RBI apprehensive on portfolio inflows, wants more FDI

BANGALORE: The Reserve Bank of India today pitched for increased foreign direct investment into the country, even as it expressed apprehension over the quality of portfolio inflows. RBI Deputy Governor Shyamala Gopinath said India has been able to absorb capital inflows because it has a current account deficit. "But we have expressed apprehension on the quality of inflows in terms of portfolio inflows," she told reporters on the sidelines of a function here. "But as we see today, we are not seeing too much volatility in that sense. But we would want more of FDI to come in so that quality of the flows do alter," she added. Gopinath also said the RBI would issue draft guidelines on new banking licences in the next couple of weeks. "We are in consultation with the government (in regard to draft guidelines). There is no tussle with the government as such," she said in response to a question, adding that the RBI and the government converge on many issues vis-a-vis these guidelines. When asked about SKS Microfinance "struggling" with Andhra Pradesh government norms, Gopinath said the RBI expects MFIs (Microfinance Institutions) to be in full compliance with its regulations. She said the RBI hopes the Andhra Pradesh government takes a relook at its (Andhra government's) regulations to ensure that MFIs are able to function in that state. Gopinath also said rising commodity prices, particularly oil and gas, would add to the inflationary pressures, adding that the other factor driving inflation is that the price rise has not been factored in the administrative price of items like fuel. "So, yes, we would be impacted if commodity prices go up substantially," she added.

Imposing policy discipline among nations may be tough: Duvvuri Subbarao, Governor, Reserve Bank of India

MUMBAI: Imposing economic policy discipline among nations may be elusive for many years as the fundamental analysis required to come out with an acceptable policy is not in place, Reserve Bank of India Governor Duvvuri Subbarao said. Enforcement of policies will also be difficult. "It is far too early to think of reaching new formal international agreements on policy behaviour," Subbarao had said at the SNB-IMF Conference on The International Monetary System, Zurich. "Instead, countries will prefer to proceed through more exchange of information, peer review processes and ad-hoc international agreements, depending upon the situation prevailing at any point of time," he said. Economic policies practiced by countries have begun to differ widely in the last few months, compared to the 'co-ordinated action' chorus that was advocated during the credit crisis when central banks pumped in liquidity in an unprecedented way and cut rates to as low as zero. With the crisis behind and the outcomes of loose monetary policies varying between countries, leaders may not agree to a common policy. While the West may still need an easy policy, emerging nations may have to make funds expensive to rein in prices. "Developing consensus on a code of discipline will be challenging," said Subbarao, while speaking on a topic 'Policy Discipline and Spillovers in an Inter-Connected Global Economy'. There's difficulty, "in reaching international agreement just in the specific field of financial regulation. It will be even more difficult to reach a consensus on broader economic policy,'' he said. The two major disruptions in the global economy in the recent past have been the so-called Quantitative Easing 2, or printing currency by the US, and the undervalued currencies in some countries. China has been accused by the US and others of keeping its yuan undervalued to export more. That is hurting producers in other nations.  Global economic analysis that focuses on trade alone to assess the impact of policies in various nations itself is flawed, said Subbarao. Econometric models are not factoring in events such as the financial crisis, tech bubble burst and such developments are making any international consensus difficult. "Recent experience shows that our understanding of the nature of these linkages is seriously deficient," said Subbarao. "In fact, standard econometric models still suggest that shocks in one country have very small effects on others. They do that because they assume that trade is the primary channel for transmitting these shocks across countries, and trade moves in line with GDP."

CAPITAL INFLOWS VOLATILITY NOT A PROBLEM: RBI

In the debate during the SNB-IMF Conference upon The International Monetary System in Zurich, Subbarao said: “In India’s case, the concerns upon this comment now have been reduction strident given collateral inflows have been indispensable to financial the stream comment deficit.”But the combination of the inflows stays an emanate as about three-quarters of the stream comment necessity given 2009 has been financed by flighty collateral inflows, Subbarao said. It might be remarkable which India’s stream comment necessity was during $9.7 billion in the Dec entertain as opposite the $12.2 billion in the same duration the year ago.Some taking flight economies have been in the process connect given taking flight acceleration calls for parsimonious financial process though aloft seductiveness rates will feature flighty collateral inflows following the second turn of quantitative easing by the United States, he said.Last week, the RBI stepped up the quarrel opposite taking flight prices, by augmenting seductiveness rates by 50 basement points. China stormed behind to post the large traffic over-abundance in Apr as exports strike the jot down whilst imports eased some-more than expected, weighed down by postulated financial tightening as well as tall commodity prices.The United States has claimed which the yuan, additionally called the renminbi, was undervalued as well as gave Chinese exports an astray traffic advantage. In an strong anxiety to China’s sell rate policy, Subbarao said: “India’s (exchange rate) process is theme to disastrous externalities from countries which say undervalued sell rates, undermining the competitiveness in third markets as well as the efforts to enclose the stream comment deficit.”“In India’s case, the rupee’s sell rate has been probably stretchable in the past dual years, as you have not intervened in the unfamiliar sell market. The tiny enlarge in pot reflects assorted accruals, seductiveness gain as well as gratefulness changes.” RBI upon Tuesday, additionally set up the cabinet for streamlining unfamiliar sell sell as well as additionally invited comments from open as well as alternative stakeholders for mending comforts regarding to investments as well as repatriation of funds.In the matter it pronounced which the cabinet chaired by former RBI Deputy Governor K J Udeshi was to facilitate procedures for facilitating genuine unfamiliar sell sell by individuals. The people have been categorised in to residents, non-resident Indians (NRIs), Persons of Indian Origin (PIOs) as well as expatriates in use in India underneath the Foreign Exchange Management Act (FEMA), 1999.

MSCB unaware of RBI move : Ajit Pawar

Deputy chief minister Ajit Pawar on Tuesday said the management of the Maharashtra State Co-operative Bank (MSCB) had no inkling about the Reserve Bank of India’s (RBI) decision to dissolve the bank’s board of directors. Speaking to reporters in the city after attending a review meeting of kharif season with the Pune district administration, he said, “If the central bank had informed us earlier of such an action, we would have taken steps to prevent it.”  The RBI dissolved the board of the bank on May 7 due to its dire financial condition. The move has unruffled the Nationalist Congress Party (NCP) leadership, as a majority of the directors belong to the party, who have termed the action as “politically motivated to defame the NCP”. Pawar said he would be scrutinising the bank papers on Wednesday before making any statement to the media. “The bank chairman, Manikrao Patil, is examining the documents today. It would be unwise for me to make any comment at this juncture,” he said.

Volatile commodity prices may drag down India growth

NEW DELHI: Finance minister Pranab Mukherjee on Wednesday warned volatile commodity prices may drag down the country's annual economic growth to below an estimated 9 per cent in this fiscal year, a week after indicating further rises in oil prices could shave 1 percentage point off Asia's third-largest economy's growth.  Pranab Mukherjee also said inflation was likely to remain at elevated levels between 7-7.5 per cent during this period, at least a per centage point higher than the central bank's end-March 2012 projection of 6 per cent.  Oil prices rose to 32-month peaks in April due to tensions in the Middle East and North Africa, but a combination of a stronger dollar and signs of cooling in China has brought down prices.  ICE Brent crude futures were 39 cents lower at $117.24 a barrel by 1058 GMT, having earlier risen to as high as $118.43.  "Due to volatility in international commodity prices and other supply constraints, it may not be possible to achieve the growth rate of 9 per cent, +/-0.25 per cent, for the current fiscal," Mukherjee said in a statement.  While private economists are increasingly trimming their 2011/12 growth forecasts for India, citing high inflation, rising interest rates and high oil prices, the government has not yet officially revised down its growth forecast.  India's central bank has forecast an annual economic growth of around 8 per cent for this fiscal year on the assumption that crude oil prices would average $110 a barrel over the full year.  While higher oil prices are threatening to slowdown the economy, they are posing inflationary risks.  Headline inflation surged to nearly 9 per cent in March, well above forecasts, prompting the central bank to raise key rates by a bigger-than-expected 50 basis points to tame stubbornly high inflation last week.  The Reserve Bank of India (RBI), which has raised its main operating policy rate by 250 basis points since March 2010 in nine moves, expects the headline inflation to remain around 9 per cent in the April-September period. The RBI Governor Duvvuri Subbarao on Monday reiterated India will maintain its anti-inflationary stance even if that means sacrificing growth in the short term. [ID:nL3E7G918K] High inflation is seen preventing New Delhi from passing on high global crude prices to domestic consumers, a decision that has a bearing on its fiscal health.  A ministerial panel meeting to consider raising fuel prices was deferred on Tuesday, signalling the government's reluctance to tackle a political hot potato that is needed to bolster public finances, but which could also stoke inflation.  Any hike in prices of diesel and gasoline is expected to be small, given the political sensitivity of such a move for hundreds of millions of poor who form the bedrock of support for the government. Even a small rise would help limit the government's fuel subsidy burden to a budgeted $5.2 billion for 2011/12 and help it meet its fiscal deficit target of 4.6 per cent of gross domestic product. But the government also appears wary of the effect of raising fuel prices on headline inflation. Even a 10 per cent hike in petrol and diesel prices would add around 70 basis points directly to headline inflation, brokerage Nomura said in a report late last month.

Foreign banks' CEOs responsible for regulatory compliance: RBI

Concerned over the way the foreign banks are functioning in the country, the Reserve Bank today said that their Indian Chief Executive Officers (CEOs) would be responsible for oversight of regulatory and statutory compliances.  "It has been decided that for all foreign banks operating in India, the CEO would be responsible for effective oversight of regulatory and statutory compliance as also the audit process and the compliance thereof in respect of all operations in India," the RBI said in a notification.  The notification comes amid reports of fraud in branches of leading foreign lenders like Citibank and Standard Chartered Bank. As many as 34 foreign banks including global leaders like HSBC and Deutsche Bank are having operations in the country.  RBI has also expressed concerns about "the adequacy of regulatory compliance by foreign banks in India" and the practice of the unit heads of foreign banks reporting directly to Functional Heads located outside the country and not to the Indian CEOs.  It further noted that Indian operations of foreign banks functioning in India as branches of the parent banks generally do not have a separate Audit Committee vested with the responsibility of examining and reviewing inspection reports for their compliance.  Following the notification which was communicated to all foreign banks, their CEOs will be responsible for compliance with the norms of the central bank.

SBI to introduce green-channel banking at more branches

State Bank of India (SBI) will introduce “green-channel banking” at more of its branches to promote paperless work and to facilitate faster transactions for customers, SBI sources said.  All major transactions, including withdrawals, deposits and remittances up to Rs 40,000, will be made through green-channel banking, which was introduced at 26 out of 680 branches of the bank in the first phase, the bank’s General Manager (Network-II), Devendra Prasad, said on Wednesday. Although there was no specific number of branches to be covered in the state with these facilities in the second phase, several more branches -- including some at Berhampur, in Ganjam district -- are expected to introduce green channel counters. “Since there is no paperwork in this initiative, it is called green-channel banking,” said Mr. Prasad, who was here to address customers and inspect some of the branches. The customers need not fill up any pay-in slip or cheque for depositing or withdrawing money from their account. Instead they could access the services of ATMs. “In this way, there will be no requirement of paperwork and the process of money transaction will be fast,” he said. Around 28 per cent of the bank’s total transactions, mostly deposits are made through alternative channels, including mobiles, the internet, ATMs and green-channel banking, in 2010-11.  He said the bank would add more branches in the state during the current year. In the last financial year, it had opened 11 branches in the state.

RBI move to help reduce fake diamond export

SURAT: In what is seen as a step to curb the fake diamond exports and the round tripping of the funds and diamonds by the diamond merchants, the Reserve Bank of India (RBI) has reduced the term of letter of credit (L/C) from one year to just 90 days for the import of rough and polished diamonds. The Gems and Jewellery Export Promotion Council (GJEPC), apex body of the Indian diamond industry, has welcomed the step taken by the RBI. "It is a good step taken by the RBI. The reduction in the term of L/C will discourage fake diamond exports from the country and will help the genuine trade to prosper," said Sanjay Kothari, vice-chairman, GJEPC.
Kothari said there were elements in the diamond industry who were taking wrong benefits of interest arbitrage from the local and the foreign banks through the extended period of L/C. Official sources said the GJEPC had made several representations to the ministry of commerce and the RBI for reducing the L/C term in order to discourage the elements in the industry for taking undue benefits of availing cheap bank finance and interest arbitrage. Sources said the diamond importers open L/C with the local bank against fixed deposit as a guarantee to the supplier bank that his payment is secured. Once the foreign supplier's bank receives the L/C, it dispatches the goods to the importer's bank in India. For paying the overseas supplier, the importer takes a loan from a foreign bank, which at Libor plus 200 basis points works out 5.5-6 per cent cheaper than what is charged by a local bank. This loan is given to the importer against a guarantee from the local bank with which the trader has opened the L/C. Since the term of L/C has been reduced to 90 days, instead of one year, the diamond importers could not earn the benefit of interest arbitrage, which he used to get from the local bank till now by selling off his cut and polished diamonds at a certain value and earning 7-8 per cent interest on the fixed deposit.

Is RBI helping or hurting you?

The Reserve Bank of India has been battling for months to protect you from high inflation. Ironically, in its war against high prices-that intensified with a sharp hike in interest rates recently-the RBI has also managed to raise the cost of living for some.  All EMI-funded purchases get more expensive every time interest rates are raised. And if high rates also begin to hurt corporate earnings, dividends and returns from stock investments will also be impacted. So, is the central bank really helping you or not?

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Debt management office may be reality soon: Sources

Days after RBI Governor D Subbarao opposed the proposal to set up a debt management office (DMO), sources in the finance ministry have told CNBC-TV18 that, while more discussions would be held between the ministry and the RBI, the fact remains that the proposed DMO would indeed become a certainty at some point of time. Sources added that the RBI board may meet on May 19 to discuss the proposal. Once the central bank gives its final views on the matter, the government would begin the process of setting up a full fledged DMO. Finance Minister Pranab Mukherjee in his budget this year had announced setting up a DMO.

RBI clamps down on Maha coperative banks

The Reserve Bank's drive to tighten its control over co-operative banks has taken a political twist but CNBC-TV18’s Gopika Gopakumar reports that according to the RBI, this was just another day in the office. The RBI has hit a nerve, as it cracks down on co-operative banks. Its order to the Maharashtra government to supersede the Board of Maharashtra State Cooperative Bank (MSCB) and appoint administrators has political leaders like Maharashtra Deputy Chief Minister Ajit Pawar and Union Agriculture Minister Sharad Pawar miffed. Sharad Pawar blames the state government for the mess and Ajit Pawar says the Congress leadership has instigated this politically motivated action. The reaction is not surprising; say sources, since the bank was a source of funds to run cooperative sugar factories, spinning mills and dairy units.  Sources say that this action has been on the anvil for a while now. In 2005, both RBI and NABARD had issued directives to the bank asking it to reduce its exposure to the sugar sector. They said that 50% of its Rs 7,800 crore loan portfolio was to the sugar sector, and this was unacceptable. They had also directed the bank to reduce the number of board members from 57 to 20. The RBI order says as on March 2010, MSCB had a loss of Rs 800 crore and a negative net worth of Rs 144 crore. Also, its gross non-performing assets stood at 20%. it also said that the bank board had taken several decisions that were not in the bank's best interests. These irregularities came to light at NABARD's annual inspection in FY10. The NABARD report also highlighted a Rs 778 crore shortfall in provisions and said loans to sugar factories were rescheduled in November 2002, March 2005 and March 2007 without sufficient provisions. Sources say the Maharashtra government will now have to either call for elections within the next two months to appoint a new board, or bailout the bank. For the RBI, this is just one more in an ongoing crackdown on errant co-operative banks. This year alone, it has penalised 27 co-operative banks for various irregularities and sources say more cooperative bank boards could be superseded going forward.

Retail investors shouldn't ape FIIs

Since the beginning of this month, foreign institutional investors (FIIs) have been net sellers in the Indian equity market. For a market largely fuelled by the FII movement, it resulted in both the Bombay Stock Exchange’s (BSE’s) Sensex and the National Stock Exchange’s Nifty to lose close to five per cent in the same period. According to BSE data, the net equity sold by FIIs was Rs 3,645 crore between May 2-10. However, in the preceding months — March and April — FIIs were net buyers (Rs 8,399 crore). Although India’s high inflation has been a cause for concern for some time now, the post-Budget buying by FIIs showed that they still expected the corporate sector to deliver. But that didn’t happen. The results for the quarter ended March were not on the expected lines, with corporate margins under pressure. The latest selling spree by FIIs, however, was sparked off after the Reserve Bank of India (RBI) raised interest rates by 50 basis points (bps) rather than the expected 25 bps last Tuesday. Most FIIs have not been enthused by RBI’s stance that it is willing to sacrifice the economy’s growth to curb inflation.

MSC Bank was working without licence: Nabard

Mumbai: The NCP-controlled Maharashtra State Cooperative Bank (MSCB) was operating without a licence. Nabard, the cooperative and rural banking regulator, has stated the point in a 169-page report, based on which the RBI dismissed the MSCB board of directors a week ago. While the NCP has cried foul, saying the decision was politically motivated, the Nabard report has revealed one skeleton after another in the MSCB closet.  Nabard has observed that the MSCB board conducted its affairs against the interests of depositors, concealed non-performing assets, completely ignored the RBI’s statutory orders, sold the properties of borrowing units acquired under the Securitisation Act much below the reserve price, sanctioned non-agriculture loans without authorization from Nabard, waived huge interest amounts in violation of the Cooperative Societies Act and enhanced credit limits to units having negative net worth.