Subbarao keen to retain his signature’s weight

The privileges of being the Governor of the Reserve Bank of India are many. One of them is having one’s signature stamped across the millions of currency notes of various denominations churned out from the country’s mints. Governor D Subbarao, however, indicated a governor may not always swell with pride when he stares down at his signature plastered on currency notes. “The value I attach to my sign is not just about the validity of the currency, but to ensure the purchasing power was preserved,” Subbarao told students of the Indian Institute of Management yesterday, on being asked how he felt looking at the wad of currency notes bearing his name.  Inflation has emerged as a difficult problem for Subbarao and he has been forced to revise upwards the forecast for March inflation to seven per cent from the earlier 5.5 per cent. The headline number, at 8.4 per cent, is way above the perceived comfort zone of 4-4.5 per cent. At a felicitation function for the Governor in his ancestral town of Eluru in Andhra Pradesh, a speaker had said Subbarao was very close to the hearts of people. He had reckoned that Subbarao was close to the hearts as people put the currency notes signed by him in the upper pockets of their shirts. Subbarao knows that soaring food prices are now giving heartaches to many.  Perhaps more comfortable with the grilling by students rather than the press corps, Subbarao was full of anecdotes and wise cracks. When asked by reporters what went into monetary policy formulation, the stock answer remains the central bank looked at a plethora of domestic and international economic and banking data to get the inflation growth mix right. Subbarao had a different answer when the question was asked by the students. “There is no substitute for good judgment,” said Subbarao. Central banking works the best with a strong gut feeling, believes the governor. That, perhaps, explains why Subbarao has adopted a gradualist approach to the rise in interest rates — 175 basis points in the repo rate and 225 bps in the reverse repo rate, in seven rounds since March 2010.   He also believed in transparency, Subbarao emphasised. That is why, under Subbarao, RBI has added a new paragraph in monetary policy statements that indicates the expectations of the central bank.  “For a long time, we were nontransparent...we had our own expectations but would not tell that to markets,” Subbarao said. The data on prices, one, however, fears, is putting paid to that gut feel as well as the ‘expectations’ down the line. While he was at the microphone, Subbarao wasn’t sure he would get rapt attention from those assembled in the IIM auditorium that morning.  The RBI governor has to deal with rather dreary and esoteric subjects that have a sedative impact on an average individual. Ironically, Subbarao’s wife Urmila is no different. “Usually when I start talking, my wife goes off to sleep. So please stay awake,” Subbarao said, pointing to Urmila, his wife, who was among the audience.  Acknowledging the central bank’s vast canvas of operations that deal with swanky treasury rooms of multinational banks to humble dwelling of a farmer in forlorn parts of the country, the governor had another candid admission to make.  “Two-and-a-half years as the RBI governor, I am not sure what RBI does,” he said. Subbarao’s term ends this September. One hopes he gets a longer run, especially because his three immediate predecessors had a minimum five-year tenure.

Inauguration of the exhibition ‘Mint Road Milestones’

Reserve Bank of India Governor D Subbarao looking at a photo after the inauguration of the exhibition ‘Mint Road Milestones,’ based on the 75-year journey of the RBI, in Bhopal.     

Hard to ease liquidity amid high inflation, says Subbarao

The Reserve Bank of India faces a challenge in easing liquidity without signalling that it is loosening its anti-inflationary monetary policy stance, Duvvuri Subbarao, governor of the central bank said today.  Liquidity in India’s financial system has been tight over the last few months, largely due to lower-than-expected government spending, forcing banks to borrow on average a net of around `850 billion ($18.72 billion) a day from the central bank at its repo window from November through January. The figure has in February dropped to around `720 billion on the back of some pickup in the government spending but advance tax outflows in March are expected again to tighten cash conditions.  India is also battling stubbornly high inflation, standing at 8.43 per cent in December, and easy cash conditions could aggravate the inflationary pressures.  “The dilemma is how to manage liquidity, ease liquidity without giving the message, indication, impression that we are loosening our anti-inflationary stance,” Subbarao said.  “We do it either by CRR (cash reserve ratio) or by OMO (open market operation) but the question is if we reduce the CRR or do OMO in a situation, in acontext when we are trying to signal an anti-inflationary stance, the fear is the market gets mixed signals,” he said while speaking in central India.  CRR is the percentage of deposits that banks must set aside with the central bank as cash, and some market participants have been expecting a cut in this ratio to help ease the tight cash.  In a bid to help ease the severe liquidity crunch in the market, the central bank in its December monetary policy statement announced a four stage open market operation programme, offering to buy up to `480 billion from the market. The RBI has said it wants to keep liquidity in the banking system in a range between a `500 billion shortfall and a `500 billion surplus, or more generally a deficit or surplus of 1 per cent of banks’ total deposits.  However, the central bank may have to move cautiously on any liquidity easing measures, as inflationary pressures are expected to persist in the current calendar year.  Inflationary pressures from domestic sources as well as global commodity prices may intensify in some cases, RBI Deputy Governor Subir Gokarn said today, making the RBI’s job of balancing fighting inflation and easing liquidity that much more difficult.  

Bank credit offtake up 23.4%: RBI

Credit offtake from public and private sector banks in the country grew by 23.4% for the one-year period ended January 28, indicating an upswing in industrial activity, says the Reserve Bank of India (RBI).  For the one-year ended January 28 credit offtake stood at Rs 38.47 lakh crore as against Rs 31.18 lakh crore during the year ago period.  During the period, deposits went up to Rs 51.28 lakh crore from Rs 44.39 lakh crore as on January, 2010, according to latest data from the RBI.  In its annual monetary policy at the beginning of the fiscal, the RBI had estimated that credit offtake would grow by 20% this fiscal.

RBI Allows State-Run Banks To Amortize Pension Expenditure

India's central bank Wednesday let state-run banks provide extra expenditure on staff pensions and gratuities in installments over the next five years. India's nationalized banks recently re-opened the option of a pension for staff who had not opted for it earlier. The Indian Banks' Association, the representative body of the banking sector, had asked the Reserve Bank of India to let them amortize the additional expenditure. The RBI has let the state-run banks amortize the amount over the next five years, starting from the fiscal ending March 31. The banks will have to provide a minimum of one fifth of the total amount involved every year, it said.

Muthoot to revise offer document after RBI circular

Muthoot Finance, the largest gold loan non-banking finance company (NBFC) in the country, is set to tweak its business model while filing the draft red herring prospectus (DRHP) after factoring in the Reserve Bank of India’s (RBI’s) recent directive on gold loans.Recently, RBI notified that bank credit to NBFCs giving loans to individuals and other entities against gold jewellery would not be treated as exposure to the priority sector. The move is expected to impact the borrowing cost of these companies, which account for more than 32 per cent of the Rs 80,000-crore gold loan market in India, as regular loans are costlier than priority sector loans.  Moreover, as these loans will not enjoy priority sector status, the pace of securitisation or assignment to other banks will also fall, which may hit these NBFCs. Selling receivables was one of the main source of capital for these NBFCs. It also helped banks meet priority sector taragets.                                           

Nabard kicks off infrastructure lending on a commercial basis

The National Bank for Agriculture and Rural Development (Nabard) regulator for regional rural banks and cooperative banks since 1982, has begun lending directly to infrastructure projects at commercial rates as part of a transformation and pitting it against traditional lenders to the sector.  Nabard, which had a balance sheet of more than Rs.1.53 trillion as of December-end, will lend Rs. 42 crore to Karnataka State Warehousing Corporation (KSWC) to set up 1,06,000 tonnes storage capacity at nine different locations in the southern state. The loan is being given at an interest rate of around 10% and a maturity of 12 years, Nabard's Executive Director, Prakash Bakshi told Mint. This forms part of the total Rs. 173 crore loan that KSWC is seeking and which Nabard is considering. “We are considering other infrastructure projects as well,“ Bakshi said. “The idea is to support the development of rural infrastructure besides increasing the revenue of Nabard.“ Nabard is setting about changing its business model by funding infrastructure projects in the power and agricultural sectors on a commercial basis and expanding its role in financing state-government sponsored projects as Mint reported on 28 November. Its balance sheet comprises total funds received and loans disbursed. The entry of Nabard into direct infrastructure lending brings it in competition with commercial banks and specialized infrastructure lending companies, which have so far been dominating the space, analysts said.