Saturday, January 30, 2016

RBI finds flaws in banks’ sale of third-party products

ncognito visits by RBI officials at branches of private and public sector banks have revealed ‘failings’ in the marketing/cross-selling of third party products such as insurance and mutual funds.

This has prompted banks to review the system of third-party product sales and apply better care and due diligence while dealing with them, sources told BusinessLine .

Terms not explained

For instance, the RBI inspectors could not verify whether detailed terms and conditions of the insurance policy and charges were properly explained to customers at many of the bank branches.

At a few others, the premium for the policy was found to have been debited to customer accounts without the written mandate of the customer.

Also, a majority of the branches did not inform customers about the availability of similar products from other service providers, the inspections revealed.

In a few banks, cross-selling of the third-party product was made mandatory as part of the terms and conditions of their own product.

Many branches did not give customers the option to buy products from other service providers. They insisted on insurance cover from companies with whom the banks have a tie-up.

No complaints record

A few branches entertained complaints from customers with respect to forced selling/mis-selling of third-party products but most do not have the appropriate mechanism to capture such complaints.

Govt's cash balance with RBI high, puts stress on liquidity

The government's cash balance with the Reserve Bank of India (RBI) was Rs 1.4 lakh crore on January 28, an amount unusually high for this time of the financial year and is causing acute liquidity pressure in the banking system.

The cash pile-up indicates the Centre may be reluctant to spend in order to meet the fiscal deficit target of 3.9 per cent of the gross domestic product (GDP) for 2015-16.

With government action plus RBI intervention in the foreign exchange (forex) market, liquidity shortage in the banking system has assumed mammoth proportion - prompting RBI to offer assistance of Rs 1.6 lakh crore through its overnight and dated liquidity windows so that call money rates remain near the repo rate of 6.75 per cent.

On a technical basis though, the liquidity shortage is 1.73 per cent of the net demand and time liabilities of the banking system, higher than RBI's own target of one per cent. However, the overarching aim of the regulator now is to keep call money rates anchored to the repo rate.

Government seen conserving money to meet fiscal targets
RBI intervening in foreign exchange market, sucking out rupee resources
Foreign investors selling bonds, adding to liquidity crunch
Banks have obligation to meet enhanced Liquidity Coverage Ratio
Rising credit demand from industry and corporate in final quarter

Sebi tightens agri futures norms

The Securities and Exchange Board of India (Sebi) on Friday imposed further restrictions on agri-commodities futures. Two weeks ago, the commodity market regulator had restricted open positions in near-month contracts. Now, more restrictions on position limits have been announced with effect from March 1. The latest move follows suspension of castor-seed futures by the National Commodity and Derivatives Exchange on Wednesday.
Sebi put new restrictions  in agri commodities: disallows netting of open positions
Client-level position limit (no client should have more than five per cent of the open market position) is now discontinued. The near-month position limit for a particular commodity would now be restricted to one-fourth of the overall client-level position limit in that commodity.

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