RBI organized financial literacy, awareness program at Tulmulla

Reserve Bank of India (RBI) organised a full day Financial Literacy and Awareness Programme at the Mata Khir Bhawani fair at Tulmulla in Ganderbal today. A dedicated stall was put up for the purpose. A large number of people gathered in the fair and evinced keen interest in the financial literacy and awareness programme. The state Governor N N Vohra , Finance Minister A R Rather and Revenue Minister Raman Bhal also visited the RBI stall and appreciated the initiative taken by the Bank. The programme was organized to disseminate information about various banking services and products being made available by the banks as also about the role and responsibility of the banks in rendering these services. Facility for exchange of Currency Notes and Coins was also provided for general public through the Tulamulla branch of J& K Bank. While speaking to the public assembled at the venue, the officers from RBI informed the people about functions of Reserve Bank of India and how these functions are related to the common man. They requested the people to guard themselves against the fictitious/unscrupulous money offers launched by anti-social elements who approach the people though various means of communication. It was apprised that the RBI had been issuing cautionary advices to the public about these issues which people should take note of. The visitors were also made aware about the Banking Ombudsman Scheme under which the general public can seek redressal of their grievances about the deficiencies in the banking services and the role and responsibilities of the banks under this scheme. On this occasion, pamphlets / information broachers and books on financial literacy were distributed amongst the visitors. The visitors were impressed and admired this endeavour of the RBI.

Jammu Kashmir Newspoint

Economists, bankers predict 25 bps hike in policy rates by RBI

MUMBAI: The Reserve Bank is set to continue its fight against inflation despite a slowdown in economic growth, as price rise is still a threat to the economy, say leading economists and bankers, who expect a 25 bps hike in key policy rates at Thursday's mid-quarter policy review. Economists are unanimous that the RBI has to continue its battle against inflation and expect another 25 bps hike in the repo rate on June 16. If that happens, it will be the 10th consecutive hike since March, 2010. On May 3, RBI had gone in for a tough 50 bps hike in both the repo and reverse repo rates (to 7.25 and 6.25, respectively), but left the mandatory cash reserve requirement at 6 per cent. "I expect a 25 basis points hike in the repo rate, because policy tightening has to continue till inflation is brought under control. But I don't expect the RBI to go in for a 50 bps hike as it had done on May 3," Ernst & Young India partner and national leader for global financial services, Ashvin Parekh , told PTI.  Pointing out that the last policy action did pay off in controlling demand, Parekh said, "Since inflation is still high, monetary tightening has to continue to prevent the economy from heating up again. Another 25 bps hike is more likely as liquidity position is comfortable and so is the call money market, which is also more or less stable now." On the very low factory output data for April, Parekh said, "The IIP numbers were disappointing, but there is no room for worry, it only indicates a slowdown in growth. It is not really a bad thing, as the economy was heating up. More fiscal measures can help stabilise prices as well support growth."   Industrial output in April more than halved to a paltry 6.3 per cent, as against 13.3 per cent in the corresponding period of the previous year, due to a poor showing by the manufacturing and mining sectors.

ET

Now, ICICI Bank breaches RBI norms for loans to RIL

NEW DELHI: After State Bank of India , private sector lender ICICI Bank has emerged as the second major bank to have given loans to Mukesh Ambani-led Reliance Industries in excess of the RBI norms during last fiscal. As per RBI's prudential credit norms, a bank can't give loans in excess of 15 per cent of its capital funds to a single borrower, although banks can exceed this limit by 5 per cent in exceptional cases with prior approval of their boards.  Both SBI and ICICI exceeded the prudential limits in terms of their credit to Reliance Industries Ltd (RIL) during 2010-11, but brought down their credit exposures within the limits as on the last date of the financial year.  Incidentally, their breach of credit exposure limits has been disclosed by the two largest banks of the country within days of Ambani declaring that RIL would become debt-free by the end of the current fiscal. Addressing the shareholders at RIL's AGM on June 3, he said that the company would become debt-free on net basis during the current fiscal ending March 31, 2012.  RIL had outstanding debt of Rs 67,397 crore as of March 31, 2011, as against Rs 62,495 crore a year ago.  The company's cash and cash-equivalents stood at Rs 42,393 crore as on March 31, nearly doubling in a year.  The borrowings from SBI and ICICI are estimated to account for nearly 10 per cent of RIL's outstanding debt.  ICICI, in its annual report for 2010-11, has said, "The bank exceeded the single borrower limit of 15 per cent of capital funds to Reliance Industries Limited." Noting that the limit was exceeded with the board's prior approval, the bank further said that the exposure to RIL came down to 12.4 per cent and within the limit at March 31, 2011 -- the last date of the fiscal. Taking into account ICICI Bank's total capital funds at Rs 78,963 crore as on March 31, its total exposure to RIL stood at about Rs 1,077 crore. SBI's outstanding exposure to RIL stood at Rs 5,645.44 as on March 31, 2011.  While RIL was the only borrower for which ICICI exceeded the RBI-prescribed limit, SBI breached this ceiling for three borrowers -- RIL, BHEL and Indian Oil Corp -- during 2010-11. However, SBI also brought down its RIL exposure to within the limits at the end of the fiscal.  Another private sector lender HDFC Bank has, however, said that it did not exceed the RBI-prescribed single borrower limit for any of its borrowers during 2010-11.  ICICI had exceeded the RBI-prescribed limit for lending to RIL in 2009-10 as well, as also to Barclays Bank and ICICI Prudential Flexible Income Plan. Prior to that, ICICI Bank did not exceed this limit for any of its borrowers during four financial years. It had, however, exceeded the limit in 2004-05 for lending to four companies -- BHEL, Essar Oil,  ARCIL and L&T.  On the other hand, SBI has breached the lending limits permitted by RBI during three consecutive years for RIL.  Detailing the cases where it breached prudential limits for single-borrower exposure during 2010-11, SBI has named RIL along with Indian Oil and BHEL in its annual report.  During 2009-10 also, the bank's credit exposure was in excess of prudential limits for RIL, IOC, BHEL and Tatas.  Prior to that, SBI exceeded prudential credit limits during 2008-09 with regard to its exposure to RIL and IOC.  With regard to single-borrower exposure limit exceeded in 2010-11, SBI said that its credit to RIL breached the ceiling on three occasions -- between April and July 2010, from August to October 2010 and from November 2010 to February 2011.

ET

Markets to remain lacklustre ahead of RBI meet: Analysts

DELHI: Stock markets may continue to remain lacklustre in the coming days as investors await the RBI policy meet and inflation data for May, which will be declared this week, say experts.  The markets have witnessed a lull over the past few days, with the key indices hovering in a narrow range. Moreover, a dip in factory output in April, measured by Index of Industrial Production, and rise in food inflation for the last week of May have also affected the market sentiment.  "The key Indian indices may continue to remain lacklustre amid lack of interest among the traders as well as investors. The recent trend of light trading volumes underscores a general lack of participation for the time being", said IIFL (India Private Clients) Head of Research Amar Ambani.  On the market expectations ahead, Ambani said, "The RBI could boost rates by 25 basis points on June 16 as inflation continues to be sticky."  Further, brokers tell any positive global event may also act as a trigger for the market.  Last week, the US markets declined following a bleak assessment of the country's economy by the US Federal Reserve Chairman Ben Bernanke . Europe continued to be haunted by the sovereign debt problems amid speculation about the fiscal health of Greece.  This also contributed to the sluggish stocks movement at home, with investors concerned about tepid FII inflows in the market. Crucial market benchmark Sensex on Friday lost 107.94 points, or 0.59 per cent at 18,268.54.  Auto, metal and banking sectors witnessed maximum selling pressure last week.  "Auto stocks were among the major losers after an industry body said the domestic car sales had grown by a modest 7 per cent, sparking concerns of a slowdown in the sector. Maruti was a big loser due to a week-long strike at its Manesar plant," IIFL said in a note.  Two-wheeler major Hero Honda Motors plunged by over 7 per cent on concerns that the strike by workers of Maruti Suzuki India's plant at Manesar could spread across the auto belt of the northern state. Maruti shares fell by 0.31 per cent during the week.

ET

Bank a/c - SBI Chairman sets an example

...............Instead of taking the issue of financial jugglery by bank management more seriously and ordering special audits in at least large banks, RBI is unhappy that the action of some of the newly appointed bank chairmen is causing embarrassment to the banking regulator and the government. Obviously, RBI, the least of all the government, is not prepared to face the bitter truth. One will not be surprised if some.........

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Fees will go up, track what you pay

With the cost of funds increasing, banks will fill the gap through fees charged from customers

The Indian banking industry has grown at least four times in the last 10 years. One of the major factors that adds to its income stream, along with interest income, is a steady increase in income from fees and commissions that is charged from the customers.  Over the last five years, fee income as a percentage of total income has progressively risen for a number of banks. For instance, Axis Bank Ltd’s fee income as a percentage of total income is up from 13% in 2007 to 17% in 2011. Similarly, for IDBI Bank Ltd, it has grown from 3.5% in 2007 to 7% in 2011. Changes in the latest credit policy by the Reserve Bank of India (RBI) will impact your net earnings (interest earned and paid and charges) from banks both directly and indirectly. With the latest increase of 50 basis points (bps), the repo rate has increased 200 bps since April 2010. This means higher interest rate on loans as well as deposits. In the last credit policy, RBI also increased the savings account deposit rate to 4%. While hike in deposit rates bodes well for customers, it increases the cost for banks. All put together, banks are likely to see tighter margins. Says K.C. Jani, executive director, IDBI Bank Ltd, “In an environment with higher interest rates, cost of funding increases and companies think twice before borrowing; this trend affects all banks.” Says Gaurang Shah, assistant vice-president, Geojit BNP Paribas Financial Services Ltd, “Credit policy is expected to remain hawkish for the rest of the year and may see another 50-75 bps hike in interest rates in FY12.”  In this scenario, where net interest margins are under pressure, there is merit for banks to look towards fee income to fill the gap. According to a recent report on the banking sector by Ambit Capital Pvt. Ltd (along with its affiliates it is a full service integrated investment bank, investment advisory and brokerage group), HDFC Bank Ltd, which generates consistent fee income and has core fee income at over 2% of loans, is less dependent on interest rate movement and is relatively better insulated from interest rate risk compared with other banks. According to Shah, approximately 25-30% of fees come from the retail segment.

What it means for you

Higher credit cost: As mentioned earlier, you will have to shell out more on loans you take, owing to hike in interest rates. This will be offset, to some extent, by higher deposit rates. Base rates for loans have increased around 200 bps since last year. For example, Union Bank of India has increased its base rate from 8% to 10% and ICICI Bank Ltd’s base rate is up at 9.25% from 7.5%.

Higher outflow on charges: Jaimin Bhatt, chief financial officer, Kotak Mahindra Bank Ltd, doesn’t expect much pressure on margins as increase in costs can mostly be passed on to customers. In other words, the banks may try and increase their income through the fees it collects on various counts. Says Shah, “In an attempt to offset the negative impact on interest income, banks will concentrate on enhancing other sources of income.”  It will become difficult to negotiate your fees on loans and credit cards. Says Pathik Gandotra, head (broking), IDFC Securities, “Credit-linked fees for customers are going to look higher. A couple of years ago such fees got competed out of the market, but are back now—customers will have to pay more.” Banks will not want to forgo any part of the fee income, which means the bargaining power that customers had a few years ago will cease to exist.

Know what you are paying for

With banks’ focus on fee income, it is of immense importance for you to know the precise fees involved in any relationship you may start with a bank. Says Bhatt, “Any change in retail fees would depend on competition in the market, customer acceptance and what other companies are doing.”

Savings account: As we move closer to a system with a deregulated savings rate, you may find a simultaneous increase in service-related fees from banks. With increase in savings account costs, banks are likely to be more vigilant in managing them. Says Gandotra, “Deregulating savings rate may mean that fees on maintaining the accounts will go up. The regulator will have to be more comfortable with higher fees from customers.”  There is likely to be some amount of innovation in products and charges. We may see different types of savings accounts and may see them being linked to usage. Bhatt says, “We operate in a dynamic market, will have to see how things change in this market. If indeed margins come lower, we’ll have to see the market conditions at the time to decide on increasing fees to compensate.”

Read fee detail carefully: These charges can be in the form of non-maintenance of minimum account balance, charge on the number of transactions at a branch (beyond a fixed number) and account-closing charges, among others. Keep an eye for all such account-related charges and any gradual increase.  Also watch out for any growth in credit-linked fees, such as processing charges, late payment of equated monthly instalments, prepayment and foreclosure charges and credit card finance charges. If you’re one who has a car loan, home loan or even personal loan, look out for charges on prepayment, processing, and duplicate loan certificates.

Customer protection

As fee income is rising, so are complaints about excessive charges. Keeping such complaints in mind, RBI had asked the Indian Banks’ Association (IBA) last year to form a committee to look into the issue of unreasonable charges. Says a senior officer of IBA, who did not want to be named, “The committee had met and then a higher committee also met but it was not feasible for banks to do anything (about charges). So the status quo remains.” RBI had also formed a committee under the former chief of Securities and exchange Board of India, M. Damodaran, to look into customer service in banks. The committee, which was formed last year, is yet to submit it’s proposal. Says, Ashok Rawat, honorary secretary, All-India Bank Depositors’ Association (Mumbai), and one of the members of the committee, “The report is ready and should be submitted to RBI in around 10 days. Once RBI reviews the report, the details will be out, but customers can expect some positives as far as service charges go.” While the regulator does its bit, you need to keep your eyes and ears open to protect yourself against unreasonable charges.

Mint

No time to pause yet, rates may go up

At this juncture, RBI should go ahead with its agenda of fighting inflation as by its own estimate it will continue to remain high, around 9% till September, and hike the policy rate..........

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RBI move on foreign banks

The RBI perhaps has taken a cue from its insurance counterpart, the IRDA which right from the inception has been steadfast in its belief that foreign insurance companies can operate in India only through their subsidiary companies.....

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Inflation challenge

So far inflation, despite aggressive monetary signals from the apex bank, has remained stubbornly high

The release of the Wholesale Price Index (WPI), which measures headline inflation, on Tuesday will be a key statistic that the Reserve Bank of India will consider ahead of its policy review meeting on 16 June. So far inflation, despite aggressive monetary signals from the apex bank, has remained stubbornly high. Analysts do not see any early reversal in the trend, especially given that the long-pending increase in diesel prices could soon be implemented. At the same time, the growing cost of capital is squeezing fresh investments and is now threatening the growth trajectory of the economy. Clearly, the debate on inflation versus growth is poised to get more contentious.

Mint

BIS chief seeks a holistic policy to financial stability

........ as in some cases central banks' duties and powers to promote financial stability were being enhanced, they would need to be “careful not to undermine price stability mandates........

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India’s wobbly regulators

Former Sebi chief C.B. Bhave was keen to introduce the IDR to add depth and class to Indian market, but the current thinking of the regulator seems to be different

Early this month, the Securities and Exchange Board of India (Sebi) effectively killed the Indian depository receipts (IDRs) market by saying it will not allow fungibility of frequently traded IDRs. Both Sebi and the banking regulator may have viewed fungibility as a backdoor route to capital account convertibility and hence opposing it, but this position should have been clarified a year before allowing Standard Chartered Bank (StanChart ) to float its IDR. Redemption of IDRs after a year will only be permitted if they are infrequently traded and since StanChart IDRs are not infrequently traded by Sebi definition, the IDR holders will not get a chance to convert them into underlying shares. For all practical purposes, StanChart IDR will be the first and last IDR. Former Sebi chief C.B. Bhave was keen to introduce the instrument to add depth and class to Indian market, but the current thinking of the regulator seems to be different. This is not the first instance of Sebi taking a U-turn on policy issues. Recently, it has reversed its stance and agreed to keep its surplus funds in the so-called Consolidated Fund of India or government accounts. Bhave was in favour of holding surplus funds with itself. Even flak from the Comptroller and Auditor General of India could not force him to change his stance as he strongly, and possibly rightly, felt that the independence of regulatory bodies will be compromised if they have to rely on the government for funds. The Sebi board has also not cleared yet the new takeover code as the government apparently has certain reservations about it. What is more surprising is Sebi’s reluctance to act on the recommendations of the Bimal Jalan committee on market infrastructure institutions. It constituted the committee in December 2009 to take a close look at the role of market infrastructure institutions that has been continuously evolving to meet the challenges of the emerging securities market. As lobbying and counter-lobbying by exchanges intensified to influence decision on the controversial report, Sebi has abdicated its responsibility and left it to the ministry of corporate affairs to take a call on this.  

One can see a definite pattern in this space where regulators are increasingly becoming committed to the government and, given a chance, would not like to take decisions in critical policy matters even those falling within their domain. We have seen the Reserve Bank of India, too, behaving in this manner. It is not willing to release the licensing norms for new banks unless the finance ministry clears it even at the draft stage. Nobody should blame the government for curbing regulators’ autonomy when regulators themselves are not willing to exercise it.

Mint

Policy of pusillanimity

The price of the overall faint-heartedness, both in the government and in the RBI, will have to be paid by the economy

The Chief Economic Advisor, Dr Kaushik Basu, has, in a straightforward statement, suggested that if the Reserve Bank continues to raise the price of money, the industrial growth rate will slow down even further. The Reserve Bank of India (RBI), on the other hand, is pretty clear in its mind that inflation control is its main objective. This is not a new divergence. Nor is it a peculiarly Indian one. The conflict between inflation and growth is a very old one. But what is new this time is the clumsiness with which the government, on the one hand, and the RBI on the other, have gone about resolving it. That India was getting into a growth-induced inflation was known to the RBI since at least mid-2007. At that time, the government did not allow it to act. A year later, just before the parliamentary vote on the nuclear bill, when the government was unsure about its prospects and thought that there might be a general election in 2008 itself, it forced the RBI to raise rates steeply. Then, when the danger passed, it reversed its stand even though there was no evidence that inflation was abating. Since then, partly driven by the need to attract foreign capital inflows to sustain the current account and partly because the Prime Minister had a dream of achieving 10 per cent growth under his watch, the RBI has followed a policy of pusillanimity. The result was a blind embrace of the strategy of baby steps, which the market discounted weeks before it was announced. Inflation roared on and, in the last quarter, the RBI suddenly shifted gears and gave up the baby steps policy, perhaps a year too late. But now that the higher price of money has begun to affect investment, the government, which always wants to have its cake and eat it, is getting jumpy. It knows that the current bout of inflation in India is not originating in the manufacturing sector but in agriculture. The reason for this is staring everyone in the face: whereas the industrial sector has been subject to persistent reform since 1991, including having to face up to import competition, reform in agriculture has remained a gleam in the eyes of some diehards. The political imperative behind this inaction has meant that the entire burden of getting inflation down has fallen on the industrial sector, especially since global commodity prices have also started to come down. The RBI will now have to do the best it can. One could have felt some sympathy for it but not any longer because it failed during 2009 and 2010 to stand up to the government. The price of this overall faint-heartedness, both in the government and in the RBI, will have to be paid by the economy. Truly has it been said that when elephants fight, it is the grass that gets trampled.

Business Line

RBI may hike key rates 25 bps

“Rate hikes by the RBI since March have done nothing to bring down food price led inflation. Now, the focus has shifted to fuel price inflation. But monetary policy action alone cannot address either food or fuel.....

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RBI price survey

Households across the country believe the rate of price rise will go up to almost 13 per cent by March 2012, contrary to the RBI contention that inflationary pressures will moderate by the second half of this fiscal. In the RBI’s ‘Inflation Expectations Survey of Households: March 2011’, urban households have said inflation is likely to touch a high of 12.7 per cent within a year.

The Telegraph

‘The market has already priced in one more hike by RBI’

.....However we believe that RBI may want to further tone down high inflationary expectations and thus hike the rates by 25 basis points The market has already priced in one more hike by RBI...

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RBI is doing the right thing by raising rates - MICHAEL PREISS/STANDARD CHARTERED

UNTAMED INFLATION MAY FORCE RBI GOVERNOR’S HAND

 

Subbarao may Wield Rate Sword Yet Again

The Reserve Bank of India may raise policy rates for the tenth time in 15 months to curb prices as inflation management outweighs concerns over a slowdown in economic growth and sliding corporate profits. Governor Duvvuri Subbarao, who raised rates double of what his advisors recommended on May 3 to silence critics he was behind the curve, may increase policy rates 25 basis points during the mid-quarter review on Thursday. A basis point is 0.01 percentage point. “Monetary policy can affect systemic risk through the asset price channel,” Subbarao said last week. “Interest rates represent the opportunity cost of holding assets and an accommodative monetary policy can influence credit expansion for financing asset purchases. Should this happen in times of excessive optimism, it can lead to asset price bubbles threatening systemic stability.” All but one of the 13 financial institutions polled by ET say the repo rate, the rate at which the central bank lends to banks, may rise to 7.5%.  The reverse repo, the rate banks receive for parking surplus funds with the RBI, may go up by a similar margin to 6.5%. IndusInd Bank is the lone voice that said Subbarao may pause. “Inflation continues to be a worry and we cannot afford to be behind the curve,” said Pradeep Madhav, MD and chief executive at primary dealer STCI, forecasting a quarter-point increase. Subbarao last month abandoned his year-long ‘baby step’ approach, promising to persist with anti-inflationary stance. He raised repo rate by 50 basis points when most of his advisors suggested a 25-bps hike. Pundits, who initially argued that price rise was due to food items which could not be controlled by monetary policy, made a U-turn when it spread to manufacturing goods that is now threatening economic growth. “The focus is on commodity prices, especially oil, and they are not showing any signs of easing,” said Manish Wadhawan, director and head (interest rates), global markets, HSBC in India. “Even the data seem to be conflicting ... industrial production, exports and imports, PMI data are still hinting towards sustained recovery, albeit at a mildly lower pace. Overall the economy is still growing at a healthy rate. In that context, the RBI is expected to continue with its stance in coming months,” said Manish Wadhawan. Stubbornly high prices of crude oil above $100 a barrel and the likely impact of that on inflation when the government passes it on to consumers may play a dominant role on the rate decision. Inflation is expected to remain at an elevated level of around 9% in the first half of the year, before gradually moderating to 6% by March 2012, the RBI has said. The central bank has forecast a 20% loans growth this fiscal and 18% deposit growth, with the economy growing at 8%. Spiralling of commodities prices over the past year has led to higher prices for many products leading to a slowdown in demand, including automobiles. Growth in sales of cars and durables such as televisions and refrigerators has slumped to two-year lows and the sliding value of the rupee is forcing people to seek higher interest rates on their bank deposits. An inflationary expectation survey by the RBI says that people in Bangalore and Jaipur think it may touch as high as 16% and on an average it may rise by 1.2 percentage point. “Daily-wage workers and housewives expected higher inflation rates compared to other categories,” said the survey. Food prices are climbing after a brief lull with wholesale agricultural prices gaining 9.01% in the week ended May 28, from a year earlier. Food could become more expensive with the government raising minimum prices for rice and oilseeds. Overall inflation as measured by the wholesale price index has been over 8% for 16 months. But companies are complaining that rising interest rates are hurting sales and that policy actions till now are having desired impact. The government, which usually benefits from higher inflation, is seeking a halt to rate hikes. “The RBI will have to balance its monetary policy tightening in view of growing concerns, particularly in consumer goods front, where higher interest rates are impacting demand,” said Kaushik Basu, chief economic advisor to the finance minister. Industrial production growth slowed to 6.3% in April from a year earlier following an 8.8% expansion in March after the base year was changed to 2004-05. Manufacturing grew 6.9% in April from a year earlier after a 10.4% gain in March. Gross domestic product growth fell to 7.8% in the quarter ended March 31 from a year earlier, the weakest in five quarters. But international trade has been robust with trade deficit touching a four-year high at $15 billion, which Commerce Secretary Rahul Khullar said was “disturbing”. “The high input costs and borrowing cost have impacted growth momentum without any kind of relief on inflation despite the RBI’s hawkish stance on rates and liquidity since March 2010...the RBI has to shift to pause mode till July/October monetary policy and await fresh cues thereafter,” said Moses Harding, head (global markets), IndusInd Bank.

ET

‘Credit growth is likely to be around 19-20% this fiscal’

The Indian banking industry is going through a phase of business consolidation and introspection. With RBI continuing to raise interest rates to cool prices, a slowdown in demand for loans is expected. This could adversely affect............

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Markets hope for some rate relief after Thursday's policy

The market has already factored in a 25 basis points (bps) increase in key policy rates on Thursday, when the Reserve Bank of India (RBI) announces its mid-quarter review of the monetary policy.  But with interest rates already shooting through the roof, bankers expect RBI to press the pause button after that.  With inflation staying above RBI's comfort zone, economists and bankers said it was likely to further tighten the policy. "We are expecting a 25 bps increase. The market is divided between a pause and a 25 bps increase. There are some people who feel the slowdown is acute enough to reassess the strategy of tightening monetary policy,&" said Samiran Chakraborty, regional head of research, Standard Chartered Bank.  Driven by higher fruit prices, food inflation for the week ended May 28 was at a two-month high of 9.01 per cent. The figure was 8.06 per cent a week ago. The headline inflation, reflected in wholesale price index, rose 8.66 per cent in April. The government will release the May inflation number on Tuesday. The expectation of a pause in the rate increase cycle is gathering steam as supply factors have been the main inflation drivers.  "Interestingly, at our investor conference, RBI Deputy Governor Subir Gokarn admitted that while the current drivers of inflation (food/commodity prices) were outside the purview of the monetary policy, RBI's aim was to contain the pass-through of higher prices through demand management,&" said Rohini Malkani, chief economist, South Asia, Citigroup Global Markets.  RBI has raised key policy rates eight times in 2010-11. It increased rates by another 50 bps in May this year to combat inflation. The country's gross domestic product growth slipped to 7.8 per cent in January-March, the slowest in the last financial year, as high rates and input costs dragged down manufacturing sector growth to a 21-month low.  Growth in industrial output slowed to 6.3 per cent in April from a year ago under the new series, which takes 2004-05 as the base year. The index of industrial production grew 8.84 per cent in March.  "There could be a maximum 25 bps rate increase on Thursday. I think there will be a pause after that. Otherwise, growth may be seriously affected. Inflation is also expected to come down. A normal monsoon has been forecast, which will ease food prices,&" said M Narendra, chairman and managing director, Indian Overseas Bank.  Bankers said while loans would become dearer if policy rates were increased, any further increase in deposit rates would happen with a lag. "Deposit rates have already gone up. Margins are under pressure. There will be no other option but to increase lending rates,&" said Ramnath Pradeep, chairman and managing director, Corporation Bank. He admitted this might slow credit growth. Credit growth for the banking system was 22.3 per cent year-on-year for the fortnight ended May 20. Deposits grew 17.5 per cent in the period.

BS