RBI in growth-inflation fix

The Reserve Bank of India is facing the challenge of raising policy rates, while at the same time keeping them low, as balancing inflation and growth remains a key concern for the central bank, Governor D Subbarao said on Thursday.  "For inflation management, we have to raise policy interest rates. For protecting, promoting and preserving recovery, we need to keep interest rates low, so there is a tension between raising policy interest rate and keeping them low," Mr Subbarao said at the convocation address of the National Institute of Bank Management in Pune.  The statement assumes significance as RBI is scheduled to release its mid-quarter monetary policy review on March 17, where it is widely expected to hike interest rates again.  "Growth-inflation dynamics - we are struggling with that. We recovered from the crisis sooner than other countries. Inflation also caught up with us sooner than other countries," Mr Subbarao said. The government data released on Thursday shows food inflation for the week to February 26 slowed to a three-month low of 9.52% growth year-on-year due to increased supplies of vegetables. This compares with a 10.39% increase in the previous week.  According to RBI estimates, India's economy is likely to grow at 8.5% with an upward bias in the year ending March 31.  "There are many arguments for keeping rates low or raising rates and that's what we are struggling with," he said.   Reacting to the latest inflation figures, chief economic advisor to the finance ministry Kaushik Basu said India is likely to end the current fiscal with headline inflation close to 7% and the central bank will continue with its policy focus of containing inflation.  In January, the central bank in its third quarter monetary policy review had revised inflation target to 7% for the year ending March 2011. India's wholesale price index-based inflation has remained well above RBI's perceived comfort level of 4-5% for more than a year, prompting the central bank to hike its key rates - repo and reverse repo - seven times by 175 basis points since March 2010 to tame soaring prices.   "Inflation coming down is good news, but not unexpected. Overall WPI has been higher than anticipated. However, the direction in which the WPI is moving is also the direction in which we would like it to move. I do expect the year to close not below 7%, but very close to 7%," Mr Basu said.  "Because it took longer for inflation to come down, it is clear that our efforts, policy initiatives to bring down inflation will continue into a couple of months in the new fiscal year," he added.   In India, the popular inflation benchmark is the movement in the WPI.  While the overall WPI movement is released at a monthly interval, inflation in primary articles such as food and fuel is released weekly.

Food inflation will come down to 7 pc: Kaushik Basu

PUNE: The downward trend in food inflation which has attained single digit now, would continue and touch seven per cent shortly, Chief Economic Adviser to Ministry of Finance , Kaushik Basu said today.  "Inflation has come down substantially and I expect it to fall quickly in another two months," he told reporters noting that food inflation figure which was earlier above ten per cent, had been reduced to 9.52 per cent now.  "It is not unexpected. What we had anticipated is happening", Basu said adding that the November-December (2010) inflation movement was considered temporary. By the end of fiscal, the inflation figure could be pegged at seven per cent, he said. Basu was here to attend the convocation ceremony at National Institute of Bank Management ( NIBM )) where he shared dais with the RBI governor Subbarao. Basu also observed that the growth estimate this year at 8.6 per cent would remain "intact".  In his address, Subbarao said translating growth into poverty reduction was important and one of the challenges faced by the banking sector in India was that of "financial inclusion".  "Banks have to increase their efficiency and reach out to remote areas and the poor", he added.  The RBI governor also asked banks to find innovative ways to enable themselves to bear the burden of increased investment in the infrastructure sector envisaged in the next five year plan, to the tune of dollars one trillion.  "Much of this burden will fall on the banking sector", he noted.

Regulatory body sought to check illegal financial firms

Agartala, March 10 (IANS) The Left Front government in Tripura Thursday urged the central government and the Reserve Bank of India (RBI) to constitute a regulatory body and form a national policy to check the spurt of illegal non-banking firms.  'Large number of unauthorised Non-Banking Financial Companies (NBFCs) and Un-Incorporated Bodies (UIBs) have been collecting money, alluring people with assurances of very high returns and cheating the innocent depositors,' Tripura Finance Minister Badal Chaudhury said.  'In order to monitor and supervise funding of these NBFCs and UIBs, there is a need to put in place a regulatory body at national level with its official arm extending up to state level,' said Chaudhury, after presenting a tax-free Rs.6,859.45 crore budget for the 2011-2012 fiscal with a deficit of Rs.246.58 crore.  Unauthorised NBFCs have mushroomed in the northeastern region in recent years. These organisations take deposits from people by promising abnormally high rates of interest from 25 to 30 percent. After collecting the money, they shut down their operations and leave the area.  The NBFCs not recognised by the RBI, the Insurance Regulatory Development Authority (IRDA) or the Securities and Exchange Board of India (SEBI) cannot do any monetary business or take deposits from people.  The Tripura government, during the ongoing budget session of the state assembly, moved a new bill amending the Tripura Protection of Interest of Depositors (in financial establishments) Act, 2000 for enhancing the level of protection of the depositors in monetary firms, including NBFCs and UIBs, by providing more teeth to the existing legislation.  The new bill proposed to impose a fine of Rs.10,000 for every flawed provision and act by the NBFCs and UIBs and in addition Rs.1,000 per day for continuation from the date of default.  'The RBI would soon open branches in many northeastern states and that would help to deal with these unscrupulous NBFCs and UIBs,' Chaudhury said after presenting the state budget.

Pact with RBI a win-win situation for JK Bank, Govt, people’

Jammu, Mar 10: Dispelling “apprehensions” on J&K’s agreement with Reserve Bank of India for Ways and Means, Minister for Finance, A R Rather today said the Cash Management Agreement is a reform measures which is in the overall interest and benefit of the people, depositors, J&K Bank and the government. Reiterating that J&K Government’s ties with the J&K Bank are and will remain intact, the Finance Minister said that the outstanding Over Draft amount of Rs. 2300 crore would be paid to the J&K Bank very soon in totality out of which Rs 1300 crore stands already paid. Maintaining that the state government’s Ways and Means Advance arrangement with the Reserve Bank of India (RBI) is a win-win situation for the State Government, J&K Bank, and people of J-K, Rather thanked the 13th Finance Commission for coming to the rescue of the State Government by agreeing to provide one time grant to wipe out OD outstanding which had assumed the shape of structured deficit.  He reiterated that “the J&K Bank has been the banker to the State Government since long and it will continue to be so in the future also” and as Agency Bank appointed by RBI for the State Government for the new arrangements of Ways and Means.  Replying to a question about the reasons behind the astronomical OD liability, Rather said that the successive governments after 2002 did not care about the repayment to the J&K Bank OD amount with the result “the OD outstanding has been there for last many years. When the National Conference demitted office on 10th October, 2002 the OD from J&K Bank was only around Rs. 800 crore which reached the figure of Rs. 2300 crore in March 2009 against the permissible limit of Rs. 1700 crore. As a result, the RBI would time and again reprimand the J&K Bank for violating the norms of MoU entered by the State Government with the bank,” Rather added.

Separate regulatory regime for infra debt funds by May

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The 30-paise opera

Till the early 80s, 3-paise coins were very much in circulation, even if it did not fit in the decimal series. The government made the exception and introduced 3-paise coins in 1964 to reduce the demand for 2-paise and 1-paise coins. But many wouldn't know that the government was also considering a proposal to introduce 30-paise coins sometimes in 1973. The Posts & Telegraphs Board had suggested this for operating coin-collecting boxes at telephone booths.  That was a time when post offices used to run telephone booths and charge 30 paise per call. The Posts & Telegraphs Board thus wanted one coin in the denomination of 30 paise in place of three 10-paise coins of an aggregate weight of 6.9 grams being used in those coin-collecting boxes.  The ministry of finance sought the Reserve Bank of India's views on this suggestion. Responding to the ministry's letter in November 1973, the central bank said the proposal bristled with two incongruities. "First, it would be a misfit in the decimal series, adding to the multiple denominations already in circulation; and second, no other country had till then introduced an odd denomination," said the bank. It further added that the coin was likely to become redundant if telephone call charges were raised.  RBI had also argued that if the 30-paise coin was to be introduced, the new coin should ideally weigh approximately 6.9 grams, to enable the telephone machine to accept it. But that was not practical because the cupro-nickel 25-paise and 50-paise coins weighed 2.5 grams and 5 grams respectively, and the cupro-nickel 30-paise coin weighing 6.9 grams would have been out of sync in the coin-system. But then a 30-paise coin having a weight anything between 2.5 grams and 5 grams would have necessitated for a recalibration of the coin-collecting boxes.

Making sense of financial laws

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RBI warns against ads on foreign exchange trading

The Reserve Bank of India (RBI) has noticed advertisements issued by electronic/internet portals offering trading or investing in foreign exchange with guaranteed high returns are illegal and the people should beware of the risks, said Chief General Manager Alpana Killawala in a press release here on Thursday.  The advice has become necessary in the wake of many residents falling prey to such tempting offers and losing money heavily in the recent past, she added. Many companies even engage agents who personally contact gullible people to undertake forex trading/ investment schemes and entice them with promises of disproportionate / exorbitant returns, said the press release.  The Reserve Bank of India cautions the public not to remit or deposit money for such unauthorised transactions. The advice has become necessary in the wake of many residents falling prey to such tempting offers and losing money heavily in the recent past.  The Reserve Bank of India on Thursday clarified that remittance in any form towards overseas foreign exchange trading through electronic/internet trading portals is not permitted under the Foreign Exchange Management Act (FEMA), 1999.  Residents are, however, permitted to trade in currency futures and options contracts, traded on the stock exchanges recognised by the Securities and Exchange Board of India (SEBI) in India, subject to the conditions specified by the Reserve Bank from time to time.

Liberalised RBI rules making banking easy in India

The increasing flexibility in the Reserve Bank of India’s (RBI) rules and regulations have contributed to considerably higher levels of growth of India’s financial sector in recent years, despite the global economic slowdown, said a senior banking professional from India yesterday.  The RBI is referred to as India’s banker’s bank, controlling, monitoring and supervising the whole banking operations in the country.   Speaking to Gulf Times yesterday, executive director of South Indian Bank (SIB) Limited Abraham Thariyan said, now-a-days banks in India could start branches in any place, having a population of less than 50,000. “Absolutely, no licence from the RBI is required these days to start branches in places having less than 50,000 residents,” he said.   The RBI’s increasing flexibility has stemmed from the confidence demonstrated by the Indian economy to perform well even when the world has not completely recovered from the financial slowdown, said the senior banking professional. Indian economy has been growing at an impressive rate of between 8 and 8.5% even in the last two years, recalled Thariyan.  As a result of such liberalised rules, banks could reach their potential customers more easier and faster than what they used to be, added Thariyan.  Along with another prominent private sector bank, SIB accounts for more than 33 % of the NRI remittances coming to the southern Indian state of Kerala, said Thariyan.