Taxpayers, watch out for this RBI site

Cyber criminals are using their best bait in the Indian cyber space to con more and more internet users. This time it’s in the name of the apex banking organisation of the country, the Reserve Bank of India (RBI). Researchers at Pune’s Global Intelligence Lab of e-security giant Symantec found a phishing spam propagated in the cyber space wherein a fake website carrying RBI’s name has been created. After the income tax department announced that the last date for sending tax returns for the present financial year has been extended to July 31, phishing sites have been created to con internet users. The website carries the RBI logo and name and it has been mentioned on the homepage that the users will get their tax refund amount deposited into their personal bank accounts. Users are lured into putting their personal and confidential banking details on the website. Gaurav Kanwal from Symantec said, “Symantec has been in contact with the RBI. The bank has said that emails sent in its name to customers have been observed asking for bank account details. The RBI has clarified that it has not sent any such emails and that the RBI or any bank never issues communication asking for bank account details for any purpose. The RBI has appealed to the public to not respond to such emails and not share their bank account details with anyone for any purpose.” A list of country’s eight leading banks has been mentioned of the website. Users are asked to select the bank in which they have their accounts. They are then asked for their customer ID and PIN or the password. Assuming it to be the RBI website, users end up providing such confidential details, making themselves easy target for cyber criminals who have launched the website and extract the valuable information. The fake website then takes the users to another webpage which asks for their credit card and/or debit card details. After users key in these details, the website displays a message acknowledging that the request for the tax refund has been submitted successfully. Users are then redirected to the real RBI website. This is not the first time that a government institution’s site has been spoofed. Last year, during the same period, a website in the name of the income tax department had been created by cyber criminals. To avoid phishing attacks, internet users are advised to not click on suspicious links in email messages, avoid providing any personal information when answering an email, never enter personal information in a pop-up screen and update security software frequently. 

DNA

Polaris to offer Intellect Core Banking to RBI

Intellect CBS will help the RBI to have a cross functional automation and integration of the banking operations in all regional offices of the bank with departments like Deposit Accounts and Public Accounts Department.  

CHENNAI, INDIA: Polaris Software, a Financial Technology company, on Friday announced that it would implement its Intellect Core Banking System (CBS) across Reserve Bank of India (RBI). The end-to-end implementation includes System Integration and maintenance of software for a period of ten years, said a press release. The deal is valued at $55 million, the release added. RBI, India's Central Banking Institution, wanted to implement a centralized CBS at all its offices encompassing all banking and accounting operations to align with its current and future IT requirements, including one Generalized Ledger for the bank. Intellect CBS would help the RBI to have a cross functional automation and integration of the banking operations in all regional offices of the bank with departments like Deposit Accounts, Public Accounts Department and Pubic Debt Office.  It would bring technologies like Run Time Reuse, Look Ahead Processing, Back Ground Processing and Transaction Splitting to ensure high scalability and performance in both OLTP operations and batch operations like EOD, claimed the company. The solution would provide future regulatory and functional requirements of RBI with shortest go to market timelines. It would also offer security features by design such as internal account numbers, tamper proof database, PKI supported transaction execution and storage, security in account operations including positive pay features, document certification and verification, two factor authentication and one time password provisions. Arun Jain, chairman and CEO, Polaris, said, “I am delighted that after stringent evaluation of the Next Generation architecture of Intellect, RBI chose Polaris. This $55 million deal is the single largest Intellect win for Polaris.”

Basu pitches for FDI in multi-brand retail to tame inflation

Describing the Indian retail sector as "primitive", the IMG on Friday suggested that foreign investments in the multi-brand retail should be allowed at the earliest to check rising prices. "India's retail sector continues to be primitive. It’s time for India to allow FDI in multi-product retail and IMG recommends that the government consider this at the earliest," Chief Economic Advisor and head of the Inter-ministerial Group (IMG) Kaushik Basu said. Besides opening the retail sector for FDI, the IMG also advocated reforms in agriculture marketing laws to reduce the gap between farm gate and retail prices and contain inflation "which has emerged as a major concern in the past few months". Headline inflation, stood at 8.66 per cent in April, much above the Reserve Bank's comfort level of 5-6 per cent. Food inflation was 8.55 per cent for the week ended on May 14. The IMG constituted in February by Prime Minister Manmohan Singh, however, said the FDI in multi-brand retail should be opened in a calibrated manner. "We are not saying just open the gates and let them (foreign investors) anywhere and everywhere," Basu said adding initially few foreign investors should be allowed and that too in specific areas away from cities. "We want to specify physical areas (for foreign retailers) so there is also lot of room for small traders," he added.  He said FDI in the sector will serve the interest of both farmers and consumers in long run. "This could provide remunerative prices to farmers and fare prices for consumers specially during the peak marketing season," the advisor said.

NDTV Profit

Refund failed ATM transactions in 7 days: RBI to banks

The Reserve Bank today directed banks to reimburse customers for amounts wrongfully debited from their accounts in failed ATM transactions within seven days of an account holder's complaint or else pay a Rs 100 per day compensation.  "The time limit for resolution of customer complaints by the issuing banks shall stand reduced from 12 working days to seven working days from the date of receipt of customer complaint," the RBI said in a notification.  Failure to re-credit the amount within seven working days will require the issuing bank to pay a compensation of Rs 100 per day, it said.  Earlier, banks were required to reimburse customers for amounts wrongfully debited from their accounts in failed ATM transactions within 12 days.  The RBI further said that all customers are entitled to receive such compensation for delays only if a claim is lodged with the issuing bank within 30 days of the date of transaction.  The directive shall be come into effect from July 1, 2011.  The central bank instructed the issuing bank and the acquiring bank to settle failed ATM transaction disputes through the ATM system provider only.  "No bilateral settlement arrangement outside the dispute resolution mechanism available with the system provided is possible," RBI said.  This measure is intended to reduce instances of disputes in payment of compensation between the issuing and acquiring banks, it added. The RBI said that the step has been taken to bring down the instances of disputes in payment of compensation between the issuing and acquiring banks.

BS

RBI slaps notices on several banks, asking them to pay crores of rupees as fine for dishonour of instruments under ECS beyond the acceptable limits

The Reserve Bank of India has written letters to several banks because they have crossed the limit of instruments dishonoured under the Electronic Clearing Service (ECS); 3%-5% is the acceptable apex bank norm—in a few cases, the percentage of dishonoured instruments under ECS has been as high as 30% to 40%. However, this move is a warning, and may not lead to punitive action  The RBI (Reserve Bank of India) keeps a track on the percentage of dishonoured instruments cleared under the ECS of all banks.  The ECS allows paperless direct credit and debit transactions for all banks. However, if a bank crosses the limit of instruments dishonoured under the ECS, the RBI asks the respective bank for an explanation.  According to the apex bank, "3%-5% is the tolerance level on a daily basis. At times when it goes up to 30%-40%, we ask the bank to find out about the particular accountholders whose instruments are not being honoured under ECS." Often, banks are not aware about the accountholders who are repeatedly dishonouring their financial instruments as ECS is transmitted in bulk to the clearing house. The main problem is that even if one of the ECS instruments bounces, then it affects two or three banks at a time. It affects the ECS user bank, the ECS beneficiary bank and the destination bank to which the amount has to finally get transferred. In a letter addressed to ICICI Bank, a copy of which is with Moneylife, the RBI has said: "Please refer to paragraph 2 of the Minutes of the General Body Meeting of the Chennai Bankers Clearing House (CBCH) held on August 2, 2010 and our letter dated October 28, 2010 relating to return clearing discipline. In pursuance of the instructions contained therein, it has been decided to invoke penalty @Rs. 1000.00 per return for the month of January. The number of MICR and as well as RECS (Dr) returns of your banks has since been generated from the system and the details are been given in annexure. After deducting the tolerance of 4% and 5% on MICR and RECS returns respectively, a penalty of Rs 39821000.00 (Rupees Three Crore Ninety Eight Lakh twenty One Thousand only) is proposed to be imposed on your bank for non-adherence to the return discipline. You are hereby advised to put forward your case as to why Rs 39821000.00 (Rupees Three Crore Ninety Eight Lakh twenty One Thousand only) shall not be imposed on your bank. Your response should reach this office on or before 15 days from the issue of this letter, failing which it shall construed that you have nothing to report and accordingly the Bank shall proceed with a suitable action."  We gather that several other banks have been pulled up in a similar fashion. Thus, the RBI has defined a definite tolerance level beyond which it would charge a bank a certain fine on each rejection. That is why the RBI has threatened to charge a Rs3.98 crore fine for ECS dishonour beyond acceptable limits on ICICI Bank. Moneylife spoke to the RBI for clarification. The central bank spokesperson said, "There were several banks that were not adhering to what we call 'return discipline' in Chennai and the notice was issued to all of them. The fine amount, though, varied. The purpose of the show-cause notice was to shake the banks out of complacence and to ensure that the rate of 'returns' fell within our comfort zone (and not really to collect fine amounts from them). There is significant improvement in the position now and we are not pursuing the penalties with the banks." It was only after receiving the letter from the central bank that banks started screening accounts and transactions and are stopping all ECS debits. ECS is a mode of electronic funds transfer from one bank account to another using the services of a clearing house. This is normally utilised for bulk transfers from one account to many accounts or vice-versa. This facility can be used both for making payments like distribution of dividend, interest, salary, pension, etc. by institutions or for collection of amounts for purposes such as payments to utility companies (telephone, electricity), or charges (house tax, water tax), etc or for loan instalments of financial institutions/banks or regular investments of individuals. The ECS user bank is called the 'sponsor' bank under the scheme and the ECS beneficiary accountholder is called the ECS 'beneficiary' bank. The destination account holder's bank or the beneficiary's bank is called the 'destination' bank. The beneficiaries of regular or repetitive payments can also request the paying institution to make use of the ECS (Credit) mechanism for effecting payment.

http://moneylife.in/

RBI sets up Central Registry to prevent property loan frauds

The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property, the RBI said. The Reserve Bank of India (RBI) in a notification on Wednesday, announced the operationalisation of a central registry that will have details of all properties against which loans have been taken.  Towards this end-The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI)-a government company licensed under the Companies Act.1956, has been incorporated to operate and maintain the Central Registry under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Initially transactions relating to securitisation and reconstruction of financial assets and those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions, as defined under the SARFAESI Act, are to be registered in the Central Registry. The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property, the RBI said in a statement. R.V.Verma, Chairman and Managing Director, National Housing Bank, has been given additional charge as the registrar of the Central Registry for three months, and he will also be the managing director and CEO of CERSAI.

BANKS ALSO COVERED UNDER CONSUMER PROTECTION

People have little idea of where to go if they have any dispute regarding consumer banking with commercial banks, although there are a couple of institutions which can come in very handy in this regard Commercial banks, despite orders by the RBI. The institutions that are meant to settle disputes between banks and consumers are little known to the public while banks have not taken any steps to create public awareness.  The best thing that has been done to strengthen the consumer movement in India is the Consumer Protection Act of 1986 (COPRA) which consists of 14 pieces with countless statutory notifications and orders to protect the rights of consumers.   The Consumer Protection Act, 1986 is a citizen-oriented social legislation intended to protect the large body of consumers from exploitation. It enables people to secure speedy and inexpensive redressal of their grievances. With the enactment of this law, consumers are in a position to declare "sellers be aware" whereas previously the consumers were at the receiving end and warned "buyers beware".  The Act postulates establishment of the Central and the State Consumer Protection Councils for spreading consumer awareness. To provide cheap, speedy and simple redressal to consumer disputes, quasi-judicial machinery is set up at each District, State and National levels called District Forum, State Consumer Disputes Redressal Commission and National Consumer Disputes Redressal Commission respectively. At present, there are 569 District Forums, 33 State Commissions with the apex body as the National Consumer Disputes Redressal Commission (NCDRC) at Janpath Bhawan, A Wing, 5th Floor, Janpath, New Delhi. The District Fora are headed by the person who is or has been eligible to be appointed as a District Judge and the State Commissions are headed by a person who is or has been a Judge of a High Court. The National Commission was constituted in 1988. It is headed by a sitting or retired Judge of the Supreme Court of India.  The provisions of this Act cover 'Products' as well as 'Services'. The products are those which are manufactured or produced and sold to consumers through wholesalers and retailers. The services are in the nature of transport, telephones, electricity, constructions, banking, insurance, medical treatment etc. The services, by and large, also include those provided by professionals such as doctors, engineers, architects, lawyers etc.  A written complaint can be filed before the District Consumer Forum (up to Rs. 5 lakhs), State Commission (up to Rs. 20 Lakhs), National Commission (above Rs. 20 Lakhs) in relation to a product or in respect of a service, but does not include rendering of any service free of cost or under a contract of personal service. The service can be of any description. In the complaint / appeal / petition submitted under the Act.  Proceedings are summary in nature and endeavour is made to grant relief to the parties in the quickest possible time (90 or 150 days with not more than one adjournment as far as possible) keeping in mind the spirit of the Act. If a consumer is not satisfied by the decision of the District Forum, he can challenge it before the State Commission. Against the order of the State Commission a consumer can come to the National Commission even National Commission order can be challenge or appeal can be filed in Supreme Court. Coming to the subject, Banking is an important sector in a persons daily life. During these days of liberisation, banks are coming out of their traditional role of money lending and leasing, factoring housing and finance have been added to the list of their activities. With globalization becoming a buzz word, our nationalized banks, nurtured under the earlier protective regime, are suddenly asked to complete on a international arena. However, the fact remains that the average consumer is far from satisfied with even their basic services. We are having a catena of cases where the National Forum has awarded compensation to the consumers, as the banks have failed to provide proper services to their customers. Hence, interaction and interdependence between the public and banks has increased and customers have not hesitated to approach consumer forums wherever they felt there was a deficiency in services rendered by a bank. The National Consumer Disputes Redressal Commission (NCDRC) and the State commission have delivered landmark judgements on banking and awarded huge compensation to the consumer.  The National commission has delivered an excellent judgement in Malti Bhat vs State Bank of India where the complainant obtained a demand draft from a bank for the examination fee. As an unsigned draft was issued by the bank which was returned to the student by the institution concerned, she was declared ineligible for the examination. The district forum awarded Rs. 35,000 as compensation and the National commission upheld its order.

http://www.centralchronicle.com/

India Inc gets RBI boost for global drive

In order to encourage Indian companies to expand their global footprint and showcase entrepreneurial skills, the Reserve Bank of India (RBI) today relaxed norms for overseas direct investments. The regulations relating to overseas direct investments, RBI said in a circular, are being liberalised "with a view to providing more operational flexibility to Indian corporates having investments abroad". The modified norms will provide greater freedom to domestic companies like Tatas, Bharti and Reliance to increase their commitments in overseas joint ventures and subsidiaries and also help them repatriate funds without seeking prior approval of the RBI. "The move is in recognition of entrepreneurial ability of India Inc by the Reserve Bank. It is a welcome step and will help companies grow on a global stage", said Ashvin Parekh, partner and national leader (financial services) Ernst & Young. Expressing similar views, Diljeet Titus, senior partner of law firm Titus & Co, said, "the relaxation of investment norms will encourage overseas acquisitions. It will be of great help to infrastructure companies which are looking for mining rights". The RBI's decision, according to Naresh Makhijani, executive director KPMG, "will substantially increase the operational flexibility of the Indian corporates for their overseas projects". Since the onset of the economic liberalisation, several Indian companies have acquired overseas companies and invested in new projects. Under the modified norms, only 50 per cent of the amount of performance guarantee provided by Indian companies to overseas ventures will be taken into account while computing the overall exposure limit. Indian companies are allowed financial commitments in overseas ventures upto 400 per cent of their net worth. Under the old norms, 100 per cent of the performance guarantee is taken into account while calculating the overall exposure limit of an Indian company. The Indian companies, RBI said, will also be permitted to increase their overseas exposure to beyond 400 per cent limit with the prior approval of the central bank. The modified norms will allow Indian companies greater headroom for overseas investments. In order to provide more operational flexibility to the Indian corporates, RBI has decided to allow them to write-off capital and other receivables like loans, royalty, technical know-how fees and management fees in respect to those joint ventures and wholly owned subsidiaries (WOS) in which they have more than 51 per cent stake. While the listed Indian companies are permitted to write off capital and other receivables upto 25 per cent of the equity investment under the automatic route, the unlisted companies can take advantage of the said provision after seeking approval of the Reserve Bank. The RBI has also relaxed norms for repatriation of funds in those cases where the amount of return is less than the original investment. The central bank has allowed listed Indian companies to write off investments under automatic route if the net worth of the entity is less than Rs 100 crore and overseas investment does not exceed USD 10 million. Earlier, only companies with a net worth of over Rs 100 crore were allowed to write off investments under the automatic route. The RBI has also decided to allow Indian companies to issue corporate guarantees to the second level of operating subsidiaries under the approval route, provided it holds more than 51 per cent equity in the overseas venture. The Indian company, according to the RBI, can also provide corporate guarantee to the first level of overseas subsidiary under the automatic route, irrespective of whether the entity is an operating company or a special purpose vehicle (SPV). Under the existing norms, Indian companies are allowed to give corporate guarantees only for operating subsidiaries or joint ventures under the automatic route. India's outward investments during the nine month period between April to December 2010-11 were recorded at USD 12.1 billion, as compared to a lower net outflow of USD 9.9 billion in the corresponding period of the previous year.

RBI clarifies norms for NBFCs entering insurance biz

The Reserve Bank of India (RBI) on Friday clarified norms relating to equity contribution by non-bank finance companies (NBFCs) wanting to enter insurance business. In case more than one company in the same group as an NFBC wants to take a stake in an insurance company, the contribution by all companies in the same group shall be counted for the prescribed limit of 50%, the central bank said. Earlier, the central bank had said the maximum equity contribution an NBFC can hold in a joint venture company is 50% of the insurance company. A subsidiary or company in the same group of an NBFC or of another NBFC engaged in the business of a non-banking financial institution or banking business shall not be allowed to join the insurance company on risk participation basis, it had said.

Moneycontrol

J-K advanced Rs 1,095 cr in FY'11 financial assistance

Srinagar: The Jammu and Kashmir government advanced Rs 1,095 crore as financial assistance to 32,241 units in the priority and non-priority sectors in the previous financial year under its annual action plan. This was stated at a meeting of the District Consultative Committee of banks operating in the district under the chairmanship of District Development Commissioner M A Kakroo, an official spokesman said. The Reserve Bank of India (RBI) was represented by S K Watal at the meeting, the spokesman said. Out of the total advances, Rs 148.96 crore was disbursed for setting up small enterprises, Rs 320 crore for the housing sector and Rs 13.62 crore for the education sector, he said.

Daily Bhaskar

Basu cites FDI in retail as weapon against inflation

" India's retail sector continues to be primitive... Its time for India to allow FDI in multi- product retail and IMG recommends that the government consider this at the earliest........

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Finance ministry okays norms for new bank licences, with FDI rider

NEW DELHI: The finance ministry has cleared the Reserve Bank of India's draft guidelines on new bank licences with a rider that the existing 74% cap on foreign direct investment be retained.  The central bank, which had proposed capping FDI in new banks at 49% in the first 10 years, is likely to make the guidelines public and may seek comments from all stakeholders again. "We have given our final approval to the RBI and requested them to share the final guidelines after they incorporate comments from other stakeholders," said a senior finance ministry official. The ministry has asked the central bank to set up a special committee to vet proposals for banks through a three-stage process. First, the RBI will screen all applications. "In the second stage, a high-level advisory committee comprising experts in banking and finance will vet those applications," the official said. This committee will finally submit its recommendations to the RBI, which will decide whether licences should be given or not. "The RBI's decision will be final and will be valid for one year from the date of granting in-principle approval," he said.  If the RBI finds some irregularities regarding the promoter of the companies or their associated groups, it may impose additional conditions or withdraw the in-principle approval. "The RBI has built in enough safeguards to ensure that industrial houses getting banking licences maintain enough distance from promoter group entities," the official said.  Many firms, including Reliance Capital, Aditya Birla Financial Services and Religare , want to set up banks.

ET

RBI no to BASIX, Ratnakar marriage proposal

The Reserve Bank of India (RBI) has shot down a proposal for merger of an old generation private sector bank and a new-age microfinance institution. Kohlapur-based Ratnakar Bank and BASIX, promoted by social entrepreneur Vijay Mahajan, had sounded out RBI for merging their businesses. While no formal application was made, both discussed the possibility with senior RBI officials, sources said. The merger would have been the first of its kind, as it would have resulted in a bank buying a microfinance institution. Bhartiya Samruddhi Finance, a Hyderabad-based microfinance institution, is a group company of BASIX. However, with microfinance institutions facing a serious crisis due to a crackdown in Andhra Pradesh, their largest market, RBI rejected the proposal. Interestingly, Mahajan is an advisor to the board of Ratnakar Bank. He advises the bank on financial inclusion.  Mahajan was appointed after the private sector lender overhauled its board in July 2010 by roping in former chief executive of Bank of America’s India business, Vishwavir Ahuja, as managing director and chief executive. After the new board was formed, the bank, which had been quiet till then, said it would expand aggressively. “There was no formal proposal. It was a discussion on whether a merger could be worked out. This has been put on hold,” said a senior BASIX official. He requested anonymity because of the sensitivity of the issue. RBI sources confirmed the development and said the regulator did not want to risk the financial stability of Ratnakar Bank, as BASIX operated in a sector that had been facing uncertainty of late. This is despite Bhartiya Samruddhi Finance emerging out of the recent crisis in Andhra Pradesh relatively unscathed. It has opted out of the debt restructuring programme for microfinance institutions and is in the process of raising Rs 1,200 crore through debt instruments such as non-convertible debentures. Ratnakar Bank also has strong financials. Its capital adequacy ratio was 34.07 per cent according to Basel II norms on March 31, 2010. Its net non-performing assets were below 1 per cent in 2009-10. Deposits stood at Rs 1,585 crore and advances at Rs 1,186 crore. Earlier this year, it raised Rs 700 crore from investors, including Housing Development Finance Corporation, Cartica Capital and Norwest Venture Partners. Sources said RBI felt the merger might stress the bank's asset quality. Mahajan, who is currently abroad, was not available for comment. An e-mail sent to him went unanswered. Senior Ratnakar Bank officials, including Ahuja, were not immediately available for comment. “We are working with BASIX on capacity building. We are going to continue with it. Vijay Mahajan is an advisor to our board on financial inclusion activities. Beyond that I will not like to comment,” said a senior Ratnakar Bank official. Sources said the merger would have helped Ratnakar Bank extend its rural reach. It plans to double its network of 98 branches in the next two years. Most of the new branches will be in rural and semi-urban areas.

BS

Inflation: Over to you, sir..... A number of factors fuelling inflation: RBI governor D. Subbarao

Unlike central bank heads elsewhere, the Reserve Bank of India's governor is not elected. On May 3, the incumbent, Duvvuri Subbarao demonstrated the governor need not be popular either: in the annual monetary policy for 2011-12, the 62-year-old former Indian Administrative Services officer hiked interest rates for the ninth time since early 2010, this time by a bigger margin of 50 basis points, taking the repo rate - the rate at which it lends to banks - to 7.25 per cent. This rise in the cost of borrowings, the RBI acknowledges, will slow down the GDP growth rate for 2011/12 to eight per cent. Predictably, Dalal Street booed the decision. The Sensex slid by 463 points on the day of the announcement. The Confederation of Indian Industry warned: "The rate hike will have an adverse impact on investments and growth." But did the RBI have a choice? It had hiked policy rates eight times since early 2010. And yet, despite a good monsoon and a record harvest, the inflation rate in March 2011, the latest month for which figures are available, was nine per cent. It was one per cent in early 2010. A number of factors, many of which are beyond the RBI's control, are fuelling inflation. A significant one is demand, which Subbarao admitted in the policy statement was stronger than the RBI had imagined.Strong demand has fuelled inflation because consumers are able to afford higher prices. So companies have passed on rising input costs without having to cut margins. Evidence of the strong consumption demand and significant pricing power showed up in the first BT C fore Business Confidence Index Survey in early March too. Demand will dampen if money becomes more expensive. So the RBI is fighting inflation with interest rate hikes or "monetary tightening". Through 2008 and 2009 it had dropped interest rates to stoke demand that had been hit by the global economic downturn. The "monetary loosening" supported GDP growth in the crisis. As did New Delhi's loose fiscal policy that slashed taxes and kept up public spending. The money consumers did not have to pay out in taxes, as also the money they could borrow cheap, they spent, boosting GDP growth. The question, Subbarao's critics, especially those among them who would not like to see his tenure extended at the end of his three-year term this September, are asking is: did the Reserve bank delay the rollback of the monetary stimulus? Did it stoke demand too long and fuel inflation, as the supply side could not catch up? In a post-policy interview to BT, Subbarao clarified that monetary policy was not to be blamed. After bringing down interest rates to historic lows in 2008/09, he could not have raised them overnight. But did the UPA government dismantle its fiscal stimulus efficiently? For one, it did not decontrol retail prices of diesel, when the timing for it was apt and warnings aplenty. Rising crude prices have bloated its subsidy spending. The worsening fiscal deficit is feeding inflation while ill-targeted subsidies are preventing demand adjustments, a situation monetary policy cannot possibly fix. So the onus for tackling inflation now lies with Finance Minister Pranab Mukherjee. With elections in states over, will Mukherjee show the stomach for some unpopularity?

Business Today

Limits of monetary policy - VIDYA MAHAMBARE

Should RBI stick to its original inflation objective of around 5% in the medium term, which would require a further rise in interest rates and thus a significant demand slowdown, or should it alter its stance to accommodate higher inflationary expectations? With inflation remaining persistently high, the term `inflation expectations' is a buzzword today................................