidity through overnight LAF repos, through export

credit refinance and through 7
-
day and 14
-
day term repos. This is coupled with

greater flexibility in managing reserve
requirements.



On the external sector, a perceptible narrowing of the trade defici
t coupled with

policy
interventions have brought some calm to the foreign exchange market,

but normalcy will be
restored only when the demand for dollars from public

sector oil marketing companies is fully
returned to the market.


DEVELOPMENTAL AND REGULAT
ORY POLICIES:

The RBIs developmental

measures over the
next few quarters are based on five pillars. These are:



Clarifying and strengthening the monetary policy framework.



Strengthening banking structure through new entry, branch expansion, encouraging

new
varieties of banks, and moving foreign banks into better regulated organizational

forms.



Broadening and deepening financial markets and increasing their liquidity and

resilience so
that they can help absorb risks entailed in financing India’s growth.



Expan
ding access to finance to small and medium enterprises, the unorganized

sector, the
poor, remote and underserved areas of country through measures to

foster financial inclusion.



Improving the system’s ability to deal with corporate distress and financial i
nstitution

distress
by strengthening real and financial restructuring as well as debt recovery.


COMMENTS:

The policy announcements has been on expected lines. By reducing

the MSF by .25%,
the cost of funds is likely to dip immediately. One measure that

br
ings unexpected relief to the bank is
the ability to borrow more from the new term

repo window. Banks have seen a sharp spike in their
borrowing costs in recent

months, with MSF rates rising and the repo borrowings capped at Rs.
40,000 crore.


Banks
borrowed as much as 60% of their requirements from the more expensive

MSF window. But in
the beginning of Oct. RBI opened a new window for banks to

source funds the 7
-

and 14 day term
repos, this has been a marginally cheaper

option with cut
-
off rates at 8
.8%. By borrowing close to Rs.
20,000 crore from this

window. Banks were able to minimize recourse of MSF and reduce their
average

costs by 10
-
15 basis points.


By doubling the sums that banks can source from term repos to Rs. 40,000 crore,

the RBI has
han
ded banks a savings of another 10
-
15 basis points on costs.



Overall, cost of funds has come down by 80 bps from August. This will indeed lead

to incremental
savings for banks. The policy significance lies in the announcement

of the five
-
points developmen
t
plan that will inform future policies of the RBI

covering critical areas of monetary policy framework,
banking structure, financial

markets, financial inclusion and financial distress
.


GLOBAL OUTLOOK:



The outlook for global growth has improved modestly,

with

fiscal concerns abating in the US
and lead indicators of activity

firming up in the Euro area and the UK.



In emerging and developing economies, the prospect of delay

in the taper of the Federal
Reserve’s bond purchases has

brought calm to financial m
arkets, and capital flows have

resumed. Nevertheless, headwinds to growth from domestic

constraints continue to pose
downside risks, and

vulnerabilities to sudden shifts in the external environment

remain.


OUTLOOK FOR INDIA:


INDUSTRIAL GROWTH:



In India,
industrial activity has weakened, with a contraction

in consumer durables and tepid
growth in capital goods

reflecting the ongoing downturn in both consumption and

investment
demand.



Strengthening export growth and signs of revival in some

services, along
with the expected
pick
-
up in agriculture,

could support an increase in growth in the second half of

2013
-
14
relative to the first half, raising real GDP growth

from 4.4 per cent in Q1 to a central estimate of
5.0 per cent

for the year as a whole.



The reviv
al of large stalled projects and the pipeline cleared

by the Cabinet Committee on
Investment may stimulate

investment and overall activity towards the close of the year.



With many large entities holding back on payments, liquidity

pressures are building up

on small
and medium enterprises

leading to financial distress. Remedies partly lie in the

speed
-
up of
government and public sector payments, and

on measures to channel credit to small and
medium

enterprises.




EXTERNAL SECTORS:



As regards the external sect
or, the improvement in export

performance over the last two
months, coupled with the

contraction in non
-
oil import demand, has enabled a

perceptible
narrowing of the trade deficit with favourable

implications for the current account deficit going
forward.



Policy interventions have bridged the external financing gap.



These factors have brought some calm to the foreign

exchange market. However, normalcy
will be restored to the

exchange market only when the demand for dollars from

public sector oil
marketing c
ompanies is fully returned to the

market.


INFLATION:




Inflation measured by the wholesale price index (WPI) rose

in Sept for the fourth month in
succession. The pass
-
through

of rupee depreciation into prices of manufactured products

is
acting, along with
elevated food and fuel inflation, to offset

possible dis
-
inflationary effects of
low growth.



While food price pressures may ease with the arrival of

the kharif harvest and the usual
seasonal moderation,

overall WPI inflation is expected to remain higher th
an

current levels
through most of the remaining part of the year,

warranting an appropriate policy response.




Retail inflation measured by the consumer price index (CPI)

has also risen sharply across food
and non
-
food

constituents, including services, keep
ing inflation

expectations high.
Notwithstanding the expected edging

down of food inflation, retail inflation is likely to remain

around or even above 9% in the months ahead, absent

policy action
.


LIQUIDITY MANAGEMENT:



Liquidity management has been
calibrated to the system’s

requirements arising from the sharp
pick
-
up in credit relative

to deposit growth and festival
-
related demand for currency.



Liquidity up to 0.5 per cent of bank
-
wise NDTL is available

through overnight LAF repos.
Furthermore, expo
rt credit

refinances of up to 50% of eligible export credit outstanding

amounts to approximately 0.5% of system
-
level NDTL.



To provide market participants with additional access to

primary liquidity, as well as greater
flexibility in managing

reserve requi
rements, term repos of 7
-
day and 14
-
day tenor

have been
introduced to provide liquidity equivalent to 0.25

per cent of NDTL.



As a result of the measures taken by the RBI to ease

liquidity, the average drawal on the MSF
has declined

significantly from about

Rs.1.4 trillion in mid
-
Sept to Rs.0.4

trillion by mid
-
October, and money market rates have fallen

by 125 basis points. Going forward, however, the
more

durable strategy for mitigating mismatches between the

supply of, and demand for, funds
is for banks to

step up

efforts to mobilise deposits.



DEVELOPMENTAL AND REGULATORY POLICIES
:


The Reserve Bank’s developmental measures over the next

few quarters will be built on five pillars.
These are:

a) Clarifying and strengthening the monetary policy

framework.

b) Strengthening banking structure through new entry,

branch expansion, encouraging new varieties
of banks, and

moving foreign banks into better regulated organisational

forms.

c) Broadening and deepening financial markets and

increasing their liquidity an
d resilience so that
they can help

absorb the risks entailed in financing India’s growth.

d) Expanding access to finance to small and medium

enterprises, the unorganised sector, the poor,
and remote

and underserved areas of the country through measures to

foster financial inclusion.

e) Improving the system’s ability to deal with corporate

distress and financial institution distress by

strengthening real and financial restructuring as well as debt

recovery.


BASEL III
-

COUNTERCYCLICAL CAPITAL BUFFER:

As par
t of the Basel III capital framework, an internal Working

Group (Chairman: Shri B. Mahapatra)
was constituted to

operationalise the countercyclical capital buffer framework in

India. RBI proposes
to place the draft report of the group on the

Reserve Bank’s

website by end
-
November 2013 for
inviting

comments/suggestions from various stakeholders.

DOMESTIC SYSTEMICALLY IMPORTANT BANKS:

The Basel Committee on Banking Supervision provided a

framework for dealing with domestic
systemically important

banks
(D
-
SIBs) in Oct 2012. The D
-
SIBs framework is principle

based

and
provides broad guidance to national authorities on

assessment of the systemic importance of banks
and additional

capital requirements of D
-
SIBs. RBI proposes place a draft of the

framework f
or D
-
SIBs on the RBIs website by end
-
Nov. 2013.

STRESS TESTING:

The Reserve Bank had issued guidelines on stress testing which

required banks to have a sound
stress testing policy which will

determine liquidity risk, interest rate risk, credit risk and for
eign

exchange risk under stressed scenarios. Drawing from the BCBS

principles on the subject and
subsequent global developments,

RBI proposes to issue updated guidelines on stress testing by

end
-
Nov 2013
.

UNHEDGED FOREIGN CURRENCY EXPOSURES
: Unhedged

forei
gn currency exposures of
corporates are a cause for

concern as they pose a risk to individual corporates as also to

the entire
financial system. Based on feedback received from

industry participants, RBI proposes to issue final
guidelines on

unhedged forei
gn currency exposures by end
-
December 2013.


INTEREST ON RUPEE SAVINGS/TERM DEPOSITS:
As per

extant instructions, banks are required
to pay interest on savings

deposits and term deposits at quarterly or longer intervals. As all

commercial banks are now on
core banking platforms, RBI has

decided to give banks option to pay
interest on savings deposits

and term deposits at intervals shorter than quarterly intervals.


LICENSING OF NEW BANKS:

In terms of the guidelines for

licensing of new banks in the private
sector, applications will be

screened by the RBI to ensure prima facie eligibility, and

thereafter, the
applications will be referred to a High Level

Advisory Committee. The HLAC will devise its own
procedures

for screening the applications and submit its
recommendations to

the Reserve Bank for
consideration. The decision to issue an in

principle

approval for setting up of a bank will be taken by
the

RBI whose decision in this regard will be final. The HLAC has

been set up under the
Chairmanship of Dr. Bima
l Jalan, former

Governor of the RBI.


FOREIGN BANKS IN INDIA:
The RBI released a Discussion

Paper on the presence of foreign banks
in India on Jan 21, 2011

factoring in the lessons from the crisis which favoured a

subsidiary mode of
presence from a financi
al stability

perspective. Taking into account the feedback received from

stakeholders, a scheme of subsidiarisation of foreign banks in

India, guided by the two cardinal
principles of reciprocity and

single mode of presence, is being finalised. The Wholly
Owned

Subsidiaries (WOSs) would be given near
-
national treatment,

including in the opening of branches.

While it will not be mandatory for existing foreign banks (
i.e.
,

banks set up before August 2010) to
convert into WOSs, they

will be incentivised

to convert into WOSs by the attractiveness of

the near
-
national treatment. The initial minimum paid
-
up voting

equity capital or net worth for a WOS shall be
Rs.5 billion. RBI

proposes to issue the Scheme by mid
-
Nov 2013.


RETAIL INFLATION INDEXED SECURITI
ES:

The Union

Budget, 2013
-
14 proposed to introduce
instruments that will

protect savings from inflation and provide an alternative to gold

as an investment
avenue for individuals. Inflation indexed

securities for retail investors of 10
-
year tenor would be

linked
to

the new (combined) consumer price index. Eligible investors

would consist of individuals, hindu
undivided families (HUFs),

trusts and charitable institutions. The rate of interest on these

securities
would comprise of a fixed rate plus inflatio
n. Interest

would be compounded half
-
yearly and paid
cumulatively at

redemption. These securities will be distributed through banks to

reach out to the
masses. Accordingly, RBI proposes to launch

Inflation Indexed National Saving Securities (IINSSs)
for re
tail

investors in Nov/Dec 2013 in consultation with the Govt.



INTEREST RATE FUTURES CONTRACTS:

In order to develop

the money and government
securities markets, RBI has decided

to introduce cash settled 10
-
year Interest Rate Futures (IRF)

contracts. Produ
ct design and operational modalities are being

discussed with all stakeholders,
including market bodies and

stock exchanges, and after taking into account their feedback,

the RBI,
in consultation with the SEBI, would issue guidelines by

mid
-
Nov 2013 and
the product is expected to
be launched by the

exchanges by end
-
Dec 2013.

CREDIT ENHANCEMENTS IN CORPORATE BONDS:

The

corporate bond market in India currently
lacks sufficient depth

and liquidity. As a result, corporates have significant dependence

on bank
financing. Therefore, RBI has proposed to allow banks

to offer partial credit enhancements to
corporate bonds by way of

providing credit facilities and liquidity facilities to the corporates,

and not
by way of guarantee.

MARGINAL STANDING FACILITY:

With a
view to facilitating

settlement of electronic funds transfers
as well as to reduce

unnecessary volatility in reserve maintenance, RBI has decided

to revise the
timing of MSF operations. With effect from Nov 5,

2013 the settlement will be conducted between
7.00 pm and

7.30 pm instead of between 4.45 pm and 5.15 pm.

REPO FACILITY FOR MUTUAL FUNDS:

On July 17, 2013 the

RBI had opened a special repo
window for mutual funds with a

view to enabling banks to meet the liquidity requirements of

mutual
funds. With th
e normalisation of exceptional measures

and taking into consideration the improvement
in liquidity

conditions since then, RBI has decided to close this window with

immediate effect.

SERVICES / FACILITIES FOR EXPORTERS:

Some

recommendations of the Technical

Committee
on Services /

Facilities to Exporters (Chairman: Shri G. Padmanabhan) such

as an increase in the
limit of e
-
commerce transactions and

extending the time period for submission of documents under

project exports, simplification of reporting requir
ement of forward

contracts booked over
-
the
-
counter
(OTC) and extending the limit

for exporters to cancel and rebook the forward contracts have

been
accepted and necessary guidelines have been issued.

Other recommendations are being analysed in coordination

with

government agencies/other
stakeholders for implementation.


GENERAL CREDIT CARD SCHEME:

The coverage of the

General Credit Card (GCC) Scheme is
being revised to enhance

credit linkage of individuals to all non
-
farm entrepreneurial

activities within
t
he overall priority sector. It is expected that the

revised scheme will give a fillip to flow of credit to
small

businesses and low income households.

BANKING SERVICES IN UNBANKED VILLAGES:

State Level

Bankers’ Committees are mandated
to prepare a roadmap

covering all unbanked villages of population less than 2000 and

to notionally
allot these villages to banks for providing banking

services. Accordingly, about 4,90,000 unbanked
villages have

been identified and allotted to various banks to be covered by

Ma
rch 2016.

SHORT
-
TERM CO
-
OPERATIVE CREDIT STRUCTURE:

In Jan

2013, the RBI constituted an Expert
Committee (Chairman: Dr.

Prakash Bakshi) on the short
-
term co
-
operative credit structure.

The
recommendations taken up for implementation include,

improvement of

governance and
management of rural cooperatives,

moving to Core Banking Solutions (CBSs) and

setting up of a
Working Group to examine human resources

requirement of rural co
-
operative banks following the
transition of

state co
-
operative banks and district

central co
-
operative banks

to CBS.

CHARGES LEVIED FOR SENDING SMS ALERTS:

With a view

to ensuring reasonableness and
equity in the charges levied by

banks for sending SMS alerts to customers, banks are advised

to
leverage the technology available with the
m and the telecom

service providers to ensure that such
charges are levied on all

customers on actual usage basis.


GIRO BASED PAYMENT SYSTEM:

Following the report of the

Committee for Implementation of
GIRO Based Payment System

highlighting the need for a
n electronic bill payment system based

on a
GIRO model for payment of dues of essential services,

insurance premia, utility payments, taxes,
university fees,

examination fees and the like, a GIRO Advisory Group

(Chairman: Prof. Umesh
Bellur) has been
constituted with

representation from banks and other stakeholders. The Group is

expected to submit its report by end
-
December 2013
.

ACCESS TO MOBILE BANKING:

A Technical Committee (Chairman: Shri

B. Sambamurthy) has
been constituted to examine various opti
ons /

alternatives, including the feasibility of encrypted SMS
-
based funds

transfer using an application which can run on any type of handset, for

expansion of
mobile banking in the country. The Committee is expected to

submit its report by end
-
December
20
13.

SECURITY AND RISK MITIGATION MEASURES:

The Reserve Bank has

advised banks to put in
place by end
-
June 2013 security features in order

to secure card transactions and the electronic
banking infrastructure. A

review of banks’ preparedness in this regard
indicates that technical

glitches
are hampering the transition to desired environment. Accordingly,

a one
-
time extension has been
granted to stakeholders.

PREPAID PAYMENT INSTRUMENTS:

In order to further
popularize
prepaid payment instruments
(PPIs) and
facilitate remittance of funds by

people not having bank accounts, a pilot is being planned
with select nonbank

PPI issuers to study the technological and operational feasibility of

allowing cash
pay
-
out (remittance) from PPIs issued by non
-
bank entities

u
sing Aadhaar based biometric
authentication. The broad technical,

operational and functional parameters of the pilot are being
finalised in

consultation with participants and the pilot is expected to go live before

end
-
March 2014.

NBFCS
-

RESTRUCTURING GUI
DELINES:

The Reserve Bank’s Working

Group (Chairman: Shri B.
Mahapatra) reviewed prudential guidelines on

restructuring of advances by banks and financial
institutions and relevant

guidelines to banks have been issued. As NBFCs are also part of the

financi
al institutions that lend to the sectors where restructuring benefits

are now available, either as
part of a consortium or otherwise, it has been

decided to review the extant instructions on
restructuring for NBFCs and

issue guidelines in the matter by end
-
Nov 2013.

FSLRC:

RBI has proposed to implement the recommendations of the

FSLRC pertaining to consumer
protection and capacity building. All

instructions relating to consumer services/consumer protection
would be

consolidated and will be placed on the
RBI’s website as a single group of

instructions by
end
-
March 2014 and they will be examined for gaps, if any

further, a Committee will be set up by the
RBI to examine capacity building,

including basic and job specific knowledge requirements and
examine

wh
ether a system of formal certification is warranted for certain job

descriptions within the
Reserve Bank and in the financial entities and

market segments regulated by it. The Reserve Bank
will examine its own

public facing services and institute time
-
boun
d response guidelines where

feasible and not already in place. Such guidelines will be placed on the

Reserve Bank’s website by
January 2014.

CURRENCY MANAGEMENT:
Banks were advised to explore the

possibility of meeting the growing
demand for banknotes and
coins in the

country through Business Correspondents (BCs) and
consider engaging

the services of Cash in Transit (CIT) entities to address last mile

connectivity
issues. Instructions have been issued permitting banks to

include distribution of banknotes an
d coins
in the scope of activities which

may be undertaken by BCs/CITs. Banks have also enhanced their
capacity

to take over the retail function of distribution of notes and coins and

adjudication of mutilated
notes. They have so far identified 805 bank

br
anches for the purpose. Correspondingly, the
distribution level across the

Reserve Bank’s counters has decreased by 61% and 64% for notes and

coins, respectively, and the adjudication of notes by 51%.


COUNTERFEIT BANKNOTES:

In view of t he recommendation
of the

Department
-
related Parliament
Standing Committee (DPSC) to introduce a

scheme of incentives in order to encourage banks to
report counterfeit

notes detected by them, instructions were issued to banks on the

procedure to be
followed and compensation
to banks for detection of

counterfeit notes and penalty for non
-
detection /
reporting thereof
.


SNIPPETS



Bhattacharya has taken over charge as the
first woman

chairperson of State Bank of India.


announced as the next chief of the Indian
Air Force after Air

Chief Marshal NAK Browne retires on Dec. 31, 2013.

Commissioned into the IAF in
Dec. 1974 in the ‘Fighter Stream’,

Air Marshal Raha is curren
tly posted as the IAF vice
-
chief.


has taken the Charge as the Chairman and
Managing Director of

Corporation Bank.

-
SX CHAIRMAN: Former Union Home

Secretary G.K. Pillai has been appointed as
Chairman of
MCXSX.

Further, former acting Chairman of the LIC, Thomas Mathew

T., has been
appointed as the Vice
-
Chairman.


election to the UN Board of Auditors with its
nominee Shashi

Kant Sharma, the Comptroller and Audi
tor General, garnering

the largest number of
votes. Sharma won 124 votes out of the

total 186 cast in the General Assembly's Fifth Committee on

Administrative and Budgetary questions. The closest contender

was from Philippines, which got 62
votes.

AN OF RAILWAY BOARD: Arunendra Kumar

has been appointed as Chairman of Railway
Board.


Zealand author won the Man Booker Prize
2013 for her second

novel entitled ‘The Luminaries’, published by Granta.

R TERESA AWARD 2013: Former Miss Universe

Sushmita Sen conferred with the Mother
Teresa Memorial

International Award by NGO The Harmony Foundation for her

efforts towards
achieving social justice in Mumbai.


agricul
tural scientist M.S. Swaminathan
selected for the Indira

Gandhi Award for National Integration for the year 2012.


India Award for the year 2013.

-
50 WOMEN BUSINESS LEADERS: Four Indians

led by ICICI Ba
nk CEO Chanda Kochhar
have made to Fortune

magazine's global list of top
-
50 women business leaders.

Kochhar has been ranked fourth, followed by National Stock

Exchange chief Chitra Ramkrishna at
17th, Axis Bank's Shikha

Sharma at 32nd and HSBC's Naina Lal
Kidwai at 42nd place

among the
Indians on the international list of most powerful

women in business. The list is topped by Brazilian
energy giant

Petrobras' CEO, Maria Das Gracas Foster.

-
year old Srishti Rana has

made the
country proud by winning the
coveted Miss Asia Pacific

2013 title outclassing 49 other contestants in Korea. Srishti was

being
crowned by the reigning Miss Asia Pacific World 2012

Himangini Singh Yadu from India.

jana, a

pension and life insurance fund scheme for
blue
-
collar Indian

workers in UAE launched.


Haryana to introduce Union National
Vocational Qualitative

Framework (NVQF) Scheme. The scheme has bee
n

implemented by the All
India Technical Education Council and

the National Skill Development Council.


launched the e
-
KYC initiative to facilitate
paperless banking to

Aadhaar card holders at Mumbai. With thi
s step, Axis Bank

became the first
bank to allow customers to open an account

with just their Aadhaar number.


to start an aviation venture with Tata
Sons. The joint venture

called TATA SIA will be
having initial foreign investment of 49

million US
dollars.


released a commemorative postage stamp
on the Golden

Jubilee of Bhakra Dam.


Bangalore topped the list of best
business
destinations in India

as per the study done by Global Initiative for Restructuring

Environment and
Management.


Kohli became fastest century scorer (in 52
balls) of India on 16

October 2013 in One day Int
ernational (ODI) held at Jaipur. He

was the seventh
fastest century scorer in ODI in the world.


the Eradication of Poverty was observed
on 17 October 2013 to

promote people’s awareness of the need to erad
icate poverty

and destitution
worldwide, particularly in developing countries.


ranked at 63rd Position global hunger index
report 2013.

-
ETIHAD DEAL APPROVED BY SEBI: Jet
-
Etihad

deal has been approved by SEBI.
Jet
Airways had proposed to

sale 24 percent stake to Abu Dhabi
-
based Etihad. The Jet
-
Etihad

deal was
announced in April 2013 and because of objections

from regulators the deal was stuck half
-
way.


firm Relian
ce Jio Infocomm has bagged a
unified licence, which

allows a licensee to provide a host of telephony services by

acquiring spectrum
from the market. Reliance Jio migrated to the

new regime from having an internet service licence by
paying Rs

1,673 crore ma
inly to provide voice services.


RBI’s Governor Raghuram Rajan, India
would not run to IMF

(International Monetary Fund) for money for next five years and

maybe even
beyond. According to Rajan, India is facing

some

issues in the financial markets but is away from any
crisis
-
like

situation. India has a debt of 66% of GDP, 90% of which is

denominated in rupees. External
debt was 22% of GDP and

reserves at 15% of GDP.

RBI will

shortly issue Rs. 10 denomination Bank
notes incorporating

"Rs." symbol on the obverse and reverse, without inset letter in

both the
numbering panels, in the Mahatma Gandhi Series
-
2005

bearing the signature of Dr. Raghuram G.
Rajan, Gov. RBI, and

the year of printing '2013' printed on the reverse of the Banknote.


Mahindra Bank (KMB) has announced the
launch of Kotak Multi

Currency World Travel Card. The prepaid card is designed to

offer global
convenience w
ith higher security. The card has multicurrency
-

wallet functionality with the option to
load/reload

multiple currencies on a single card from the 8 predefined

currencies offered by the bank.
Customers can lock exchange

rates before travel thereby to escap
e exchange rate fluctuation.


has been ordered to pay about $2.46
billion in a class action

lawsuit
-

the biggest ever securities fraud class action trial. The

company
fraudulently misled investors about i
ts predatory

lending practices, the quality of its loans and its
financial

accounting from March 23, 2001, through October 11, 2002
.

POLICY GUIDELINES

LAF


REPO AND REVERSE REPO RATES

As announced in the Second Quarter Review of Monetary Policy 2013
-
14, R
BI

has decided to
increase the Repo rate under the Liquidity Adjustment Facility

(LAF) by 25 basis points from 7.50% to
7.75 % with immediate effect.

Consequent to the change in the Repo rate, the Reverse Repo rate
under the

LAF will stand automatically
adjusted to 6.75 per cent with immediate effect.

MARGINAL STANDING FACILITY RATES


As announced in the Second Quarter Review of Monetary Policy 2013
-
14, RBI

has decided to reduce
the Marginal Standing Facility (MSF) rate by 25 basis

points from 9.00 percen
t to 8.75 per cent with
immediate effect.

Consequent to this change, Marginal Standing Facility (MSF) rate is

recalibrated to 100 basis points
above the policy repo rate under the Liquidity

Adjustment Facility (LAF).

MSF
-
REVISION IN TIMINGS

The Reserve Ba
nk of India has decided to revise the timings of Marginal

Standing Facility (MSF). The
MSF will now be available between 7.00 pm and

7.30 pm instead of the existing timings of 4.45 pm to
5.15 pm. The change in

timings will take effect from November 5, 2013
.

BANK RATE

Since the MSF has been reduced, the Bank Rate stands adjusted by 25 basis

points from 9% to
8.75% with effect from October 29, 2013. Further, all penal

interest rates on shortfall in reserve
requirements, which are specifically linked

to the Ba
nk Rate, also stand revised.

STANDING LIQUIDITY FACILITIES

In the Second Quarter Review of Monetary Policy, the Repo rate under the

Liquidity Adjustment
Facility (LAF) has been increased by 25 basis points from

7.50 per cent to 7.75 per cent. Accordingly,
the Standing Liquidity Facilities

provided to banks under Export Credit Refinance (ECR) and to
Primary

Dealers (PDs) (collateralised liquidity support) from the RBI would be available

at the revised
repo rate, i.e., at 7.75 per cent with effect from Octobe
r 29, 2013.

TERM REPO UNDER LAF

As announced in the Second Quarter Review of Monetary Policy 2013
-
14, RBI

has decided to
increase the quantum of liquidity to be provided through term

repos of 7
-
day and 14
-
day tenor from
the existing 0.25 per cent to 0.50 p
er

cent of net demand and time liabilities (NDTL) of the banking
system with

immediate effect.

FDI


DEFINITION OF ‘GROUP COMPANY’

RBI has reviewed the extant FDI policy and has decided to incorporate the

definition for ‘group
company’ as under;

Group Comp
any’ means two or more enterprises which, directly or indirectly,

are in position to:

a) Exercise twenty
-
six per cent, or more of voting rights in other enterprise; or

b) Appoint more than fifty per cent, of members of board of directors in the

other
enterprise.

SMERA RATINGS LIMITED (SMERA)

As per the extant guidelines, M/s. SME Rating Agency of India Limited has

been accredited for the
purpose of risk weighting the banks' claims for capital

adequacy purposes along with other credit
rating agencies (C
RAs). The

agency has now changed its name to SMERA Ratings Limited. SEBI
has

issued the necessary Certificate of Registration. However, there is no change

in the rating
symbols of the CRA subsequent to change in name.

SETTLEMENT OF CLAIMS IN RESPECT OF MIS
SING

PERSONS IN UTTARAKHAND DISASTER

In the aftermath of Uttarakhand Natural Disaster during June 2013, the Govt.

has devised a
procedure for Registration of Death of missing persons and

issue of ‘Death Certificate’ in Natural
Calamities affected areas in
Uttarakhand.

Further, banks are advised to settle the claims in respect of missing persons,

covered by the circular,
without insisting on production of any documentation

other than:

a) The ‘Death Certificate’ issued by the Designated Officer under MHA Circ
ular

b) Letter of indemnity
.

KNOWLEDGE PLUS

BIOMETRICS

The term "Biometrics" is derived from the Greek words bio (life) and metric ( to measure).

A biometric system is essentially a pattern recognition system which makes a personal

identification

by determining the authenticity of a specific physiological or behavioral

characteristic of the user. Biometric characteristics can be divided in two main classes:


fingerprin
t, face recognition, DNA, hand and palm geometry, iris recognition.


rhythm, gait, and voice. Some researchers have coined the term Behavio metrics for this

class of bio
metrics. Voice recognition is mainly based on the study of the way a person

speaks, and therefore is commonly classified as behavioral.

A Biometric system can operate in the following two modes:



A one to one comparison of a captured biomet
ric data with a stored

template to verify individual‘s identity. It can be in conjunction with a smart card, username or

ID number.



A one to many comparisons of the captured biometric data against a

biometric database in attempt to ident
ify an unknown individual.

TYPES OF BIOMETRICS

BERTILLONAGE: It is the first type of biometrics. It was created by an anthropologist named

Alphonse Bertillon in 1890. He based his system on the claim that measurement of adult bones

does

not change after the age of 20. The method consisted of identifying people by taking various

body measurements like a person’s height, arm length, length and breadth of the head, the length

of different fingers, etc. using calipers. However, the methodolo
gy was unreliable as non
-
unique

measurements allowed multiple people to have same results.

FINGERPRINT RECOGNITION: Image of a person's fingertips is taken and characteristics like

whorls and arches, with the patterns of ridges, furrows, and minutiae recor
ded.

FACE RECOGNITION: This technique records face images through a digital video camera and

analyses facial characteristics like the distance between eyes, nose, mouth, and jaw edges.

These dimensions broken into facial planes and retained in a database a
re used for comparison.

FACIAL THERMOGRAMS: This uses infrared heat scans to identify facial characteristics. This

non
-
intrusive technique is light
-
independent and not vulnerable to disguises. Even plastic surgery,

cannot hinder the technique. To prevent a

fake face or mold from faking out the system, many

systems now require the user to smile, blink, or move in a way that is human before verifying.

This technique is gaining support as a potential tool for averting terrorism, law enforcement areas

and also
in networks and automated bank tellers.

VOICE RECOGNITION: This combines physiological and behavioral factors to produce speech

patterns that can be captured by speech processing technology. Inherent properties of the

speaker like fundamental frequency, na
sal tone, cadence and inflection are used for speech

authentication.

IRIS RECOGNITION: This analyzes features like rings, furrows, and freckles existing in the

coloured tissue surrounding the pupil. The scans use a regular video camera and works through

gl
asses and contact lenses.

HAND GEOMETRY: This involves the measurement and analysis of the human hand. Features

like length and width of the fingers, aspect ratio of the palm or fingers, width of the palm,

thickness of the palm etc., are computed.

HAND VAS
CULAR PATTERN IDENTIFICATION: This uses a non
-
harmful near infrared light to

produce an image of one's vein pattern in their face, wrist, or hand, as veins are relatively stable

through

one's life. It is a non
-
invasive, computerized comparison of shape and size of

subcutaneous blood vessel structures in back of a hand. The vein "tree" pattern is sufficiently

idiosyncratic to function as a personal code that is extremely difficult to dupl
icate or discover.

RETINA RECOGNITION: This technology uses infrared scanning and compares images of the

blood vessels in the back of the eye, the choroidal vasculature. The eye’s inherent isolation and

protection from the external environment as an intern
al organ of the body is a benefit. Retina

scan is used in high
-
end security applications like military installations and power plants.

SIGNATURE RECOGNITION: This is an instance of writer recognition, which has been accepted

as irrefutable evidence in cour
ts of law. The way a person signs his name is known to be a

characteristic of that individual. Approach to signature verification is based on features like

number of interior contours and number of vertical slope components. Signatures are behavioral

biome
tric that can change with time, influenced by physical and emotional conditions of the

signatories