RBI to build strong corp bond market to fund infra

Developing Bond Market Critical To Revving Up Growth Engine, Says Gokarn

Reserve Bank Deputy Governor Subir Gokarn on Thursday said the central bank is focusing on developing a strong corporate bond market to fund infrastructure development that will require an estimated $1 trillion during the 12th Plan period.  “We are focusing on developing long-term corporate bond market to support banks in financing infrastructure projects,” he said. Mr Gokarn was delivering his keynote address at the ASEM (Asian-Europe) Conference organised by the Reserve Bank of India and the European Commission here this morning. “We need a strong corporate bond market as we have to take away the burden on banks from financing long-term funding needs of the infrastructure sector which is targeted at $1 trillion over the 5-year period beginning 2012,” he said.

RBI opts for growth over inflation for now

RBI kept key policy rates unchanged on Thursday, signalling that maintaining growth momentum was a priority while taking steps to infuse close to 50,000 crore of liquidity. This will ease pressure on banks to raise rates both on lending and deposits in the near term.  However, going by the hawkish tone of the mid-term policy review statement, the bond market is now bracing for a rise in interest rates in January when the next review is due. RBI has raised rates six times this year to fight inflation, and has warned that risk to its 5.5% inflation estimate in March is on the upside.   The mid-term review appeared to be more of a fire-fighting measure with attempts to pump money into the banking system, which saw a record deficit of 1.44 lakh crore as reflected in bank borrowings from RBI on Thursday. According to the apex bank, the deficit was making it tough for the banking system to sustain credit delivery.   RBI said although the liquidity crunch has helped achieve its objective by getting banks to raise rates, the shortfall was way outside its comfort zone.

Bank studies in school curriculum soon

The Reserve Bank of India has prepared a well-researched study material for school and college students which is soon going to be introduced in the school curriculum across the nation. Making this announcement here on Monday while addressing students of Ranchi University at the Senate hall, RBI governor, D Subbarao, said, "All schools in the country would include a chapter to promote financial deepening whereas colleges have been asked to include some module of finance in certain subjects," he said.  Acknowledging that only 40 per cent of the households have bank accounts, Subbarao said even among them very few are active accounts. "We give targets for financial inclusion to banks and they open the accounts but the idea is not paperwork but to make it functional, which can be achieved only when the account holder realizes the importance and operational benefits of his or her bank account, for which financial literacy is must," he said. Answering to a query raised by chief secretary, A K Singh, if there is any incongruity in written and verbal instructions issued by RBI, Subbarao admitted that certain RBI instructions are not followed by banks in letter and spirit. Singh raised the issue of banks refusing to extend credits to borrowers even in cases where the RBI has struck-off the need for collateral. Replying to this, Subbarao said that at a recent meeting with branch managers of different banks in Pune, he was apprised of the difficulty faced by banks. "Though there is technically no need for collateral for education loans upto Rs 4 lakh and loan for micro, small and medium enterprises upto Rs 1 crore, bankers have the onus of recovering the amount for which they want to take no risk," he said, adding that the RBI is strengthening its monitoring system and trying to find a viable solution for this.  Answering to a query raised by Rashid Anwar, an MBA student of Ranchi University, he spoke of a committee appointed by the RBI to make the inflation figure more generic and pragmatic. "We realise that one inflation figure for the entire nation cannot be appropriate in the light of the fact that different states have different income levels and consumption basket for which a rural and urban index is being considered to begin with," he said. In response to a question of Tanush Khatri, another student, Subbarao assured that he would take up the matter of ATMs churning out counterfeit currencies with the bank authorities in Jharkhand. "It has been reported many times, especially from bordering states, about counterfeit notes being included in circulation but the RBI is taking every possible step by educating masses, including bank officials about being able to identify," he said. However, he got a poor response from students when Subbarao asked if they have seen advertisements related to counterfeit currency in television and newspapers issued by the RBI from time to time.

Satellite banks and ATMs in Jharkhand soon: RBI

Reserve Bank of India is planning to set up satellite banks as well as ATMs in Jharkhand so as to make banking facilities reach out to villagers there. The idea was shared by RBI governor, D Subbarao. He said that during the initial level, the satellite banks will be made operational on weekly basis and with time get converted to full fledged branches. Report from state government officials read that out of the 4423 village panchayats in the state, 1540 were still in need for banking to reach out to them.