RBI raises alarm over corporate loans AGENCIES

The Reserve Bank of India (RBI) today said Indian companies may find it difficult to repay loans as rising input cost is putting pressure on their profit margins.

"The outlook of the firms shows signs of weakness which can be attributed to rise in input prices, interest rates, slackening demand and some infrastructural constraints.

Servicing of loans by them, therefore, may come under stress," said the RBI's Financial Stability Report (FSR).

It said the profit margin of the corporate sector has dipped, which indicates its reduced pricing power in the wake of rising raw material and input costs.

"The rising share of interest cost in sales as well as gross profits so far, implies that the impact of monetary tightening on the margins of corporates are now becoming visible," the RBI said.

The RBI has hiked rates 13 times since March, 2010, and industry believes the rising borrowing cost is putting pressure on margins as production is getting impacted.

It said restructured and impaired assets increased in telecom and power sectors. "The fact that incremental credit to these sectors was also high-- higher than the aggregate growth in banking sector credit-- called for careful monitoring of asset quality in these segments," RBI said.

The report further said that the bank's asset quality has come under pressure due to the adverse impact of inflation on growth and various other factors.

It said that higher interest expenses and higher provisioning requirements put some pressure on bank's profitability even as efficiency ratios continued to improve.

"Going forward, earnings may be further stressed due to the impact of high deposit rates, potential slowdown in credit growth and deterioration in asset quality," it said.

Further, India's external sector faces risks due to decreasing growth in world trade volumes and weakening global demand.

"Going forward, exports may moderate further if the slowdown in advanced economies persists," RBI said.

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Ensure customer identification even while using 'Aadhaar': RBI

The RBI today directed urban cooperative banks (UCBs) to ensure customer identification proof while opening accounts on the basis of details provided by the unique national identity number 'Aadhaar'.

"... it is advised that while opening accounts based on Aadhaar also, banks must satisfy themselves about the current address of the customer by obtaining required proof of the same as per extant instructions," the Reserve Bank said in a circular to UCBs.

RBI had in September directed banks to accept the Aadhaar card, issued by the Unique Identification Authority of India (UIDAI), letter as a valid document for opening bank accounts. Although the Aadhaar cards contains details like name and address, the banks will be required to satisfy themselves about the current address of the customer under the KYC norms, it had said.

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RBI bars bank from fresh loans, investments

The RBI has barred Sabarkantha-based Khedbrahma Nagarik Sahakari Bank from undertaking any major activities like granting fresh loans and making new investments till its financial position improves.

"RBI has issued certain directions to the Khedbrahma Nagarik Sahakari Bank Ltd, Khedbrahma, Sabarkantha (Gujarat), whereby as from the close of business as on October 31, 2011, the aforesaid bank shall not, without prior approval in writing from the RBI, grant or renew any loans and advances, make any investment...," the central bank said in a statement.

In addition, the bank has been directed not to incur any liability toward borrowing and lending of funds or accept fresh deposits, other than disbursement of payments in discharge of its existing liabilities and obligations.

The Reserve Bank has also barred it from entering into any arrangement to seal or transfer any of its properties or assets.

The central bank, however, did not give any details on action being contemplated with respect to Khedbramha Nagarik Sahakari Bank.

"The bank will continue to undertake banking business with the restrictions till its financial position improves," the RBI added.

In a separate statement, the RBI said that it has imposed a penalty of Rs 5 lakh on Ahmedabad-based Shreenath Cooperative Bank for violation of various banking norms.

"RBI has imposed a monetary penalty of Rs 5 lakh on Shreenath Cooperative Bank, Ahmedabad... for violation of RBI instructions on Know-Your-Customer norms and Anti-Money Laundering guidelines," it said.

The RBI had earlier issued a show cause notice to the bank, in response to which Shreenath Cooperative Bank had submitted a written reply.

"After considering the bank's reply in the matter and submission made during the personal hearing, the RBI came to the conclusion that the violation was substantiated and warranted imposition of the penalty," the statement said.

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RBI planning to change design of currency notes

The Reserve Bank is considering to make changes in the design of currency notes, the central bank informed in reply to an RTI query.

To an RTI query by the Bharatiya Banking Consumers Forum (BBCF) whether the government/RBI was going to change the design of the currency notes, the RBI replied that it was under active consideration.
The Forum said the RBI effects changes in the design of currency notes periodically and it sought a reply to find out the status of change in design this time.
It said that the Forum raised this issue against the background of many instances of counterfeiting of notes.

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