Date:29/05/2005 URL: http://www.thehindubusinessline.com/2005/05/29/stories/2005052902030100.htm

Back RBI plans norms for outsourcing banking activities

Our Bureau

Mumbai , May 28

THE Reserve Bank of India may issue regulatory guidelines for outsourcing of banking activities. The bank is now working with the Indian Banks' Association in this regard, said Ms Shyamala Gopinath, Deputy Governor, RBI, here on Saturday.

Ms Gopinath said that banks are now using the outsourcing model to reduce their costs and improve efficiency. While most of it is related to the technology side of the banking functions, it is also being extended to other areas of financial services. This falls outside the scope of RBI's regulatory functions, she said.

Ms Gopinath was speaking at the sidelines of a seminar on Retail Banking Directions.

She said that the RBI has been receiving complaints regarding high interest rates, unsolicited telephone calls and faulty billing on credits cards. To help customers, the RBI is considering bringing credit card issues within the scope of the Banking Ombudsman scheme, she added.

About the recent ban on use of MIFOR (Mumbai Inter-bank Forward Offer Rate), as a benchmark to price interest rate derivative products, Ms Gopinath said the RBI wants greater use of rupee benchmark such as MIBOR (Mumbai Inter Bank Offer Rate), OIS (Overnight Indexed Swaps) or T-Bills.

Ms Gopinath said, "Increasing use of rupee benchmarks should be made. If there are issues related to currency hedging, we will discuss with the Fixed Income Money Market and Derivatives Association of India."

The RBI is also discussing with FIMMDA about allowing the use of MIFOR for inter-bank transactions.

She said "Quanto" swaps also will not be allowed anymore and FIMMDA has agreed to this. Quantos are US dollar Libor (London Inter-bank Offered Rate) swaps contracted and settled in Indian rupees between banks and corporates.

With treasury income on the decline for most banks, retail lending is a good way of maximising profits, she said. Retail is a key sector also because the NPAs are lower than in other segments.

In 2003-04, the value of card transactions in India was at Rs 36,000 crore and the number of transactions were at 18.6 crore against 14.6 core in the previous year.

The Deputy Governor also said that banks should look at the interests of retail depositors such as homemakers, pensioners and those employed in the unorganised sector.