The Reserve Bank of India (RBI) would organise second phase of the Financial Outreach in Nagaland at Chumukedima Village, Dimapur, on March 23. Official sources here today said as part of its Platinum Jubilee celebrations, the apex bank had organised Financial Outreach Camps in various villages of the NE States in the year 2009-10. The main objective of the camp was to bring awareness among people in remote villages about RBI in general and banking in particular and bring them under the fold of main-stream banking system. Encouraged by the response and the success of the Financial Outreach Camps, the RBI has now decided to launch the second phase of the financial outreach programme in the NE Region. Its Executive Director, D K Mohanty would be the Guest of Honour. The programme would include quiz competetion for school children, banks and other participants opening the stalls.
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Tuesday, March 22, 2011
RBI to relax norms for bank license - Deepak Mohanty
UKHRUL, MAR 21: Reserve Bank of India (RBI) will be relaxing certain norms in licensing bank authorities to open their branches in North Eastern states. Deepak Mohanty, Executive Director of RBI, Mumbai, speaking to reporters on the sidelines of a day-long financial outreach (FO) camp held in Manipur's hill station Ukhrul district headquarters, 84 km north of Imphal on Monday, said, ”We’ll be relaxing certain norms”. In a move to expand its banking facilities in north eastern region, Reserve Bank of India (RBI) is opening a new office at Tripura’s capital within May next. Deepak Mohanty, Executive Director of RBI, Mumbai, speaking to reporters on the side light of a day-long financial outreach (FO) camp held in Manipur's hill station Ukhrul district headquarters, 84 km north of Imphal on Monday, said, “We’ll be opening our next office in Agartala”. RBI’s central board meeting will also be held in Agartala in May next, he added. Entire north eastern states have only RBI Guwahati office. RBI is making all out effort to solve the unavailability of smaller denomination currency notes or coins in Manipur. “We have noted down the grievances,” Deepak Mohanty, Executive Director of RBI said.” We’re looking for an alternative arrangement as coins can be transported by air only.” Recalling the opening of an ATM booth for the first time in Ukhrul district recently, State Bank of India(SBI)’s Chief General Manager RK Garg who is the in charge of north eastern states said 3(three) more ATMs will be opened in Imphal soon. Presently SBI has around 12 ATM booths in Imphal area, Axis bank has 5, United Bank of India (UBI) has only one. “But we are planning to open two more within March end”, UBI’s Chairman and Managing Director Bhaskar Sen said. The two booths will be installed at Mao gate (Senapati district) and INA complex Moirang (Bishnupur district).With this Manipur will be having a total of around 7 ATM booths by the end of this year. Earlier, UBI chief also inaugurated its 1583rd branch at mini secretariat building of the hill town in presence of RBI’s Executive Director Deepak Mohanty, Regional Director Surekha Marandi,Manipur’s Principal secretary(works) Ramnganing Muivah, Deputy Commissioner N Ashokumar of the district, PK Roy, UBI’s General Manager(FIPS) and others.
RBI has a new Regional Director
PATNA: Mohit Kumar Singh has taken over the charge of Regional Director, RBI, Bihar and Jharkhand. Singh replaces G Mahalingam who has been transferred to financial markets department, central office, RBI, Mumbai. Singh, who joined RBI in 1981 as an officer, had also served at the bank's Chennai office as general manager, department of banking supervision. He was earlier officer-in-charge of urban banks department, department of banking operations and development and banking department at the bank's Bhopal and Kanpur offices. Singh had also served on deputation as chief vigilance officer with an associate bank in the SBI group.
India Inc profit margins eroding: RBI
Mumbai: Increasing raw material cost and rising salary bill eroded the profitability of India Inc during April-September period of the current financial year, says an RBI analysis. According to a Reserve Bank of India (RBI) study which analyses the performance of the Indian private corporate sector during the first half of the current fiscal, sales growth was robust on the back of pickup in demand. "However, despite robust revenue growth, companies in aggregate could not generate higher profit margin primarily on account of higher input prices and rise in interest outflow," the RBI study said. It said even as the sales growth in both manufacturing and the services sector was robust during the period under review, profit growth in both the sectors was comparatively lower during the period. During the first half of the current fiscal, India Inc's staff cost rose by 17 per cent to Rs 71,133 crore, the RBI study said. The staff cost grew by 7 per cent in the same period of previous fiscal. "Generally it is observed that staff costs is higher for IT companies compared to manufacturing and services sector companies," it said. In the April-September period, the expenditure on consumption of raw materials shot up by 27.7 per cent YoY to Rs 4.36 lakh crore. "Higher input cost, that led to noticeable rise in total expenditure, vis-a-vis relatively lower revenue for companies resulted in a contraction in profit growth at the operating level," the study said.
25-paise coins invalid from June 30
CHENNAI: Coins in the denomination of 25 paise and below will be legally invalid for circulation from June 30. Addressing presspersons here on Monday, K. R. Ananda, Regional Director, Reserve Bank of India (Tamil Nadu and Puducherry), said the Union Government, which has the responsibility of minting coins, has decided to withdraw smaller denomination coins of and under 25 paise. The value of such coins has eroded and they are no longer in use. People can exchange coins in denominations of 25, 20, 10 and 5 paise in the issue offices of the RBI and branches of 45 banks for their face value till June 29. A special counter has been opened for accepting such coins in the RBI office between 10 a.m. and 2.30 p.m., he said. People have started exchanging from this month and the coins totalling Rs.3,000 are being exchanged daily. “We expect this number to go up,” Mr.Ananda said. On whether the 50 paise coin would also be withdrawn, he said “We only act as agents for distributing coins minted by the government.” Officials of the RBI said there was no dearth of 50 paise coins and they are available with RBI counters. Only a few Metropolitan Transport Corporation personnel bought the coins in bulk. However, coins of the value of Rs.10 were in short supply. About the Rs.150 coin released recently on the occasion of Income Tax Department completing 150 years, he said it is yet to reach the regional office. G. P. Borah, General Manager, Issue Department, RBI, told The Hindu that the Rs.150 coin is only a commemorative coin and not for circulation. Similarly, a coin of Rs.75 value was released during the platinum jubilee year celebration of the RBI. However, it is not meant for circulation. The RBI, however, has issued a new one-rupee coin to mark its platinum jubilee. As of now, commemorative coins of denominations under Rs.10 are available for circulation. The RBI also plans to issue coins in denominations of Rs.2, Rs.5 and Rs.10 soon as part of its platinum jubilee celebrations. People may book such commemorative coins on the website of India Government Mint. Mr.Bohra said the RBI has recently launched an initiative of issuing coins in select bank branches located near nine market areas in the city. The areas include T.Nagar, Koyambedu, Washermenpet, Selaiyur, Thiruvanmiyur and George Town. In the past two months, traders have taken coins worth nearly Rs.2 crore.
Longer wait for bank licence
New Delhi, March 21: New banking licences will be given only after the government vests more powers with the Reserve Bank of India to control the new entities — a process that is unlikely to be over in the next fiscal. Amendments to the Banking Regulation Act that will give more powers to the RBI are likely to be tabled in the monsoon session of Parliament. The act will in all probability be referred to a standing committee, effectively puncturing all hopes of industrial houses bagging a licence in fiscal 2011-12. “Empowering the RBI is essential for obtaining information about the other businesses of the corporate houses seeking banking licences in order to protect depositors’ interests,” said officials. The government is also likely to set up a panel to vet the draft entry rules framed by the RBI. “Effectively, new licences will be given by the end of 2012,” said the officials. The apex bank had brought out a discussion paper in August on licences to business houses and non-banking finance companies, and regulations to foster competition. Finance minister Pranab Mukherjee had said in his budget speech that the RBI was planning to issue the guidelines before the close of the current financial year. The Economic Survey 2010-11 had suggested two types of licences, one for providing basic banking to fulfil the obligation of financial inclusion and the other for full banking encompassing all the activities of a commercial bank. Meanwhile, the RBI has said it will look at the business plan for financial inclusion before granting a licence. “One of the criteria for evaluating an application (for new bank licence) that we will get in the due course of time will indeed be the business plan for financial inclusion,” RBI governor D. Subbarao had said earlier this month. The RBI has been contemplating whether to make it mandatory for new entrants to have a rural presence or to leave it to the competition in the market to force them to look for newer markets. Of the 600,000 habitations in the country, only about 5 per cent have a bank branch. Only 40 per cent of the population have bank accounts. India has 27 public banks, seven new private banks, 15 old private banks and 31 foreign banks.
New analysis questions RBI's understanding of inflation
Days after the Reserve Bank of India (RBI) raised its key policy rates to tame an unexpected rise in inflation in February, a new analysis claims that none of the factors considered relevant by the central bank, are crucial for understanding inflation in India. A newsletter, Developing Trends, brought out by Surjit Bhalla of Oxus Investments, and others, also projected inflation to fall to five per cent in six months, if not sooner, from the current level of 8.31 per cent, saying the rate of price rise was close to or has peaked in India. The analysis says traditional factors like money supply, fiscal deficits and new theories about the changing pattern of consumption by Indians that lead to a mismatch between supply and demand of protein-based products are not very important. “None of the traditional or new factors, held important by many analysts, and RBI, are relevant for explaining Indian inflation,” the newsletter says. It says growth in money supply was able to partly explain inflation trends during 1980 to 1995, but nothing later. “A flatter line than that between money supply growth and inflation post-1995 cannot be found.” Also, fiscal deficit, says the analysis, is able to partly explain inflation, but has the wrong sign that is, higher the fiscal deficits lower the inflation. “Obviously, this is an example of lies and statistics and all that, but nevertheless it points to the rejection of the notion (or rather the unfounded belief) that fiscal deficits have led to higher inflation in India.” However, the newsletter clarifies that it is not asserting that fiscal deficits do not matter or they do not matter in India. Such deficits are relevant for interest rates and therefore growth, which in turn can have an effect on dampening inflation. “The simple point is that fiscal deficits are not useful for explaining inflation in post-reform India at all,” it says. Then, there are new theories that say that new determinants include dietary patterns to protein and supply shortages of protein. However, the study says protein demand has been going on for the last 30 years and not just in 2009, which was the real anomaly year of Indian inflation. Then there are theories that link inflation to convergence with developed country price levels in a hurry—the convergence that was to take place over a 50 to 100 years is now compressed into a few short years due to globalisation and recent high economic growth. The analysis says covergence to developed country theory is okay, but not in such a great hurry and truly depends on several other factors—higher productivity growth in fact leads to lower inflation and undervaluation of the real exchange rate through policy intervention most likely dampens the inflation rate. Developing Trends linked Indian inflation since 1996, even since 1980s, to intational inflation. “If this is measured by the inflation of the median country in a particular year, then 71 per cent in Indian inflation since 1982 is explained. This is the highest explanation for any G20 country, with Korea, Japan and the US close behind. The analysis furhter says there is a strong sustained relatoinship between world inflation and the price of crude. “For non-OECD countries, including India, the relationship between inflation and crude is extremely robust—each $10 increase in the price of oil leads to approximately 0.5% increase in inflation. The impact is a lot less for OECD countries—a negligible and insignificant increaes of 0.03 per cent.” An increase in the price of crude, however, caused sets in motion a sequence of price events in this hyper price sensitive world, says the newsletter. “Somewhat peculiarly, but not entirely unexpectedly, world food prices increase by 3.3 percentage points for each $ increase in the price of crude.” Expectedly, copper prices rise by $0.4/lb for each $10 rise in crude.
Ineffective policy - ''Persistent tinkering has not impacted inflation.''
The Reserve Bank of India has stuck to its tight monetary policy by raising the short-term policy rates by 25 basis points. It has, in its latest review, raised the repo and reverse repo rates to 6.75 per cent and 5.75 per cent respectively and there was no surprise as the apex bank had given indications of its hawkish thinking many times in the past. The hikes, which have been resorted to eight times in the past one year, underline the concern over inflation which the RBI considers as the major challenge. In spite of all RBI and government actions inflation rose to 8.3 per cent in February. What is worrying is that persistent tinkering with policy has no impact on the inflation curve. Food prices, which drove overall price index to high levels, have cooled off now. But other factors and the inflationary environment have remained largely insensitive to policy action. There is a recognition of this in the RBI’s position. The apex bank has noted the volatility in industrial production and the weak performance of the capital goods sector. The limits to the impact of monetary policy prescriptions are being tested now. Government policies have not helped much and an adverse international climate has added to the problem. Global oil prices are ruling above $115 per barrel, with chances of further escalation. The union budget has not earmarked adequate amounts for the oil subsidy. In fact the allocation for other subsidies and social sector commitments are also inadequate and the so the government will have to go beyond its budgeted expenditure. This will create additional pressures on the fiscal situation. Though there is no revision of GDP growth figures, the rate hikes can create worries on that score. An increase in interest rates will make capital costlier and hurt consumer demand and the competitiveness of the industry. Slower growth can also lead to a fall in tax revenues and result in higher fiscal deficit. The mishap in Japan may affect economic recovery in the US and elsewhere. Exports and foreign investment prospects may be hit because of this. The erosion in the government’s credibility and standing will be another negative factor. Therefore the situation on the price front and the larger economic scenario are not the best, in spite of the RBI’s best efforts.
Govt to unveil borrowing calendar on Friday
Officials of the finance ministry and Reserve Bank of India (RBI) would decide on the borrowing calendar for April-September on Friday, March 25. The Centre would conduct borrowing for the coming fiscal year in a “non-disruptive manner,” leaving enough space for private sector's investment needs.
RBI's misplaced concern
This refers to the report "RBI slams banks for LAF misuse&" by Manojit Saha (March 21). It is surprising to read that the Reserve Bank of India (RBI) has now expressed displeasure at the fact that some banks are borrowing under the Liquidity Adjustment Facility (LAF), on-lending the funds to other banks and earning a spread as a result. LAF, as has been rightly observed, is a secured facility available to banks for borrowing against surplus government securities in their portfolio and is not unsecured call money. Since there may be banks with inadequate surplus government securities to pledge with RBI and borrow directly, there was nothing sinister in surplus banks lending to them from LAF-borrowed funds. This way liquidity is managed in the system without much volatility in the call rates. This has been discussed with senior RBI officials in the past and the banks treasury officials have been clearly given to understand that it was perfectly in order for banks to lend to other entities from LAF-borrowed funds. RBI should not keep changing its stand, since it may aggravate volatility in the overnight money market. - S Ravindranath, Coimbatore
Get Real on Bank Licences - MYTHILI BHUSNURMATH
The suspense over new banking licences will soon be over. With finance minister Pranab Mukherjee announcing that the RBI is planning to issue the guidelines for new banking licences before the close of this financial year, presumably, it is only a matter of days before the RBI comes out with its final guidelines. It has already issued two draft papers inviting comments; so, the motions have been gone through and according to news reports, the final version has gone to the finance ministry for vetting. Ostensibly, new bank licences are needed to ensure competition and promote financial inclusion. The FM, in his Budget speech last year, was emphatic on that score. “We need to ensure that the banking system grows in size and sophistication to meet the needs of a modern economy. Besides, there is a need to extend the geographic coverage of banks and improve access to banking services.” RBI’s discussion paper on entry of new banks echoes this view. “It is generally accepted that greater financial system depth, stability and soundness contribute to economic growth. But beyond that, for growth to be inclusive requires broadening and deepening the reach of banking. A wider distribution and access of financial services helps consumers and producers raise their welfare and productivity.” The only difference between the FM and the RBI’s position seems to be one of emphasis. While the FM seems to regard the need for new bank licences as driven equally by the need for more sophisticated (?) banking services and financial inclusion, the RBI seems inclined to view it more as a means of ensuring greater financial inclusion. RBI governor D Subbarao is on record that financial inclusion will be one of the main criteria on which licences will be given. Either way, access to sophisticated banking and financial inclusion are the main drivers for issue of new bank licences. Take them one by one. First, the FM’s concern that we need to have banking services that ‘meet the needs of a modern economy’. As on March 31, 2009, we had 27 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks (RRBs), four local area banks (LABs), 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks. So, we certainly don’t lack numbers! And nor, it would seem, do we lack modern banking services, given that virtually every major foreign bank in the world has a presence in India. Hence, access to sophisticated banking products is not for want of sophisticated players. They are already here. What about financial inclusion? Here the position is less encouraging. Less than 50% of Indians have access to formal banking. Today more Indians have a mobile telephone than a bank account! If you allow for the fact that many Indians in metropolitan and urban areas have more than one bank account, the picture becomes even more disturbing with rural and semi-urban areas vastly under-banked. The far more pressing case for issuing more bank licences, therefore, is to remedy this imbalance and promote financial inclusion. Will new banks do that? If yes, the case rests and there is nothing more to be said. We must licence more banks. If not, there is no case for new bank licences; at least, not on the grounds of financial inclusion. So, let’s go back to the mid-1990s when 10 new banks were set up in the private sector (two more came up after the revised guidelines of 2001), ostensibly for the same reasons bandied about today — to promote competition and increase coverage. However, not all survived, leaving a total of seven new private sector banks on date. Seven out of 12 is not bad but it is not a score card that bolsters the case for new bank licences, especially in the light of what the 2008 crisis has taught us of the serious systemic consequences of bank failure. But we could still overlook that if the larger cause of greater coverage were served. Has it? No. Data shows new private sector banks had only 6.5% of their branches in rural areas as on March 2010. In contrast, nationalised banks had 31.6% of their branches in rural areas while State Bank of India had 32.7%. Meanwhile, the share of rural deposits and advances has come down from 10.8% in March 2006 to 9.2% in March 2010 and 8.4% to 7.5% over the same period. Therefore, whatever else the reason for issuing new bank licences, financial inclusion cannot be one. Neither can access to state-of-art banking products. So, what can? Corporate lobbying? Perhaps! But that does not mean the sector should be closed to entry. Rather that the fit-andproper test must remain the only yardstick and the RBI the only arbiter of that.
RBI accommodates IMC's recommendation on NBFCs
The Reserve Bank of India has accommodated the Indian Merchants’ Chamber’s (IMC) plea for including telecom towers in infrastructure finance definition for Non-Banking Financial Companies (NBFCs). The Chamber had recently brought to the notice of Deputy Governor Ms Shyamala Gopinath during a seminar on NBFC held in IMC on anomaly that in the same definition for banks for infrastructure loans, telecom towers were included, but not for NBFCs, a release issued by IMC said here today. The Reserve Bank has now issued a notification amending the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 to include 'Telecom Towers' also as an infrastructure facility for availing credit facility from NBFCs, the release added.
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