RBI cautions banks on e-banking

Mumbai: The Reserve Bank of India (RBI) had cautioned banks that though e-banking as a new technology has many capabilities, it also has many problems and users are hesitant to use the system.  “The use of e-banking has brought many concerns from different stakeholders. Everybody’s primary concern is security. As more and more people are exposed to the information superhighway, privacy of information and the security that goes hand and hand with this information is crucial to the growth of electronic transactions,’’ said R Gandhi, Executive Director , Reserve Bank of India. Gandhi said in order to provide effective and secure banking transactions, there are four technology issues that need to be resolved. “The key areas are the security, privacy and authentication,” he said. By strengthening the privacy technology, this will ensure the secrecy of sender’s personal information and enhance the system’s security. “Also encryption may help make the transactions more secure, but there is also a need to guarantee that no one alters the data at either end of the transaction,” Gandhi said.

RBI Authorizes IDBI Bank to Deal in Government Securities Market

Mumbai (ABC Live): The Reserve Bank of India on Tuesday has authorized IDBI Bank Limited to undertake Primary Dealer business in Government securities market with effect from April 20, 2011.  Information and confirmation to this effect was made by Ajit Prasad, Assistant General Manager through Press Release: 2010-2011/1515 that IDBI Bank Limited was given permission to deal in Primary Dealer business in Government securities market in lieu of authorization withdrawal from IDBI Gilts Limited, its subsidiary.

New licences set to drive bank job boom

As many as half a million jobs are likely to emerge across the banking sector as the economy rebounds on the growth path and the Reserve Bank of India (RBI) gets set to issue new banking licences. In a huge turnaround for a sector that was the worst hit in the global financial crisis, RBI has also started giving its approval to foreign banks to set up shop in India.  Industry experts said the job rush could begin as early as in the next 12 to 18 months.  Rabo Bank and Goldman Sachs have got the central bank's approval, while several others such as Morgan Stanley, JP Morgan are waiting. Human resource firms said that banks wishing to set up shop in India have initiated a preliminary talent hunt already. The existing foreign players in the sector such as Citibank and HSBC have chalked out their expansion plans.  "The broad strategy of banks that wish to set up shop here would determine their recruitment strategies,"  Deepak Verma, chairman, Sheffield Haworth, a financial services executive search major told Hindustan Times. Verma said that the high growth prospects of the domestic market are driving the banks and other financial sector firms to embark on a major recruitment drive. Verma said the large scale hiring would begin from end of the year.

RBI imposes Rs 5 lakh penalty on Maha-based cooperative bank

MUMBAI: The Reserve Bank today said it has imposed a Rs five lakh penalty on Maharashtra-based cooperative lender Dwarakadas Mantri Nagari Sahakari Bank for violation of directives related to disbursement of loans and advances.  "The RBI has imposed a monetary penalty of Rs 5 lakh on Dwarakadas Mantri Nagari Sahakari Bank Ltd, Beed.. for violating RBI directives/instructions relating to loans/ Advances to directors/their relatives/concerns in which they are interested," the apex bank said in a statement.  The Reserve Bank of India had issued a show cause notice to the bank, in response to which the bank submitted a written reply.  "After considering the facts of the case, bank's reply and personal submissions in the matter, the RBI came to the conclusion that the violations were substantiated and warranted imposition of the penalty," it said.

Inflation starts to pinch growth

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Cycle of rise in key policy rates may be extended

The cycle of upward revision in key policy rates by the Reserve Bank of India (RBI) is likely to be extended, owing to the high prices of commodities, according to economists. Many economists also said the pricing power of producers posed upside risks to inflation.  Market observers have now revised their outlook on policy rate increases, following higher-than-expected inflation in March. To tame rising inflation, RBI may raise rates by 75-100 basis points in the current financial year, they say.

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Why India overheats

The finance ministry has left something conveniently unsaid: 9% growth at what inflation rate?  The inflation problem continues to fox economists and unsettle ordinary Indians. However, the metaphorical man on the street seems to have had a better sense about the soaring arc of prices than the men and women with econometric models.  A year ago, the overwhelming consensus among Indian policymakers and private sector economists was that inflation would begin to decline to more reasonable levels in the quarters ahead. For example, the Reserve Bank of India (RBI) had said in April 2010 that inflation would be at 5.5% by the end of the fiscal year. Meanwhile, the 4,000 urban households that the central bank surveys each quarter to assess their inflation expectations were more pessimistic. They had indicated in December 2009 that inflation would be in double digits in the first three months of 2011.  The latest inflation numbers for February show that the man on the street was closer to the correct estimate than the economists. Prices continue to surge. Inflation hovers around double digits. The revised inflation number for January is 9.4% and the first estimate for February is 8.98%.  One explanation why households have got a better handle on the trajectory of inflation than the experts is that information distributed in a complex system such as an economy is better captured by a large group of people than a single model: the wisdom of the crowds. A less Hayekian explanation is that the man on the street was just plain lucky, a factor that has a greater role to play in the prediction game than most participants would accept.  It is the third possibility that is the most worrying. The wide gap between official inflation forecasts and the expectations of ordinary citizens could be an indication of a serious problem—the lack of institutional credibility. In short, common wage earners and consumers discount the guidance given by the finance ministry and RBI on inflation. And they have diminishing confidence in the ability of these authorities to control prices.  To be sure, the entire blame for the surge in inflation cannot be laid at the doors of the government and the central bank. There is a structural element in the inflation trend, as higher incomes have raised demand for fruit, meat, vegetables and milk. Some inflation has also been imported, as global oil and commodity prices have shot up thanks to the strong economic recovery in emerging markets and loose monetary policies in most Western economies. But domestic cyclical factors are undoubtedly a big part of the story as well.  Higher global commodity prices are already pushing up input costs for most companies. High inflation expectations could fuel demands for higher wages as well. Whether these two factors have an effect on final prices depends on the ability of Indian companies to pass on higher costs to consumers. The International Monetary Fund said this month that the output gap has closed; companies are operating close to full capacity. The ability to pass on higher costs to consumers is usually strong at such points in the business cycle, since there is little excess capacity to ramp up production.  The usual short-term response to an outbreak of high inflation is by cooling demand. RBI will have to raise interest rates far more aggressively than it has till now. The government has already announced a fairly ambitious plan to cut the fiscal deficit. Higher interest rates will weigh down on private demand and less red ink in the national budget will keep government demand under control. Both strategies will mean that some economic growth will have to be sacrificed. The closest we have had to an official recognition of this hard fact is when Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said after the release of the new inflation data on Friday, that the economy is unlikely to grow at 9% this fiscal.  However, as this column has pointed out earlier, demand management can work only in the short term. Further, it will involve sacrificing some growth. The more sustainable response will have to come from the supply side, through more investments and higher production capacity in farm and factory. I fail to see how such supply side effects can kick in without policy clarity and more economic reforms.  A final point: the Economic Survey released by the finance ministry in February used simple calculations to show that the Indian economy is quite capable of growing at 9% a year. India has an investment rate of around 36% of gross domestic product. India requires four units of capital to produce one extra unit output. But what the finance ministry left unsaid was: 9% growth at what inflation rate? The recent past reiterates an old truth. The Indian economy cannot grow at over 8% for more than a few quarters without overheating.

Banking licence draft guidelines in next 15-20 days: FinMin

New Delhi: The Reserve Bank of India (RBI) will bring out a second draft of the proposed guidelines for issuance of new banking licences in the next 15 to 20 days, the finance ministry said on Thursday. “Second draft guidelines for new bank licences in next 15 to 20 days,” Financial Services secretary Shashikant Sharma told reporters here. The finance ministry will have a look at the draft guidelines and comments will be invited before the final guidelines are notified. In the Budget 2011-12, finance minister Pranab Mukherjee had said the RBI plans to issue guidelines for the grant of new banking licences before the close of the last financial year, by 31 March, 2011. In the last Budget, it was announced that the Reserve Bank of India would consider giving traditional banking licences to private sector players, he had said. Following the announcement made by the finance minister, the RBI had brought out a discussion paper in August, 2010, on giving out new banking licences to business houses and non-banking finance companies, besides regulations for the same to foster greater competition. The RBI also sought to know “whether industrial and business houses could be allowed to promote banks.” Furthermore, it sought stakeholders’ views on whether NBFCs should be allowed to convert into or promote banks. The RBI has received comments on its discussion paper from all stakeholders. Various entities like Reliance Capital, IndiaBulls, Religare, IL&FS, IDFC, IFCI and Aditya Birla Financial Services are reported to be mulling an entry into the banking space.  At present, India has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.

ET in the Classroom: Public debt office

A public debt office or a debt management office is an autonomous government agency which acts as the investment banker to the government and raises capital from the markets for the government. It formulates the borrowing calendar for the government and decides upon the maturities of the securities to be issued on behalf of the government. A public debt office works separately from the central bank and has nothing to do with the formulation of the monetary policy or setting interest rates.

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India’s central bank battles alone in inflation struggle

What more does India’s central bank have to do? Last week data showed March inflation rising to almost 9 percent on an annual basis. More importantly, core inflation is above 7 percent for the first time in 3 years meaning demand-side pressures are rising fast. And that’s despite the Reserve Bank of India raising interest rates eight times since last March. The inflation data comes just after a quarterly HSBC report based on purchasing managers indexes showed that inflation in India seemed impervious to monetary policy tightening. The truth, is the inflation-fighting central bank has little backup from the government which remains stubbornly in spending mode. Its foot-dragging on reform and foreign investment contributes towards keeping food price inflation high. This year’s fiscal deficit target is 4.8 percent of GDP and even this is seen as optimistic.  What India really needs is to have domestic demand slowing down quite rapidly but the government is not prepared to risk that,”says Claire Dissaux, investment strategist at Millenium Global in London. The RBI has repeatedly said it shouldn’t have to do all the heavy lifting. But lack of support from the government means the central bank will have to put up rates another 100 bps this year, analysts reckon.

DE Shaw violated ECB norms: RBI

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The curious case of the Damodaran Committee’s report on customer services: Why is it still in limbo?

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