New and Newsworthy

• The RBI orders Sahara and Peerless to shut down deposit taking operations by 2010. For more info see here and here. I don't understand the issue well enough to pass judgment on whether the RBI restriction was necessary (though the legal wranglings described in the Mint article makes me think it most likely was) but nevertheless, it's always a shame to see the savings options available to the poor reduced even further. Peerless and Sahara, which both offer recurring deposit savings products similar to those offered by the post office, are pretty much ubiquitous throughout much of the Indian countryside and their exit will leave a gaping hole in the supply of small scale savings products.

• The RBI will begin enforcing the weaker sections sub-target of the priority sector requirements. For the legalease RBI doc click here. The RBI has long mandated that domestic banks lend 10% of net bank credit to "weaker sections" (a category which includes landless labourers, marginal farmers, artisans, and members of SHGs) but, unlike the sub-target for direct agri lending, has never really enforced this requirement. As a result, banks, in particular private ones, have pretty much ignored the requirement: average lending to weaker sections in 2007 across private sector banks was a mere 1.55% (for more info on the performance of private sector banks in meeting this target click here). The implications of this move for the microfinance sector are huge. First, it will give a strong incentive for banks to ramp up lending to SHGs. Second, it will likely lead to a significant reduction in the cost of funds for MFIs as private sector banks will seek to buy up any MFI loans which qualify under the weaker sections sub-target at reduced rates. (They already do this for the portion of MFIs' portfolios which qualify as direct agri.)
  
• The RBI has released it's modified set of draft mobile banking guidelines. For the revised draft guidelines click here. Plenty of others have offered astute criticisms of the overly cautious restrictions in these guidelines so I won't bore you with my own opinion on this one.