RBI panel looking into alternative to gold imports

The central bank, worried over the substantial contribution by gold into country's current account deficit, is looking into the aspects of devising some alternative routes

Kolkata: With gold imports contributing substantially to India's current account deficit (CAD), a panel set up by the Reserve Bank of India (RBI) is looking into the aspects of devising some alternative routes, a top official of the central bank said on Thursday.


According to a PTI report, RBI Deputy Governor Anand Sinha, has said, "Gold imports are contributing substantially to India's current account deficit".


He said, "Import is one aspect and the other is bringing out the gold which is already existing in the country."


"Whether it can be brought out to satisfy the demand by devising appropriate financial instruments has to be seen. Several proposals are there. There is a committee looking into these aspects," Sinha told reporters.


The country's CAD, which is the difference between total imports and transfers and total exports, widened to the highest ever level to 4.5% of GDP at $21.7 billion in January-March period of 2011-12.


To a query, he said that the draft guidelines on new banking licences have been circulated.


Sinha said that RBI would proceed further once the Banking Regulation (Amendment) Bill was through. After that, RBI would finalise the guidelines.


Regarding shareholding by foreign banks, he said that it has been already mentioned in the draft guidelines that it would be 49% in the initial years. After that, it would be usual as per normal FDI rules, Sinha added.


Sensex, Nifty to remain choppy: Thursday Closing Report

If the Nifty goes below 5,190 we may see a serious downturn setting in

The subdued dollar guidance by IT giant Infosys dragged the market lower with the IT sector ending as the top sectoral loser. Yesterday we mentioned that the benchmarks will soon break out of the range. Today the Nifty hit a high of 5,262, the lowest in the past 10 days (including today), while it plunged to a nine-day low (including today) at 5,218. If the index closes strongly below 5,190, we may see a serious downturn setting in. The National Stock Exchange (NSE) saw a volume of 62.35 crore shares.

The market opened lower following lower dollar guidance for FY13 by IT major Infosys, which announced its Q1 earnings this morning. Weak global cues also weighed down on the market. The Nifty declined 66 points to open at 5,240 and the Sensex contracted 191 points to start the day at 17,297.

Infosys, India's second largest software company, reported a 32.9% jump in its first quarter net profit to Rs2,289 from Rs1,722 crore while its total revenues rose 28.5% to Rs9,616 crore. Though the company exceeded its revenue forecast in rupee terms, it failed to meet dollar revenue guidance of $1,771 million to $1,789 million for the June quarter. The IT major has slashed its dollar revenue forecast to $7.34 billion, a growth of 5% y-o-y, against the earlier guidance of $7.55 billion-$7.69 billion, a growth of 8%-10%.

The market hit its intraday high in initial trade itself on select buying in the pharma sector. At the highs, the Nifty rose to 5,262 and the Sensex went up to 17,329.

Infosys' disappointing guidance saw the IT and technology sectors emerge as the top losers. Even the uptick in the industrial output numbers, which were released around 11am, failed to cheer investors.

The Index of Industrial Production (IIP) for May stood at 2.4% as against 0.9% contraction in previous month. The government has revised its April output from 0.1% (provisional). While growth in key sectors like capital goods and mining came in negative, growth in manufacturing, electricity, basic goods and consumer goods was lower as compared to previous month.

The benchmarks dropped to their lows in noon trade on a subdued opening of the European markets as the minutes of the June meeting of the US Federal Reserve failed to highlight any new measures to boost the slowdown in the world's top economy. Back home, the Nifty fell to 5,218 and the Sensex tumbled to 17,181.

A feeble recovery from the lows helped the market close off the lows, but in the negative for the second straight day. The Nifty settled 71 points (1.34%) lower at 5,235 and the Sensex tumbled 257 points (1.47%) to finish at 17,233.

The advance-decline ratio on the NSE was negative at 539:1163.

Among the broader indices, the BSE Mid-cap index declined 0.59% and the BSE Mid-cap index dropped 0.66%.

BSE Realty (up 0.94%) and BSE Oil & Gas (up 0.27%) were the only gainers in the sectoral space. BSE IT (down 5.11%) was the top loser. It was followed by BSE TECk (down 4.43%); BSE Consumer Durables (down 1.78%); BSE Capital Goods (down 1.45%) and BSE Auto (down 1.15%).

The top gainers on the Sensex were ONGC (up 1.42%); Hero MotoCorp (up 0.88%); GAIL India (up 0.63%); Tata Power (up 0.60%) and Cipla (up 0.54%). The key losers were Infosys (down 8.15%); Wipro (down 3.98%); Bharti Airtel (down 3.04%); Mahindra & Mahindra (down 2.09%) and Tata Motors (down 1.97%).

The top two A Group gainers on the BSE were-United Spirits (up 6.14%) and Indiabulls Real Estate (up 4.13%).
The top two A Group losers on the BSE were-Infosys (down 8.15%) and Hexaware Technologies (down 4.47%).

The top two B Group gainers on the BSE were-RPG Life Sciences (up 20%) and Mahalaxmi Rubtech (up 19.87%).
The top two B Group losers on the BSE were-Nissan Copper (down19.89%) and NEPC India (down 17.55%).

The top performers on the Nifty were Jaiprakash Associates (up 2.42%); ONGC (up 1.46%); Hero MotoCorp (up 1.41%); GAIL India (up 1.30%) and BPCL (up 1.20%). The top laggards were Infosys (down 8.54%); Wipro (down 4.07%); Bharti Airtel (down 2.99%); IDFC (down 2.71%) and Punjab National Bank (down 2.58%).

Markets in Asia settled down on concerns about economic growth across the world. Within the region, the Bank of Korea cut its base rate by 25 basis points to 3%, the first cut in over three years. Bank of Japan, at the end of its two-day meeting, kept rates steady while pledging to buy more short-term securities and reducing the amount it offers under fixed rate market operations.

The Hang Seng tanked 2.03%; the Jakarta Composite declined 0.87%; the KLSE Composite fell 0.24%; the Nikkei 225 contracted 1.48%; the Straits Times dropped 0.58%; the KOSPI Composite tumbled 2.24% and the Taiwan Weighted declined 1.75%. Bucking the trend, the Shanghai Composite gained 0.46%.

At the time of writing, the key European markets were down between 0.62% and 0.78% and the US stock futures were in the negative, pointing to a negative opening of the US markets.

Back home, foreign institutional investors were net buyers of shares totalling Rs84.42 crore on Wednesday whereas domestic institutional investors were net sellers of stocks amounting to Rs356.85 crore.

Cairn India plans to raise crude oil production from its Rajasthan block by over 70% to 15 million tonnes if the government permits further exploration in the prolific block. The company believes the production can reach 300,000 bpd or 15 million tonnes per annum and has made an application to the government seeking permission to explore within the 3,111 square kilometre mining lease covering 25 oil and gas finds. The stock gained 0.55% to close at Rs313.40 on the NSE.

Essar Ports has received approval from the Paradip Port Trust to commence work on an all-weather coal berth in Orissa. Essar Ports will build a mechanised berth of 370 metre length with a handling capability of 14-8 million tonnes a year (mtpa). The stock gained 1.13% to close at Rs94 on the NSE.


Independent internal audit is the key to implementing responsible microfinance in MFIs

The MFI boards must recognise the need for strong, independent and objective internal audits which can go a long way in protecting their MFIs and enhancing their reputation

The microfinance institution (MFI) model in India has been through a (serious) crisis over the last few years (since 2005) and a lot of this has to do with the inability of the boards of MFIs to actually implement (in real time) some of the very (high sounding) concepts and prescriptions for responsible finance that came from various quarters.


While it cannot be denied that some MFIs were not (at all) interested in responsible microfinance, some others perhaps could not ensure the implementation of these well-meaning concepts on a consistent basis in real time. A classic example is the well intentioned (Sa-Dhan) code of conduct in 2006, which was often waved at meetings with the Andhra government but rarely visible, in terms of practice, on the ground. Slowly, perverse incentives (as Vijay Mahajan had famously noted in 2010) set in and eventually, led to what is called the 2010 Andhra Pradesh microfinance crisis.


In retrospect, what essentially happened was a failure of commercial microfinance—primarily because the checks and balances required for commercial microfinance (to actually work on the ground) were almost absent. By checks and balances, I mean two things including lack of: a) Supervisory oversight and that contributed in huge measure to the crisis; and b) a strong, independent and objective internal audit function within these MFIs. While even a single letter from the supervisor could have mitigated the scale of the problems that happened in Andhra Pradesh in the years preceding 2010, the absence of an independent and objective internal audit system certainly hurt the MFIs even much more.


Why is an independent and objective internal audit system critical for the well-being of MFIs, especially those desiring to practice responsible commercial microfinance? From a larger perspective, internal audits are perhaps the first means for well meaning MFI boards to get regular feedback on whether or not the concept of responsible microfinance is being implemented on the ground. In other words, an independent and objective internal audit system can provide very useful feedback on how processes and procedures (to promote responsible microfinance) are supposedly being implemented on the ground. Therefore, even before credit/social ratings and/or the newly established code of compliance assessments point out any discrepancies, it is the internal audit system that can provide very useful early warning signals for the MFIs and their boards. Without question, just as charity begins at home, the first step in responsible microfinance is therefore to ensure that MFIs have such an independent and objective internal audit system in the first place.


So, what do I mean by an independent and objective internal audit system? While this neglected concept is explored in a multi-part article, I start out here by setting the strategic context of internal audits from which their independence and objectivity stem. This strategic context clearly determines the extent to which internal audits can become a powerful and independent tool that boards of MFIs can use to ensure responsible micro-finance on the ground and in real time.


Essentially, according to The Institute of Internal Auditors (www.theiia.org), internal auditing is defined as: “An independent, objective assurance... activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes”.


The above definition is very critical because it sets forth the parameters on which an internal audit system can be designed at the MFIs.


First and foremost, an internal audit system must be independent of the MFI activities being audited. This implies that internal auditors at MFIs don’t report to line management and/or senior management. Often, at some MFIs which had an elaborate internal audit function, the independence of this function was hugely compromised because the internal audit department came under senior management whose very activities were also to be assessed.


Tell me, how can an internal audit department that reports to the CEO or CFO (or anyone else who is part of the line/operational management) accurately assess and provide objective feedback on the working of processes and procedures? Therefore, the MFI boards must ensure that there is an internal audit department that reports directly to the board or its audit sub-committee. This is mandatory and this independence in functioning will facilitate greater objectivity in the working of the internal audit department. It will also position the internal audit department appropriately within the MFI


Second, an additional caveat is in order here. Many organisations including MFIs may find it tempting to get internal auditors to design their risk management, control and governance systems. While it is true that internal auditors have very intimate knowledge of what systems work on the ground and why, if they are asked to design these MFI systems, then, it is unlikely that they would be able to assess functioning of these systems dispassionately and objectively. This means that, at no time, should MFIs use their internal auditors to design the risk management, control and governance systems and processes. At best, feedback—through discussions with the internal auditors and/or studying of their internal audit reports—could be taken with regard to these systems so that appropriate on-course corrections are made. This again will ensure that the internal auditors are truly independent of the activities that they are auditing.


A third issue is relevant here. That is the scope of internal audits and this again is very critical to understanding the reality from across the organisation (MFI). Very often, the activities of senior management are excluded from internal audits for various reasons. That should not be the case.


In short, internal audits must cover each and every activity at the MFI with the objective of evaluating (but not limited to) the following:

  • Integrity, reliability and effectiveness (including the relevance, accuracy and comprehensiveness) of risk management, control and governance processes and related systems;
  • Monitoring of legal compliances—with extant laws and regulations—including any changing requirements from regulator/supervisors; and
  • Safeguarding of all assets of the MFI.


Without question, the need for strong, independent and objective internal audits has never been more important in the Indian microfinance sector. I certainly hope that the boards (in MFIs) recognize this and facilitate the adoption of well functioning internal audit systems that can go a long way in protecting their MFIs and enhancing their reputation as REAL practitioners of responsible micro-finance in India…



Arun Sharma

5 years ago

Mr. Ramesh S Arunachalam's article of 12th of July really hits the nail on the head when he elucidates the importance of independent Internal Audit for MFIs. With same understanding and committment we at UNI FinTech Pvt. Ltd. Mumbai are realising that this cold fact is not appreciated by most MFIs, since we offer our professional expertise in Internal Audits and Risk Management of MFIs and find that very few respond to our professional enquiries. We would appreciate if you could view our Company profile on http://www.unifintech.com and help us to promote professionalism in Internal Audit in MFIs. - Mr. Arun Sharma, Director - UNI FinTech Pvt. Ltd.

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