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RBI: Policy framework necessary for MFIs entry into non-credit financial services
Hyderabad: The Reserve Bank of India Governor, Dr Y.V. Reddy, has said that a clear policy framework is necessary for MFIs operations in financial services, in addition to credit.

Addressing a conference on micro-finance here on Saturday, organised by the Centre for Analytical Finance of the Indian School of Business the RBI Governor stressed on the need to address several issues pertaining to the regulation and development of MFIs. He said it was possible to allow MFIs to deliver non-credit financial services such as insurance and mutual funds, but as a pre-condition, a clear framework was required for the approach of different regulators to MFIs' non-bank financial services.

According to him, the approach of RBI thus far has been to focus on the informality of micro-finance and developmental aspects.

It could be appropriate for the RBI to evolve regulatory dispensation to enable enhanced credit flow from banks through MFIs. He felt that the micro-finance movement across the country, involving common people, has benefited immensely through informality and flexibility.

On the suggestion to bring the micro-finance entities under a system of regulation through a separate legislation, Dr Reddy said that the MFIs' organisation, structure and methods of working should be simple and any regulation should be inconsistent with the core-spirit of the movement.

He said that the apex bank had now decided to revisit the whole issue comprehensively after observing a new shift towards micro-finance from micro-credit.

Accordingly, the apex bank has arranged consultations with several representatives of micro-finance institutions in select centres. A technical paper on policies relating to the development, regulation and supervision of micro-finance services was prepared on the basis of consultations. These recommendations are now being considered in consultation with the Government.
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SIDBI to set up credit rating agency exclusively for SMEs
Bangalore: The Small Industries Development Bank of India (SIDBI) is setting up a credit rating agency exclusively for small and medium enterprises. According to N. Balasubramaniam, chairman and managing director, SIDBI, the credit rating agency would be set up jointly with Dun & Bradstreet.

Speaking to reporters here after signing of a Memorandum of Understanding, to enhance credit flow to SMEs, with Corporation Bank, the chairman said that both companies and banks, including foreign ones, would provide equity for the venture.

SIDBI, he said, has signed similar MoUs with the Oriental Bank of Commerce, United Commercial Bank, Bank of India, and Bank of Baroda and would be signing similar agreements with Indian Bank and Punjab National Bank.
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RBI announces interest rates on floating rate bonds
Mumbai: The Reserve Bank of India has announced the rate of interest on Floating Rate Bonds, 2011 and 2015 (II).

The rate on FRB 2011 applicable from August 8, 2005 to August 7, 2006 would be 5.87 per cent per annum. The rate on FRB 2015 (II) applicable from August 10, 2005 to August 9, 2006 would be 6.24 per cent per annum.

The variable base rate on the FRB 2011 and FRB 2015 is the average of the implicit yields of the last three 364-day treasury bill auctions held up to the start of the annual coupon period, the RBI said.
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Basel II norms: Execution cost to trigger M&A moves in the Indian banking system
New Delhi: A survey by the Federation of Indian Chambers of Commerce and Industry has said that the capital requirements of smaller banks, in order to meet the Basel II norms, is more than likely to trigger a consolidation in the Indian banking system with increased mergers and acquisition.

The study focused on the issue of capital requirement, impact on credit flow, and the industry's expectations from the regulators.

The survey on the state of preparedness of public sector, private and foreign commercial banks on the implementation of Basel II norms reveals that 87 per cent of the respondent banks stated that while increased capital requirements imposed by the Basel accord will not make their banks more risk averse towards credit dispensation, there is every likelihood of small and medium enterprises and the farm and rural sectors being left out of the loop.

The survey further finds that 87 per cent of the respondents were confident of meeting the March 31, 2007 deadline.

Eighty per cent of banks faced data collection as the biggest challenge in their preparations to meet the deadline. They also expressed that they require an ongoing support from the regulatory authorities in this regard.

Seventy seven per cent of respondent banks are still in the process of putting in place a robust Management Information System in order to comply with the requirements of Pillar III - Market Discipline of the new norms.

The survey also finds that 54 per cent of the banks are technologically equipped to face the challenges being posed by the Basel II norms.

These banks have already put in place the core-banking solutions.
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LIC aims at 50 per cent business growth for the fiscal
New Delhi: The Life Insurance Corporation has stepped up efforts to attain a 50 per cent growth in business this fiscal. LIC officials also say that they perceive no threat in the entry of additional players like Anil Ambani's Reliance Capital and PNB Principal into the life insurance business.

Last week, Anil Ambani's group had announced the decision to take over AMP Sanmar while Punjab National Bank has obtained RBIs nod for foraying into the life insurance business. Other players like Bank of Baroda and IDBI are also known to be keen on entering the life insurance space, an area where LIC had a monopoly till 2000.

LIC officials have said that they have recently reversed the trend of falling growth in premium income and are expecting a 50 per cent growth in premium from new businesses at over Rs18,000 crore for 2005-06. According to the officials LICs market share in new premium income is about 75 per cent but in terms of number of policies sold, it is still over 90 per cent.

In terms of total premium, LIC has targeted the magical Rs1,00,000 crore mark this fiscal, a growth of 30 per cent over last fiscal's Rs75,000 crore, officials said.
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