Reserve Bank of India’s survey to assess the impact of inflation

RBI to knock people’s doors on inflation

New Delhi: The Reserve Bank of India (RBI) in its latest move has decided to initiate a door-to-door survey to fathom the condition of common man marred by inflation. The Central Bank is mulling to extend its ongoing survey in 12 cities to other urban areas and small towns in the country.  Based on the survey, the RBI while formulating the monetary policy and deciding on interest rates, will consider the demand and opinion of the common man.  For the time being, RBI will get the survey done with the help of a foreign agency in which information will be sought from the people regarding the product prices. Details will also be sought regarding the hike in prices of several selected commodities and products.  This is not the first time that the RBI has involved itself in any such survey. Previously, the Central Bank has done several surveys to identify with the common man and thus propose solutions according to it.  Evidently, RBI plays a major role in controlling inflation in the country through its monetary policy. For the same, the Central Bank has been augmenting the interest rates over the last 18 months to curb inflation.  It is being assumed that RBI is again going to announce an increase in the interest rates in the next few weeks. 

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Prakash Bakshi appointed new chairman of Nabard

The Centre today appointed Prakash Bakshi as the new chairman of the National Bank for Agriculture and Rural Development (Nabard). Bakshi, currently the bank’s executive director, would be chairman for two and a half years till superannuation. The additional secretary in the finance ministry, R K Singh, was holding additional charge of the Nabard chairman after incumbent Umesh Chandra Sarangi’s three-year term ended on December 2, 2010.  “My top priority will be to take Nabard’s repositioning exercise launched last year to a logical end. The repositioning exercise is to try and find new businesses for the bank in the wake of changing economic development and environment,” Bakshi told Business Standard. Bakshi’s appointment comes at a time when the Maharashtra government superseded a 44-member board of directors of Maharashtra State Cooperative Bank (MSC Bank) on an advice from the Reserve Bank of India based on an inspection report by Nabard. Nabard, in its report, had disclosed the existence of several deficiencies in the functioning of MSC Bank. Bakshi, who joined Nabard in 1979, has held several key positions before elevating to the executive director (ED) about two and a half years ago. In his capacity as ED, Bakshi was in charge of development and microcredit and looking after Maharashtra, Gujarat and southern states. The bank’s aggregate assets increased to Rs 1,59,147 crore as on March 31, against Rs 1,36,292 crore in the previous year. The production credit or crop loans to cooperative banks and regional rural banks stood at Rs 33,400 crore during 2010-11, as against Rs 24,216 crore a year ago (in terms of maximum outstandings).

BS   

RBI hopes banks lending to MFIs will be smooth soon

The Reserve Bank today expressed confidence that banks would start providing funds to MFIs once guidelines for regulating the sector are put in place. Regretting that banks have not yet started lending to micro finance institutions (MFIs), RBI Deputy Governor K C Chakrabarty said, "We have held discussions with banks recently."  "Still banks have not started lending (to the MFI sector)," he said, adding that "once the restructuring guidelines are framed ... Banks have promised that they will lend". He was talking to reporters on the sidelines of a summit here. In its monetary policy last month, the Reserve Bank had said that those MFIs which charge up to 26% interest rates would be eligible for priority sector lending status. Broadly accepting the recommendations of the Malegam Committee, the RBI has fixed the loan amount for an individual borrower at Rs 35,000 from an MFI. The expert panel had suggested the limit of Rs 25,000 with an interest rate cap of 24%. Chakrabarty hinted that RBI guidelines on MFIs, expected shortly, would be in line with the norms announced in the monetary policy. "There will be no surprise in the final guidelines for MFIs," he said. The sector, which is mostly active in Andhra Pradesh, came under cloud in October 2010 following reports of suicides by those trapped in debt paying high interest rates, often as high as 36%, to some MFIs. When asked about the growing non-performing assets (NPAs) of the banking companies in India, Chakrabarty said, "If the NPAs are growing which the data suggests that they are, definitely banks are not managing it well." At present, the gross NPAs in the banking sector are around 3% of total total advances.

BS

Canara Bank’s Pai Says High Rates Will Hurt Demand for Credit

‘‘We are of the view that inflation will be under control by the end of June on expectations of good monsoons and the RBI’s recent policy that has been wide and…….

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Efforts on to increase supply of coins

COIMBATORE: It is a common experience for many when we get a toffee in lieu of Re. 1 or Rs. 2 after purchasing our home needs at a retail outlet. In an effort to meet the coin shortage, especially in bigger cities, Reserve Bank of India (RBI) is trying to increase the coin supply and also ensure coins are in circulation. General Manager (Issue department) of the RBI, Chennai, G.P. Borah told The Hindu here on Wednesday that the RBI regularly organised camps in association with other banks for distribution of coins. It pumped into the system new coins through those camps. Further, there were centres such as temples where large quantities of coins were collected. In order to ensure that the coins were in frequent circulation, those in need of coins should have tie-ups with institutions or organisations that have large collection of coins. Coin shortage is felt mostly in larger cities.

Hindu

RBI Tells Banks to Step Up Fight Against Corruption

MUMBAI –India's central bank Thursday said all private sector and foreign banks must develop internal vigilance mechanisms in the next three months to identify and address any problems related to corruption or malpractices. The Reserve Bank of India has placed guidelines on its website and says it wants to align the vigilance functions in private sector and foreign banks to those of public sector lenders. The guidelines serve to ensure "all issues arising out of lapses in the functioning of the private sector and foreign banks, especially relating to corruption, malpractices, frauds can be addressed uniformly by the banks for timely and appropriate action," the RBI said. The guidelines state that lenders should appoint an officer of suitable seniority as a "Chief of Internal Vigilance" who must collect intelligence about any corrupt practices committed. The central bank has asked lenders to submit a compliance report on or before August 31. In a separate notification on its website based on forensic scrutiny, the RBI said banks need to closely monitor and have tighter controls for housing loan cases, loans or advances against hypothecation of stocks and the submission of forged documents, including letters of credit.

WSJ

Wait for new banking licences may get longer

MUMBAI: New bank licences will have to wait until the amendments to the Banking Regulation are enacted. This would mean that aspirants for new licences may have to wait for a few months before RBI opens its licence window.  The government's thoughts on new bank licences were voiced by R Gopalan, secretary of economic affairs, ministry of finance, on the sidelines of the 26th Skoch summit. Responding to a query on new bank licences, Gopalan said the right time for issuing new bank licences would be once the amendment to the Banking Regulation Act is passed and after the Reserve Bank of India comes out with its guidelines on new bank licences.  The issue of granting new bank licences was raised by finance minister Pranab Mukherjee in his Budget speeches in February 2010 and . This was followed with the Budget speech in February 2011. The finance minister has said the guidelines for the new banks would be out before the end of the fiscal. RBI has, however, failed to meet the guidelines set by the finance ministry.The finance minister's announcement had put RBI in a quandary as it has so far been opposed to granting banking licences to corporate houses. The regulator also believes that banks should be treated as special institutions different from other corporate entities because their deposits are insured, they have access to RBI funding and they play a key role in the payments system. Granting bank licences to corporates raises the additional issue of intra-group lending by banks. Last month, RBI governor D Subbarao said that there was uncertainty over the time frame for new bank guidelines. He said that RBI needs to work with the government to sort out differences, if any.  Gopalan to said that RBI has prepared draft guidelines which have been forwarded to the finance ministry.  Among other things, the amendment to the Banking Regulation Act provides RBI with further regulatory oversight. According to Gopalan, the new law will enable RBI to obtain additional information from corporates seeking a new licence. On the issue of growth in gross domestic product (GDP), Gopalan said that GDP growth in FY12 was expected to be in the region of 8-8.5% depending on how inflation turns out. "At this point of time, we don't know how prices will move as it is just two months into the new financial year," he added.

TOI

Gopalan calls for Banking Regulation Act amendment

The government today said there was a need to amend the Banking Regulation Act which will enable the Reserve Bank of India (RBI) effectively regulate the banking sector. “There is a need to amend the Banking Regulation Act to enable RBI to obtain information from other entities — whoever is getting a licence — so they (RBI) are in a position to regulate the banking sector institutions appropriately,” R. Gopalan, secretary in the department of economic affairs of the finance ministry, said on the sidelines of the Skoch Summit here. RBI, which is forming draft guidelines for the entry of fresh players in the sector, had sought more powers from the government to regulate banks. For example, existing regulations does not allow RBI to supersede the board of a bank, which the regulator now wants. The draft legislation proposes to give powers to RBI to supersede the board of directors of a bank for a period of up to one year and appoint an administrator. The Banking Laws (Amendment) Bill of 2011, introduced in the Lok Sabha during the Budget Session, seeks to give voting rights to investors commensurate with their shareholding in private sector banks. Gopalan said RBI was expected to come out with draft guidelines on new bank licences soon. “RBI has given it (recommendations) to the finance ministry and is also consulting other stakeholders. Based on this, they will come out with draft guidelines (on new bank licences) soon and put it in the public domain for consultation,” he said. Last year, RBI circulated a discussion paper on new bank licences which examined the pros and cons of allowing industry houses and non-banking finance companies in the sector. On the timeline of the issuance of new bank licences, Gopalan said it could be done once amendments to the Banking Regulation Act were cleared by Parliament. “I have a feeling that once the draft guidelines are out, the amendment to Banking Regulations Act will be passed. I think this will be the right setting for licences to be issued,” he said. On the country’s economic growth in the current financial year, Gopalan said, “It should be between 8 and 8.5 per cent depending upon how long the prices continue to remain at elevated levels. That we do not know at this point of time as we are just two months into the new financial year.” India’s economy grew by just 7.8 per cent in the fourth quarter ending March 31, mainly due to the poor performance of the manufacturing sector, as against 9.4 per cent in the same three-month period of the previous financial year. However, economic growth, as measured by the gross domestic product, improved to 8.5 per cent in 2010-11 from 8 per cent in 2009-10, due to better farm output, construction activities and financial services performance.

BS

Banks are still not lending to MFIs, says K C Chakrabarty

Banks have not yet started offering fresh loans to microfinance institutions (MFIs), which are currently battling a crisis of confidence and need additional funds. “On the ground level, banks are not lending to MFIs. In our discussion with banks, they had promised once the guidelines (on regulating microfinance sector) are finalised, they would give out loans. However, they are yet to start lending,” K C Chakrabarty, DeputyGgovernor, Reserve Bank of India (RBI), told reporters on the sidelines of a conference organised by Skoch Consultancy Services. Banks had curbed lending to microfinance companies last year after a crackdown by the Andhra Pradesh government. The crackdown followed allegations of micro lenders charging high interest rates to poor borrowers and resorting to coercive recovery practices. A steep decline was reported in MFI loan recoveries in Andhra Pradesh, which, at that time, accounted for nearly one-third of the sector's business in India. Microfinance companies claimed the Andhra Pradesh government's actions had eroded their profits and many of them restructured their debts with banks. RBI had set up a committee under the chairmanship of board member Y H Malegam to sort out the uncertainties over regulation of the microfinance sector. Chakrabarty said RBI was drafting the guidelines based on the Malegam committee recommendations. “(About) 90 per cent of the core recommendations of the Malegam committee have been accepted...There would be no surprises in the norms, as RBI has broadly accepted the recommendations. There may be some tweaking, but no surprises,” Chakrabarty said. However, he said the interest rate cap on MFI loans, for these to be classified under priority sector lending, would not be fixed and would depend on the overall interest rate environment. For MFI loans to be considered as priority sector advances, the interest rates on them are proposed to be capped at 26 per cent. “Earlier, the base rates (of most banks) stood at eight per cent. Now, base rates have increased to 10 per cent. So, why should there be a fixed rate at which MFIs would lend? It is only a framework, it can move with the market conditions and economic environment. If interest rates come down, the cap can definitely be brought down,” Chakrabarty said.

BS

Banks to cover 350,000 villages by 2013: RBI

Around 350,000 villages across India would secure access to financial services offered by banks in the next two financial years, according to a plan banks have given to the Reserve Bank of India (RBI). RBI has asked banks to ensure that 223,473 villages have access to basic financial services by March 2012. “Banks are still engaged in ecosystem development. Once that is done, banks said they would be able to scale up,” said K C Chakrabarty, Deputy Governor, RBI. Banks have been asked to include their financial inclusion performance when they evaluate the performances of their field staff, he added. Chakrabarty said the number of ‘no frills’ accounts rose to 74 million from 50 million in a year in March, while the growth in no frills accounts with overdraft facilities has been sluggish. According to RBI, a ‘no frills’ account is one for which no minimum balance is insisted upon, and for which there are no charges levied if the balance is lower than the minimum balance permitted. Chakrabarty said opening no frills accounts was not enough to bring about financial inclusion. He said banks needed to strike a balance between opening branches and appointing business correspondents. “You cannot cover all services only through banking correspondents. You need to have brick-and-mortar branches, and that is why we have now made it mandatory that 25 per cent of the new branches have to be in unbanked villages,” he said. RBI had, in its annual policy, mandated banks to allocate at least 25 per cent of the total number of branches to be opened in a year to unbanked, rural centres. In March, 99,840 villages were covered by banks, of which, 76,801 were covered through business correspondents.

BS

Longer-term debt preferred over short term: Gokarn

The Reserve Bank of India (RBI) on Thursday expressed itself in favour of longer-term debt coming into the country over the shorter-term ones. "We do have a restriction on debt, and within debt, we prefer longer-term duration investment to the shorter duration," Reserve Bank's Deputy Governor, Subir Gokarn, said while speaking at the 26th Skoch Summit. The Reserve Bank does not impose any restrictions on portfolio investment into equities but has restrictions on debt with a bias towards longer-term inflows (on the debt side), he said. While there are various restrictions on FDI, there are no restrictions on portfolio investment into equities, he said. "But there are restrictions on debt and within debt, "we prefer longer term duration investment to the shorter duration," the RBI Deputy Governor said. "This kind of gives us a preference order, a pecking order," he said.

Moneycontrol

FinMin to go ahead with DMO despite RBI protests

THE TWO POINTS OF VIEW

FINMIN With RBI managing both monetary policy and govt debt, there is a conflict of interest The move will reduce cost of debt, facilitate debt consolidation, and increasing transparency There are many countries in the world where public debt office is managed by the govt

RBI RBI has the expertise to manage market volatility; an independent debt agency can't to do so Advantages of shifting debt management function out of the central bank are overstated India is different from other countries given the large size of the govt borrowing programme

Reservations expressed by the Reserve Bank of India (RBI) notwithstanding, North Block, the finance ministry headquarters, is going ahead with its plans to set up a full-fledged Debt Management Office (DMO) to manage the government debt. The finance ministry has prepared a draft legislation on setting up a separate DMO and the Bill is likely to be tabled in the Winter Session of Parliament. “The government will move towards a full-fledged DMO. The draft legislation has been prepared. Maybe the RBI governor has some genuine concerns which are being addressed in the design and structure of DMO. Now it will go to other stakeholders within the government,” said a finance ministry official. Finance Minister Pranab Mukherjee has also been briefed on the draft legislation, but he is yet to see it formally. Once comments from all stakeholders are received, including RBI, the Bill will be sent to the law ministry. After it is vetted, it will go to the Cabinet for approval to be tabled in Parliament. Simultaneously, the finance ministry will start preparatory action on setting up DMO. The ministry is seeking cooperation from RBI, as it feels DMO can become successful only in close coordination with the central bank. “DMO has to learn from RBI’s experience. So, the central bank will have to do handholding,” the official said. RBI Governor D Subbarao is against shifting DMO to the finance ministry because of manpower issues. The finance ministry has assured that all 21 public debt offices of RBI will continue to function as they are doing today, but they will function at the behest of DMO. RBI’s another concern is that when the idea of DMO was conceived, the government’s fiscal situation was under stress and any office within the finance ministry may succumb to these pressures. The finance ministry’s argument in favour of DMO is that the government is on the path of fiscal consolidation now. “With the setting up of DMO in the finance ministry, the dilemma of RBI between managing monetary policy and debt operations of the government will be eliminated. At present, there is a conflict of interest,” the official added. Last month Subbarao, who was earlier finance secretary in the government, had said only the central bank had the requisite expertise to manage market volatility, and an independent debt agency, driven by narrow objectives, will not be able to do so. The finance ministry, on the other hand, wants to separate RBI’s role as the decider of interest rates in the market and at the same time being the banker to the government. At present, the government’s debt is managed by the central bank. The finance minister, in his Budget speech in February, had proposed to introduce the Public Debt Management Agency of India Bill during 2011-12. A middle office for debt management purpose is already functioning in the finance ministry as a transition to to the full-fledged office. One of its many functions is to formulate annual debt issuance strategy and periodic calendars of borrowing.

BS

Inflation dynamics

This refers to the article “The Subbarao years: A defence” (June 1) by Abheek Barua. Though I agree the criticism of the RBI Governor D Subbarao’s handling of inflation is fraught with an oversimpflication of the current inflation dynamics, I think the author missed an important point — the complete irresponsibility demonstrated by the central government (read food ministry and finance ministry) in managing the supply side and government finances. Even if Mr Subbarao had not fallen “behind the interest rate curve”, the inflationary pressures could not have been controlled. The RBI governor’s only fault was his inability to facilitate communication between the central bank and the central government. The RBI could have used various opportunities to highlight the importance of the supply side and fiscal management instead of merely tinkering with the monetary policy even when it was “behind the interest rate curve”.

K V Rao, Bangalore

BS

FinMin, RBI differ on approving ECBs in real estate

The decision on allowing external commercial borrowings (ECBs) for the real estate sector still hangs fire with the Finance Ministry and the Reserve Bank of India holding opposing views, reports CNBC-TV18’s Aakansha Sethi.  The Finance Ministry was keen that ECBs four integrated townships should be allowed for another one year. This scheme was dispensed in December 2010 and the finance ministry was of the view that this would allow easy access of funds for the sector and it would aid in the creation of satellite towns in various metros. However, the RBI is of the view that real estate prices are already at pre-crisis levels. Moreover, there are sufficient capital flows that would lead to asset price bubbles. In fact, they have only approved one integrated township project from January 2009 when this scheme was first introduced. Actually, ECBs for the real estate sector are not allowed at present but the case four integrated townships was an exception made in 2009. Hence, the RBI was not in favour of this and this was discussed in the high level committee meeting on ECBs on 27th May. No decision was taken in this meeting, so for now the scheme is not going to be extended. A decision may be taken at a latter stage but for now there will be no extension.

Money Control

High NPAs may force RBI to raise provisions

MUMBAI: Indian banks could see higher provisioning for bad loans unless they get better at managing their portfolios, RBI deputy governor KC Chakrabarty said on Thursday.  Expressing concern about the growing non-performing assets of lenders, he said: "If we do not see NPAs coming down, we may even increase provisions."  Recently, finance minister Pranab Mukherjee also sounded a word of caution on the rising bad loans of public sector banks.  Speaking at a summit, Mr Chakrabarty said banks have not yet started lending to microfinance companies . The regulator had urged banks to finance MFIs and restructure their loans. Banks are in talks with MFIs to restructure loans worth about 10,000 crore. "The ground reality is that banks have not begun lending to MFIs. They say if MFIs have to confirm the conditions stipulated in the Malegam Committee report, banks have promised to lend to MFIs. But then you know how banks' promises are," he said.  The central bank may revisit the cap on interest rate charged by MFIs if inflation and interest rates in the banking system decline, he said. In its monetary policy on May 3, the central bank said MFIs that charge up to 26% interest would be eligible for priority lending status. Speaking at a seminar on inclusive growth, Mr Chakrabarty said banks should provide four minimum services in no-frill accounts. The services are savings and overdraft facilities, remittances products, pure savings products such as recurring deposits , General Credit Card and Kisan Credit Card.  According to estimates that banks have furnished to RBI, about 3.50 lakh villages would get formal banking services by 2013 compared with 99,000 now. He said banks should not depend entirely on the business correspondence model to provide banking services. "It cannot happen that 99% of villages are covered through the BC model and only 1% by bank branches. That is why we have asked banks to open at least 25% of new branches in rural India," he said. Interest rates have been deregulated, giving banks the opportunity to make the model profitable.

ET

Don't delay monetary tightening - S.S. TARAPORE

The inflation rate is still uncomfortably high. The status of the monsoon will not be clear by June 16. Rather than wait till the end of July, the safer option for the RBI will be to raise the repo rate this time around.

The next mid-quarter Reserve Bank of India (RBI) review of Monetary Policy for 2011-12 will be on June 16, 2011, followed by the Quarterly Review on July 26. The May 3, policy was a landmark in that, after a prolonged period of baby steps of 0.25 per cent increases in the repo policy rate, the RBI opted for a big step by way of a 0.50 per cent increase. The inflation rate, based on the Wholesale Price Index (WPI), is still uncomfortably high and the political economy commitment is to give priority to inflation control, even at the cost of a marginal drop in real growth. While the relentless rise in international crude oil price appears to have slowed down, a sharp reversal does not appear to be on the cards. This leaves India in a very vulnerable position. The present domestic prices of petroleum products imply an unmanageably large subsidy and there is a strong possibility of large price increases for kerosene and LPG. The status of the monsoon is still uncertain and by June 16, the authorities would not have a firm assessment. One policy option would be to wait till July 26. The hazard of this option is that the economic situation could worsen by then and political economy considerations may not be conducive to monetary tightening. The present year-on-year incremental credit-deposit ratio of 87 per cent is unsustainable. Banks are in deficit mode and borrowing about Rs 75,000 crore from the RBI (about 1.5 per cent of the banking system's resources). If the present trends continue, shock measures would be necessary. The market fear that a 0.50 per cent increase in the repo rate would be disruptive has been belied. The present repo rate of 7.25 per cent and the Marginal Standing Facility at 8.25 per cent (without collateral) are both very low.  Banks are raising deposits, at the margin, at 10 per cent, which, with reserve requirements, raise the cost of funds to 11 per cent. In other words, drawing on RBI facilities is cheaper than raising high cost deposits. With the continuing high inflation rate (8.5 per cent), the pressure of international commodity prices and banks being in deficit in the early part of 2011-12, the window of opportunity may not be available if measures are not taken on June 16. An unchanged repo policy rate on June 16 would make it that much more difficult to step up measures on July 26. The safer course would be to take pre-emptive action on June 16, with an increase in the repo rate by 0.50 per cent; this would give RBI greater manoeuvrability. In response to the RBI measure, raising the savings bank deposit rate from 3.5 per cent to 4.0 per cent, banks are contemplating raising service charges particularly for small depositors in an unfair manner. For instance, there are cases of banks imposing punitive charges for correcting an error by the bank on an account holder's address! Penalising small depositors, when there is a conscious policy of encouraging no frills accounts, goes against the grain of overall policy on financial inclusion; such responses should invite adverse regulatory action by the RBI.  In the 1970s and 1980s there was considerable controversy on the interest application rests (or the duration for which the rate would apply) and the Karnataka High Court had taken up this issue. The RBI then clarified that the quoted interest rate refers to a quarterly application. The rate could be lower if the interest application is monthly or higher if the interest application is at longer rests. The RBI should insist that the rate set for savings bank deposit accounts should relate to quarterly application. This issue would become important when the savings bank deposit rate is fully deregulated. Unless interest application is on uniform rests, banks could mislead depositors. It would be best to initiate the first step in deregulation of the savings bank deposit rate by prescribing a range, say 4.0-4.5 per cent. This would give banks some discretion. They would have to use the discretion with good judgement. Banks would need to be cautioned that they can offer a rate above 4.0 per cent, but they would have to ensure that this is not at the cost of reducing their net interest margin. Banks could take in more savings bank accounts and perhaps reduce their high cost deposits. While RBI may not find it appropriate to take all the measures on savings accounts in the June 16 mid-quarter review, it should push through at least some measures, before banks subvert the whole objective of a fair remuneration for depositors.

Business Line

Sahara group under ED scanner for Fema violation

The Enforcement Directorate (ED) is investigating the Sahara group for alleged violation of the Foreign Exchange Management Act (Fema) for purchasing the Grosvenor hotel and another property in the UK. According to sources, the Directorate has officially communicated to the Reserve Bank of India (RBI) in this regard for getting more information after investigators questioned officials of two banks — the ICICI and the Axis Bank. Sources allege that these two banks were involved in transferring of funds to Mauritius in December last year. The Sahara group has dismissed the charges. Sahara spokesperson Abhijit Sarakar told PTI that both the ICICI Bank and Axis Bank had done their complete due diligence while transferring the funds overseas, which were used to invest in the hospitality sector overseas. “At every stage, there has not been a single incident of violation of any regulatory or legal requirement. The flow of funds is very much in accordance of the objects of the respective companies and we have been very open right from the beginning about the entire transaction and there is nothing to hide from the authorities concerned,” the spokesperson added. The ED suspects “contravention” of the Foreign Exchange Management Act (FEMA) in this deal as the funds were allegedly routed through Mauritius — a tax haven. Sources also said the ED would now issue notices to the Sahara group under FEMA laws.

Hindustan Times

Making financial inclusion work

Ever since the Reserve Bank of India (RBI) issued guidelines on no-frill accounts in 2005, over 39 million such accounts have been opened. No-frill accounts are with nil or low minimum balances and charges, and have limited facilities. .........

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Rangarajan stresses need to curb inflation

India must use all measures to rein in inflation and such steps do not necessarily harm growth, said C. Rangarajan, chairman of the Prime Minister’s economic advisory council.  “We must use all of our policy instruments to bring down the current inflation and reanchor inflationary expectations to the 4-5% comfort zone,” Rangarajan said in Mumbai on Thursday. “We must remain committed to maintain inflation at a low level. High growth does not warrant a higher level of inflation.”  Although wholesale price-based inflation moderated to 8.66% in April from 9% in March, it’s still high and much above the Reserve Bank of India’s comfort level. In its annual policy, RBI said it was committed to lowering the inflation rate even though this may slow growth in the short term. RBI recently raised the policy rate by 0.5 percentage point to 7.25%, a departure from its usual practice of a 0.25 percentage point increase. “I do not think that by taking action on inflation, we are necessarily hurting growth,” Rangarajan told reporters.  While RBI expects growth in fiscal 2012 of around 8%, Rangarajan put it at 8.5% and said it could expand as fast as 9-9.5%. But “pushing the economy beyond its capacity” would result in “strong inflationary pressures re-emerging.” The government has pegged growth at 9%, although finance ministry officials, including minister Pranab Mukherjee, have said this may not be achievable. Rangarajan argued that India can continue to grow at 9% rate on a sustainable basis. This is indicated by the savings rate having crossed 34% of gross domestic product (GDP) and the investment rate having exceeded 36% of GDP. However, two elements—low yields from the farm economy and inadequate physical infrastructure, with electricity being key—have the potential to crimp growth.  “We have large science and technology establishments for agricultural research,” Rangarajan said. “But the results in terms of productivity gains leave much to be desired.”  Agriculture is vital for food security and farm income and must respond to the shift in demand on the part of consumers, Rangarajan said.

Mint

Getting inflation to toe RBI line

The Indian central bank is trying to engineer a soft landing, by increasing interest rates to cool down the economy without annihilating growth

Past household surveys have shown that ordinary Indians have been more worried about inflation than policymakers. But inflation has now moved to the top of the policy agenda. The Indian central bank is trying to engineer a soft landing, by increasing interest rates to cool down the economy without annihilating growth. “The emphasis now is on checking inflation by restraining demand and anchoring inflation expectations and to navigate a soft landing,” RBI governor D. Subbarao told analysts and economists in the course of a conference call on 4 May. Meanwhile, the latest estimates for Indian economic output, released by the government statistics agency on Tuesday, show how the inflation virus spread in the fiscal year ended March. The initial assumption among many economists in the government and private sector was that inflation was being driven by food prices, and that the problem would dissipate after a good monsoon. These assumptions are now known to have been off the mark. Mint has calculated the deflators implicit in the new gross domestic product (GDP) data—for economic output as a whole, specific sectors of the economy and consumption expenditure. The inflation rates implied in these deflators provide a far more comprehensive view of the inflation problem than the more popular Wholesale Price Index and Consumer Price Index, because deflators provide information on important sectors such as construction, as well as financial and government services. The data on inflation measured by deflators shows that even while the overall rate of price rises went up by 2.2 percentage points between FY10 and FY11, inflation was far more generalized in the latter year. In the 12 months to March 2010, most of the inflation in the non-services sectors was concentrated in agriculture. Inflation in sectors such as mining, manufacturing, electricity generation, construction and trade was below 5%. In comparison, the deflators for FY11 indicate that inflation soared in each of these sectors, even as there was no let up in the rate of price increases in agriculture. Inflation in services is another matter, since it reflects wage pressure rather than the cost of services. Has inflation now peaked? The new data shows that the implicit inflation rates for the economy as a whole, specific sectors and consumer expenditure in the fourth quarter are below their annual FY11 levels. It is perhaps one indication that higher interest rates are doing their job after the usual lag. The official RBI expectation is that inflation will start falling in the second half of the current fiscal, or after October. That seems quite likely.

Mint

Beam mobile financial service making forays into villages

Claimed to be first of its kind in the new age payment methodology, Beam mobile infrastructure, that provides a complete set of financial products on cell phone devices for banked and unbanked population, has reached 5 million customers in less than two years of launch. After acquiring Reserve Bank of India's certificate of authorisation in November 2009, Beam has made a major foray especially in rural areas. Subscribers not having bank account can purchase Beam pre-paid cards to load money in their beam subscriber account and perform a variety of transactions. It is available in the denomination ranging from Rs 1 to Rs 10,000. It has currently spread its business in 27,000 villages across the country, Anand Shrivastav, Chairman & Managing Director of the Rs 200 crore company, told PTI. "We aim to cover the entire 6 six lakh villages of India by the end of 2013," he said adding the company hopes to enlist 25 million people for its services by that duration. Giving details of the service, Shrivastav said Beam is a mobile payment system that reaches millions of unbanked Indians through the most convenient mobile platform. It helps in mobile, DTH recharge, travel tickets booking, paying utility bills and movie tickets among others, he added. Shrivastav said "we plan to add services in insurance and micro-pension subject to approval from RBI and PFRDA (Pension Fund Regulatory and Development Authority)".  Catching up with the modernisation trend, Shrivastav said 60% of its customers are in the age group of 16-24 years. Besides, a large numbers of elderly people are also availing its services mainly for kirana (grocery) purposes. He said Beam services can ba availed via two modes of delivery, Tech Savvy subscribers and non savvy walk-in-customers. Stating that the aim is to empower rural unemployed, Shrivastav said the company recruits 'sahayaks' who have at least secondary level of education besides working knowledge of english. "Presently we have appointed 10,000 sahayaks in 305 districts in 13 states," Shrivastav said. "We aim to appoint one sahayak in each of the 6 lakh villages of the country by 2013 end," he added.  "According to the RBI's own assessment out of 6 lakh villages in the country at present only 30,000 of them are serviced by banks," he said adding "we are including this huge mass of unbanked people to simplified money servicing". Shrivastav said this mode of M-commerce services are popular in Kenya in the name of "M paisa", Philippines "G cash" and Europe "Luup". 

RBI proposes PIN for credit cards

MUMBAI: Credit cards which moved from being embossed pieces of plastic to magnetic swipe cards a decade back are set for another transformation as the Reserve Bank of India moves to the next level of card security. An RBI panel has said that all credit cards issued three years from now should have a electronic chip and transactions should be authenticated by a personal identification number (PIN ).  These recommendations have been made in a report by a working group set up by RBI to increase the security of transactions where credit cards are present (unlike online transactions). The report suggests that an alternative to PIN could be a biometric verification of the cardholders identity using data from Aadhar - the project by the Unique Identification Authority of India.  The move is expected to bring down the level of credit card frauds. But it would increase costs for banks and could also increase the time taken in some retail transactions because of the additional level of security in the form of a PIN. Some card issuers and banks have been proactive on this front. SBI, ICICI Bank, Citibank and HDFC Bank for instance has started replacing plain magnetic swipe high-end cards with dual cards having both the chip and the magnetic swipe. According to the report, one of the weaknesses of the magnetic swipe card is that it is susceptible to cloning. Fraudsters who get hold of a card are able to copy information in the magnetic strip and create an identical card. Such 'cloning' of cards is more of a problem for cardholders who travel internationally. Given the higher risk for cardholders who travel abroad, the panel has said that banks should first replace cards of those who have used their credit cards for at least one international transaction. These replacements need to be done within two years.  Secondly, all new and renewal card customers should be issued chip cards with PIN by the beginning of the third year. Besides, 70% of all cards should move to chip card and PIN by end of year four. The panel proposes that by the fifth year every credit card in India should be chip-based and the cardholder should possess a PIN.

TOI

RESERVE BANK TIGHTENS RULES TO REIN IN FRAUD

Farther from double digit

The central bank’s attempts to bring prices to heel are adding to the ebbing momentum as government spending has not slowed enough. And although the trade gap has shrunk appreciably between 2009-10 and 2010-11, it continues to be above 5% of GDP as ..........

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Council set up to promote RTI Act - Aims For Better Implementation In State

Pune: Right to information activists from different parts of the state have come together to form the ‘Maharashtra Right to Information Council’. Addressing a press meet on Thursday, the activists said the council aims at better implementation of the act in the state. “The act has completed five years. Though it has managed to deal with various issues, there is a lot of scope. People from all strata of society should be able benefit from this act. The council will work for spreading awareness of the act among the people,” said Vivek Velankar, RTI activist and founder of Sajag Nagrik Manch. The council will work towards streamlining the processes under the RTI act and will study the way the act is followed in government offices and schemes, including the employment guarantee scheme, public distribution system. “RTI coordinators will be appointed at district level. The council will work as an informal forum for activists and orgnisations working for the RTI,” said Vijay Kumbhar, coordinator of Surajya Sangharsha Samittee. Kumbhar said organisations should come forward to be part of this council. The activists said the process of selecting chief information commissioners should be more transparent. It has been observed that only ex-bureaucrats are made chief information commissioners. Those who have made remarkable contributions to the society should be also given opportunities, they said.

TOI

India must employ all tools to curb inflation

We must remain committed to maintaining inflation at a low level," Chakravarthy Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said ..........

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RBI Plans a Purity Test on Gold Fincos

Central bank is probing the books of some gold financing cos to assess the concentration risk on a single asset. The Reserve Bank of India (RBI) is examining the books of some gold financing companies to assess the implication of concentration risk that could make the non-banking sector shaky in the event of a sharp fall in gold prices, as it happened with silver recently. The banking regulator may also probe whether these companies followed the know-your-client (KYC) norms, which the central bank is very keen on to prevent money laundering, said two people familiar with the development. “We are examining the books of select non-banking finance companies (NBFCs) involved in gold financing,” an RBI spokesperson said, confirming the development. Muthoot Finance (MFL) and Manappuram General Finance & Leasing (MGFL) are the largest gold financiers that are listed on the Bombay Stock Exchange.

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