New Delhi: With inflation showing no signs of moderation, economists expect the Reserve Bank to hike key policy rates by at least 25 basis points in its annual monetary policy to be unveiled on May 3. The headline inflation (WPI) stood at 8.98 per cent for March, much above the RBI's projection of 8 per cent, fuelling speculation that the central bank may go in for another hike in the repo (lending) and reverse repo (borrowing) rates. "We are definitely expecting a rate hike. While we do see a 25 basis points (bps) hike in repo and reverse repo rates, it is also likely that the RBI could hike both rates by 50 bps each," Yes Bank Chief Economist Subhada Rao said. Referring to 8.98 per cent inflation in March, she said: "These are very, very disturbing numbers. The sharp upward movement in core inflation is at 29-month high. For RBI this is going to be of great concern, as demand is extremely robust". Expressing similar views, Crisil Chief Economist D K Joshi said, "We expect the RBI to hike repo and reverse repo rates by 25 bps each in its May policy review". "Another hike of 25 bps in the next policy meeting is a certainty," opined Tushar Poddar, Chief India Economist at Goldman Sachs. The repo rate is 6.75 per cent and reverse repo is 5.75 per cent. In order to check rising prices, the RBI has raised the key policy rates eight times since March 2010. The rise in wholesale price inflation was mainly on account of increasing prices of manufactured items, milk, vegetables and fruits. The WPI stood at 8.31 per cent in February. Besides, food inflation, which accounts for nearly 15 per cent of overall WPI inflation, touched the year-low level of 8.28 per cent for the week ended April 2 as prices of certain essential items like pulses and wheat declined, from 9.18 per cent in the previous week. "Food inflation will not have much of a bearing on the RBI's decision making process. From a policy perspective non-food inflation is very critical and it is rising. Looks like inflation will remain high this year", Joshi said. Right now, inflation is suppressed because the fuel price increases globally have not been passed on to Indian consumers yet. If they are transferred, inflation will be much higher than it is at present, Joshi added. On an annual basis, fuel and power prices went up by 12.92 per cent, driven mainly by a 23.14 per cent rise in petrol prices and a 14.99 per cent jump in cooking gas (LPG) rates.
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Tuesday, April 19, 2011
PSU LENDER, AP GOVT MAY START NBFC FOR MICROFINANCE CREDIT
HYDERABAD: A city-based public sector bank is mulling to start a Non-Banking Financial Company, in which the Andhra Pradesh government will join in the equity participation, to extend microfinance credit to the poor, said a state government official said. The state government move may spell doom to the already crippled microfinance institutions with significant exposure in the state. “A couple of banks are in touch with us. We also want to take part in the equity participation. By August 15 we may start operations,” R Subrahmanyam, principal secretary, told PTI. He said the feasibility study has been entrusted to Andhra Pradesh Mahila Abhivruddhi Society (APMAS) a non- governmental public society stands under the Foreign Contribution Regulation Act. MFI have preferred to focus more in the areas where banking network is active and on the groups that are already in the financial inclusion, taking advantage of the awareness of poor in group dynamics and lending methodology, the state government had earlier said. The proposed NBFC would have Rs 500 crore of authorised capital and Rs 150 crore of paid-up capital. Besides, a PSU Bank, both the central government and the state government would join the company as equity investors along with the National Bank for Agriculture and Rural Development (Nabard). Once the feasibility study is completed, the proposal will be sent to Reserve bank for further proceedings and approvals, Subrahmanyam said, adding the NBFC will extend microfinance to mandal samakhyas in the state through self help group (SIG)-bank linkage programme. The MFI lending in the State has come down drastically after the state government came out with a regulation to control microfinance activities. Microfinance Institutions Network strongly criticised AP Microfinance Bill and said it the Bill will create hurdle for the legitimate RBI-registered microfinance in providing access to finance for the poor. “The issue of unavailability of credit to 97 lakh borrowers and outstanding loans of Rs 7,500 crore is looming large before the industry and passing the bill without required amendments will impact the ability of MFIs to function smoothly,” Alok Prasad MFIN CEO had said earlier.
RBI to take new anti-inflation steps
The Reserve Bank of India (RBI) is likely to come out with a new policy measure to rein in inflation in its annual monetary policy review as high inflation remains a "matter of concern" for the apex bank. "We will have our own policy very soon. Inflation remains a matter of concern and we need to evaluate and underline the inflationary pressures," RBI deputy governor Shyamala Gopinath told reporters on the sidelines of a programme organised by the apex bank on Monday. She said that monetary policies required about 12 to 18 months to have an impact on inflation. "Once a policy is in place, it will take around 12 to 18 months to work. It is better that different mechanisms work in a calibrated manner," she stated. Gopinath said that the current inflationary pressure had been a result of high inflation from the food and the non-food manufacturing sector. "We will have to mark these trends and then ensure that there is no demand and supply mismatch," she added.
Inflation a concern for us: Gopinath
Ahead of the monetary policy review on May 3, Reserve Bank of India (RBI) Deputy Governor Shyamala Gopinath today said inflation was a concern, mainly on account of the high prices of non-food manufacturing goods.
50 better than 25 - Arjun Parthasarathy
The sharp upswing in March inflation, almost a percentage point over RBI forecasts, deserves a higher quantum of rate hikes. The RBI should raise repo and reverse repo rates by 50bps each as a signal of inflation veering sharply higher than estimates and as a signal of inflation being understated due to government’s fuel subsidy policies. RBI is scheduled to hold their policy meet in May 2011. The market is expecting a 25bps rate hike based on RBI’s wordings in their policy review in March, but will now start factoring in a 50bps hike after the March inflation numbers. A 50bps hike will be accompanied by a more benign inflation forecast as the RBI will then look to see the positive effects of rate hikes on inflation. The 50bps rate hike should then be taken positively by the market, as it decreases uncertainty on surprise hikes or jumps in inflation numbers. The market will also start looking ahead towards the end of rate hikes, which could just be a couple of policy reviews away. In the meanwhile if the government does raise fuel prices, inflation numbers become more reasonable and reflect reality. The sensex will benefit from a 50bps rate hike as the currency will be under pressure to appreciate bringing in more foreign flows. The RBI is not alone in their anti inflation campaign. China saw inflation for March come in at 5.4% against expectations of 5.2%. China has raised rates twice this year to quell rising inflation expectations. The Yuan has benefitted from the rate hikes and has climbed by 4% over the last one year against the USD and is holding at 15 year highs. The Shanghai composite index has gained around 8% over the last three months, indicating that equity investors are expecting a soft landing for China. Singapore allowed its currency to appreciate to a record high this week to counter inflation which is running at 5% levels. The Singapore dollar has gained around 10% over the last one year. Inflation as measured by the WPI (Wholesale Price Index) came in at 8.98% for the month of March 2011 against economists’ consensus expectation of 8.38%. RBI had forecast an inflation rate of 8% for March 2011. The WPI growth was revised to 9.35% from 8.23% for the month of January. The March inflation number does not factor in the sharp rise in oil prices as the government has not raised fuel prices to pass on the oil price rise to the end user. The Indian crude basket price climbed to over USD 110/bbl in March up by 9% over the previous month. Global oil prices are higher by over 30% in the last six months. The government is running up a subsidy bill of over Rs 175,000 crores at current selling prices of fuel. The fuel subsidy is vastly understating inflation and the upside surge in inflation for March does not even remotely reflect the fuel price rise.
Options to shop with your mobile increase
Plastic money has helped wallets shed a lot of weight. Technology has taken a step ahead and enabled you to get rid of the wallet completely. With the Reserve Bank of India (RBI) taking a proactive role in popularizing mobile payments and beginning to issue the necessary licences, and mobile banking becoming popular by the day, you may soon get hooked on to the facility if you haven’t already. Last week, Corporation Bank launched a mobile wallet, known as YPayCash, a mobile payment platform along with eMudhra Consumer Services Ltd. At the launch function, Ramnath Pradeep, chairman and managing director, Corporation Bank, said, “Mobile banking has become very popular as it creates a convenient and fast financial transactional channel. We are glad to provide this secure mobile payment platform.” A few other banks also offer mobile wallets. These include Yes Bank Ltd and Union Bank of India. Airtel is the only telecom company to have been granted the licence by RBI to provide a similar service through Airtel Money. The facility being provided by Corporation Bank is currently restricted to person-to-merchant establishment payments. In other words, it cannot be used for person-to-person fund transfers but only to make payments to retailers. The payment solution has currently gone live in Mumbai and Bangalore where the bank has almost 16,000 point of sales (PoS) terminals. However all these PoS have not gone live with the facility and the bank expects them to do so in the coming months. Existing Corporation Bank account holders who have signed up for the payment solution can make use of the facility at merchandise outlets that have gone live with the system. If you are an existing Corporation Bank account holder, just walk into a bank branch and apply for the facility. Once your number is added to the system, you will get an SMS with a link in it. Click on it to install the client application. The first time you log in, you will be prompted to create an alphanumeric password. You can either ask the bank to maintain a fixed amount in your mobile wallet, request for periodic transfer of a fixed amount from your savings account or do a top-up through your cellphone same as in a prepaid connection. Currently, the limit is Rs. 5,000. In order to initiate the transaction, you have to log in to the client application installed on your cellphone and key in the amount to be paid. The application will then generate a unique 2-dimensional bar code. This bar code captures your personal data such as your account number, phone number, time scan and certain other details. The merchant will then photograph the bar code from the bank’s client application installed on his cellphone and the payment is complete. Both you and the merchant will get an SMS alert, stating the amount paid and that the payment has been successful. The best part is while transacting, you don’t need to share any personal details such as your account number, user identity or name with the retailer. You can use this to make payments at retail outlets. Eventually, you would be able to use it to pay utility bills and for other transactions. Says Ravi Jagannathan, managing director and CEO, eMudhra Consumer Services, “What we are looking at is a whole ecosystem that will allow you to do a host of transactions as it evolves. In fact, we are also in talks with several other banks to get them on board. We expect three of them to go live by June-end.” More banks coming on board could also mean inter-bank transactions, he adds. Says Jagannathan, “You will receive an SMS alert for each and every transaction, so in case you have been unable to track your expenses, then you also have a record of your transactions and expenses.” So now you need not worry about having to count the exact change when shopping.
Breather for SBI as RBI seeks clarification on special loans
Mumbai: State Bank of India (SBI) has got a breather on its controversial special home scheme as Reserve Bank of India has asked clarification from the bank. The communication from RBI reached SBI last weekend. "We have received communication from RBI seeking clarification on certain issues relating to our special home loan scheme. We will send a reply by this weekend," a senior SBI official said. The SBI had written to the RBI soon after it had raised provisioning amount on teaser home loan scheme to 2% from 0.4% clarifying that the bank's special home loan scheme couldn't be termed as teaser, and hence, the bank didn't have to provide any extra capital. However, RBI hadn't replied to the SBI earlier and the bank has been reviewing and relaunching its scheme after end of every quarter. SBI had conducted a high level meeting under Krishna Kumar, MD of SBI, to review the situation where the bank may have to modify its special home loan scheme. "We haven't decided anything on the scheme and it continues as it is," said the official. Meanwhile, sources at.RBI said the central bank may ultimately ask the bank to provide at 2% for its special home loan scheme. "Our stand is very clear. Any home loan product having feature of both fixed and floating rates will fall under teaser home loan scheme. SBI product is neither fully fixed nor fully floating. The new customers of SBI are being attracted with low fixed rates but may have to pay higher floating rates afterwards. We don't want to encourage this product,'' sources at RBI said. Soon after taking over as the new chairman of SBI, Pratip Chaudhuri had hinted that the bank’s special home loan schemes may be modified since the higher provisioning norms for such assets of 2%, as prescribed by the regulator, were beginning to hurt. “We are continuing with the schemes at present. At the same time, we are in dialogue with RBI and will try to address the concerns of the regulator, deliver value to the customer and also make sure the provisioning is affordable,” said Chaudhuri. Chaudhuri's predecessor OP Bhatt, who was instrumental in growing SBI's home loan portfolio with the special home loan scheme, had staunchly defended the product. Reiterating RBI’s stance that SBI’s special home loans are similar to the sub-prime loans lent in the US in the run-up to the 2008 global financial meltdown, Bhatt said this view is beyond logic as his offering is sold to those who are “absolutely credit-worthy.”
RBI refuses to endorse Sivasankaran's Tamilnad Mercantile Bank stake sale
CHENNAI: The Reserve Bank of India has refused to acknowledge maverick NRI businessman C Sivasankaran's sale of nearly 33% stake in the private sector Tamilnad Mercantile Bank (TMB) to Indian and foreign investors four years ago. Sivasankaran had sold the stake to Ramesh Vangal and ex-McKinsey chief Rajat Gupta , among others. The RBI, which was directed by the Bombay High Court last year to decide on the ownership, has said the deal lacked transparency and it violated the Foreign Exchange Management Act ( FEMA . According to a copy of the RBI order, available with ET, RBI deputy governor Anand Sinha has found "no transparency" in the deal. He said the seven foreign investors, and the Indian investors had acted in concert and "formed a group" while buying the stake. This, he said, is a violation of FEMA. The investors now have to reduce their collective holding to below 5%. TMB managing director AK Jagannathan said the RBI has submitted its decision to the bank. "The appropriate stakeholders should study it and see what needs to be done. The RBI order is an order for us and only the implications of the order matter to us." Vangal couldn't be reached for his comments. In May 2007, seven foreign investors - Vangal's Katra Holding, Ravi S Trehan's RST, Rajat Gupta's GHI, Kamehemaha Mauritius, FI Investments (Mauritius), Cuna Group (Mauritius), and Swiss Reinvestors (Mauritius) - and Indian investors Gokul Patnai and Vector Programme bought 24.93% in TMB, a Nadar community-dominated bank. These investors paid 24,182 a share for the 10 paid-up share of bank. Besides the new non-Nadar investors, another 8% was picked up by influential Nadar businessmen and Indian investors such as MGM Maran and MG Muthu, PS Sathiyaseelan, Hemangini Finance and Leasing, Shanmuga Financial Services, L Sridhar, and N Ganeshan. R Chinnakannan and C Chandammal, the parents of Sivasankaran, were also part of this group. These investors had paid 6,050 a share. The shares where bought from four companies belonging to Sivasankaran's Sterling group. Jagannathan said the bank's accounts are being audited and the balance sheet would be ready by the end of this month. The AGM will also be held shortly where major decisions would be taken. "We will be raising capital and things will evolve after that," he said. In October 2010, the Bombay HC had restrained the TMB from taking any major policy decision or holding its annual general meeting till the Reserve Bank of India acknowledged the transfer of shares. Sources told ET that based on the RBI's directive, the bank's board has decided to hold the AGM for the 2010 and 2011 fiscals at Tuticorin on June 15. Among other things, it will list resolutions to be adopted by members for increasing the authorised capital from 1 crore to 100 crore, issue 30 bonus shares for every one share and allow investors to hold shares in the demat form. Sources said following the directive from the RBI, the bank has to find investors for the over 32% stake at a huge premium. At the same time, the RBI's stand will pave the way for the bank to float a public issue and offer shares to retail investors. On a thin equity of 28.45 lakh, TMB has reserves of over 1,200 crore.
Leighton faces India payment snag
Leighton Holdings Ltd has been forced to re-extend the payment deadline for the $104 million sale of part of its Indian business, according to a report by The Australian newspaper. The report said the sale of 35 per cent of Leighton Contractors India was formalised last December, and cash payment was due on March 31. Leighton said this was delayed by the Reserve Bank of India's bureaucratic process, and the deadline was extended. The company had hoped for payment by last Friday, but this deadline also lapsed. Leighton shares tumbled more than 15 per cent last week after the company announced a sudden profit downgrade of about $900 million. It was yesterday forced to defend the announcement to the ASX, after being hit with a disclosure query.
Heat on vexed trade payment route
Calcutta, April 18: The Reserve Bank of India (RBI) may take a relook at the Asian Clearing Union mechanism — set up in 1974 under the aegis of the United Nations Economic and Social Commission for Asia-Pacific — involving the central banks of India, Bangladesh, Myanmar, Iran, Pakistan and Sri Lanka. Speaking at an interactive session on the Foreign Exchange Management Act, RBI deputy governor Shyamala Gopinath said, “ACU mechanism may be relooked into. We need to reflect on this.” The Tehran-based ACU mechanism was virtually dismantled after an RBI notification, which said that all eligible current account transactions, including trade transactions, with Iran should be settled outside the ACU mechanism. Under the ACU mechanism, payments for all transactions between Indian firms and entities of any of the member countries are settled by debiting to the ACU dollar account in India of a bank of the member country or crediting to the ACU dollar account of the authorised dealer maintained with the correspondent bank in the member country. “This (the December sanction) has been imposed in view of the difficulties being faced in payments to and receipts from Iran. The country is now facing ban of the US dollars and euro. This situation has become more complex and it is engaging a lot of our attention. The matter is now with the ministry of external affairs and the government,” Gopinath said. Following the December notification, banks have stopped paying domestic exporters any remittances from Iran and opening letter of credit account for the importers of Iranian produce. Meanwhile, domestic importers and exporters to Bangladesh have also urged the deputy governor to allow them to settle payments outside the ACU mechanism. “I get a feeling from this forum that exporters want the flexibility of settling payments outside the ACU mechanism,” Gopinath said. While India is trying to find ways to settle the payment row through using some other currency, including the rupee, some quarters believe that the RBI sanction may in fact help India-Iran bilateral trade to grow because exporters and importers of both the countries can now engage in bilateral trade and payment settlement outside the ACU mechanism. This development assumes significance given the fact that in its third summit the Brics (Brazil, Russia, India, China and South Africa) countries have mooted the idea to engage in multi-lateral trading among themselves in their own currencies and thereby reducing the dominance of the dollar and the euro.
IMF expects RBI to confront inflation challenge
The International Monetary T Fund expects the Reserve Bank of India to effectively deal with the challenge of inflation, noting that the initial food price driven inflation now appears to be generalizing. “At one point, it (inflation) was thought to be a temporary factor, but apparently, that is not the case, and the initial food price-driven inflation is now somewhat generalizing,“ IMF's India Mission Chief Masahiko Takeda said, adding: “So the Reserve Bank of India is now very concerned about it, and we expect the RBI to stay vigilant and take necessary action.“ If combating inflation is the immediate job on hand, the medium term challenge for India will be to focus on maintaining its current high growth, Takeda said, noting: “There must be some appropriate environment for high growth to continue.“ India, he said, would have to address struc tural reform issues in order to give a boost to infrastructure sector, enhancing foreign direct investment, boosting agricultural productivity and increasing the level of human capital. Looking at the whole Asian region, the IMF reckons that inflation and overheating are the twin risks now confronting several key economies. Even while lauding the region for its sound growth performance and weathering the global downturn, it wants action to deal with the two dangers. “Headline inflation has accelerated in the last six months and initially that reflected commodity prices, but we do see these pressures now spilling over into core inflation and inflation expectations,“ said Anoop Singh, Director of IMF's Asia and Pacific Department, providing an Asian perspective to the media at the just-concluded IMF-World Bank spring meetings. The IMF expects inflation in many Asian economies to increase further this year before slowing modestly next year as global commodity prices stabilize and macroeconomic policies are tightened. “But the inflation risk for Asia is clearly on the upside,“ said Singh. Overall the Asian region is expected to grow at 7 per cent in 2011 and 2012 (India is projected to grow at 8.25 per cent this year and 7.75 per cent next year), but the economies of the region have to stave off the danger of overheating. According to Singh, pockets of overheating pres sures have emerged across Asia in both goods and asset prices. The rising commodity prices pose an added risk, Singh said, noting: A more proonged disruption of industrial production n Japan could have effects on o t h e r economies n the region, and elsewhere in the world, that are linked to a pan through the global supply chain.“ The prescription for the whole region as it combats inflationary pressures will be “certainly further monetary tightening“. Exchange rate appreciation would help tighten monetary conditions, while some economies in Asia needed more fiscal consolidation, he said. While IMF expects foreign capital flows into the region to continue this year and next, although at a lower pace than last year, Singh said global tensions could cause more volatility in inflows. “Macro prudential measures targeted at reducing the risks from volatile capital flows can be helpful, and they are being taken forward. They are complements to macroeconomic policy adjustments, but of course they are not substitutes,“ he said.
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