Banks should not own mutual funds or insurance companies as subsidiaries. Instead, an RBI panel has recommended that financial conglomerates be structured so that a holding company is created with 3 distinct arms - the bank, the insurance company, and the mutual fund. CNBC-TV18’s Latha Venkatesh and Gopika Gopakumar report that while experts welcome this proposal; they disagree on who should regulate the holding company. Recent suggestions to convert financial conglomerates to holding company structures have received kudos from the industry. Experts feel this move will help in regulating them better. JR Verma, professor at IIM Ahmedabad, said, “What the FHC model does is that each of companies, which are running an insurance business or asset management business or a banking business, each of them is separate. They are not in a parent subsidiary relationship to each other. They are all subsidiaries of the same parent. So that really allows you to resolve a conglomerate very easily.” On the other hand, AK Purwar, former chairman of SBI, said, “As far as banking space is concerned, it is extremely well regulated. If you ask the insurance space, again it is regulated; mutual fund is again well-regulated. But if you ask me that anybody is regulating the conglomerate today, I think there is huge gap there.” Experts are divided over who should regulate these holding companies. The report suggests that the RBI be the chosen one and some agree. “If you see the present set of regulators, perhaps RBI, because of his history, because of its very long track record, because very eminent people who are getting into RBI and managing it, it has a very good credentials to look at this as an aggregate,” added Purwar. Narayanan, former secretary, Finance Ministry, said, “Only Finance Ministry will be in a position to be able to bring in people from all the other regulatory to sit together and to sort out the problem.” Hence, to prevent the report from gathering dust, experts say RBI should send these recommendations to the financial sector legislative reforms commission (FSLRC), which is looking to redraft laws governing the financial sector.
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Wednesday, June 15, 2011
CAB First – Workshop on First Aid Training
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After facilitating “Aadhar” UID card registration camp recently, yet another novel initiative envisioned by Ms. Kamala Rajan, Chief General Manager & Principal was taken. A day long workshop on First Aid Training was organized on June 13, 2011 at the College of Agricultural Banking, Pune for the members of staff and their families. Dr. Gajana Kulkarni and Dr. Aruna Kulkarni of St. John Ambulance Association, Mumbai conducted the workshop. At the inaugural address, Ms. Kamala Rajan related an anecdote from her childhood to drive home the importance of learning first aid training. During the workshop various areas such as managing wounds and hemorrhage, respiration and asphyxia, fracture and unconsciousness, dressing and bandage, precautions during and immediately after earthquake were covered. The participants were also provided hands-on experience on various first aid techniques. The children and family members enthusiastically participated in the programme. Shri Manas Ranjan Mohanty, Deputy General Manager/MoF co-ordinated the programme. Shri R.L.Sharma, General Manager & Vice Principal alongwith other officers were also present.
Karnataka Bank opens RO in Kolkata
Mangalore, June 14: To expand its presence in north-eastern part of the country, the Mangalore-based Karnataka Bank Ltd has opened a regional office in Kolkata in West Bengal. Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer of the bank, told Business Line that the new regional office of the bank at Kolkata helps the bank to meet the requirements of the customers in north-eastern belt of the country. The Kolkata regional office was created after hiving off branches from Delhi and Hyderabad regions, he said. The new regional office covers West Bengal, Assam, Chattisgarh, Orissa, Jharkhand, and Bihar. Mr P.K. Jena, Chief General Manager of RBI, inaugurated the 10th regional office of the bank at Kolkata on June 13. Asked about the expansion plans in Kolkata region, Mr Bhat said the bank is planning to open branches in Rourkela, Joda and Bhubaneshwar in the coming days. “We will be applying for more licenses to open branches during the year,” he said. At present, West Bengal has nine branches, Orissa five, Chattisgarh four, Jharkhand two, and Assam and Bihar have one branch each. The bank is planning to take the total number of branches in the country from 481 to 500 by the end of this financial year, he added.
RBI hints at another rate hike, inflation high
Mumbai: Reserve Bank on Tuesday said inflation would continue to face upward pressure in the months ahead, indicating that it could further raise key interest rates to check rising prices in its mid-quarterly policy review on Thursday. "Global commodity prices, particularly oil, and performance of the monsoon are the key risk factors to inflation management in the months ahead", RBI Governor D Subbarao said in the foreword to the central bank's Financial Stability Report. Inflation, according to the latest data, rose to 9.06 per cent in May, much above the central bank's comfort level of 5-6 per cent. According to the RBI report, "inflation is likely to continue facing upward pressure". Experts have predicted that the central bank would raise key policy rates by at least 25 basis points in its mid-quarterly policy review on June 16 to curb price rise. Former Reserve Bank Governor and the present chairman of the Prime Minister's Economic Advisory Council (PMEAC) C Rangarajan too said, "I think the RBI will probably look at the inflation issue more seriously and will take some action...it will probably decide what to do in the context of the high level of inflation". Describing the inflation numbers as 'upsetting', he said, "We need to address the issue of inflation even more strongly. We need to use more monetary and fiscal policy to contain inflation". Inflation has continued to remain high despite the Reserve Bank raising the key lending (repo) and borrowing (reverse repo) rates nine times since March 2010.
IBN Live
Dr. Reddy at wedding reception....
Former RBI Governor, Y.V.Reddy (L) at the wedding reception of Infosys Chairman N R Narayana Murthy's son Rohan Murthy with Lakshmi Venu at Hotel Leela Palace in Bangalore on June 12, 2011
RBI: Downside risks to growth on local, global factors
India's Gross Domestic Product (GDP) growth has downside risks on account of some domestic and international factors, the Reserve Bank of India (RBI) said in the Financial Stability Report released on Tuesday. India's economy expanded 8.5 percent in the fiscal year ended March, and the central bank has forecast growth to moderate to about 8 percent in the current fiscal year
India’s banking sector well capitalized: RBI
Srinagar, June 14: The Reserve Bank of India in its Financial Stability Report (FSR) has said the banking sector in India remains well capitalized with both core capital adequacy and leverage ratios at comfortable level. The report which was presented today in New Delhi makes assessment of the health of India’s financial sector. The report, the central bank in its website says, reflects its continuing endeavour to communicate its assessment of the incipient risks to financial sector stability. Pertinently, the first FSR was released in March 2010 and the second in December 2010. It said the FSRs will be released bi-annually in June and December every year. “The FSR holistically assesses, from a systemic risk perspective, disparate elements of the financial sector eco-structure – the macroeconomic setting, policies, markets, institutions,” it says. “However, the tools and techniques used to assess the stability of the financial sector, the build up of systemic risks, if any, and the movements of various vulnerabilities between December 2010 and June 2011, have been considerably upgraded,” it said. The report says that credit growth rebounded amid improvements in asset quality. Certain specific sectors, however, may pose concerns, going forward. “Increased reliance of market borrowings could adversely affect the liquidity position of banks,” it said, adding that the robust growth in credit warrants tightening of individual underwriting standards to prevent slippages when credit growth slows. The FSR states that the Indian financial system remains stable in the face of some fragilities being observed in the global macro-financial environment.
Greater Kashmir
RBI: Funding current account deficit may be a challenge
India could see some slowdown in capital inflows going forward as advanced economies exit from the easy monetary policy
Mumbai: India could see some slowdown in capital inflows going forward as advanced economies exit from the easy monetary policy, making it tougher to fund a widening current account deficit, the Reserve Bank of India (RBI) said in its Financial Stability report. “Financing of current account deficit is going to be a challenge as advanced countries begin exiting from their accommodative monetary policy stance,” the Reserve Bank of India said in the report, released on Tuesday. If oil and commodity prices remain elevated, the current account deficit will remain significant, although higher growth in software exports and remittances may provide some cushion, the report said. India’s exports in May provisionally rose an annual 56.9% to $25.9 billion, while imports for the month rose 54.1% to $40.9 billion. The country’s trade deficit widened the most in nearly three years as the country’s demand for oil, gold and industrial machinery soared, prompting concerns the gap for the fiscal year could expand despite a strong rebound in exports. India’s trade deficit rose 67% in May from a month ago to $15 billion, the highest since September 2008. The Reserve Bank said it is committed to use a prudential mix of policy instruments to contain any adverse impact of easy monetary policy by the advanced economies. India’s gross domestic product (GDP) growth has downside risks on account of some domestic and international factors, the report noted. “The slackening of global recovery, high oil and commodity prices, deceleration in domestic industrial growth, uncertainty about continuation of strong growth in agricultural sector and impact of monetary policy actions pose downside risks to India’s GDP growth during 2011-12,” the RBI said. India’s economy expanded 8.5% in the fiscal year ended March, and the central bank has forecast growth to moderate to about 8% in the current fiscal year. Inflation is likely to face upward pressure from higher subsidy expenditure of the government, rise in wages and raw material prices, RBI said in the report. “Management of government expenditure, especially subsidies bill, will pose challenges to the process of fiscal consolidation, which could be further accentuated by a tempered growth adversely impacting revenue collection,” RBI said. High interest rates has increased the attractiveness of overseas borrowing in terms of interest rate differential and availability of credit, it said. The high and growing net external liability position of residents exposes the country to the risk of a sharp fall in the currency, the report noted. The central bank also said increased reliance on market borrowing by Indian banks could adversely affect their liquidity position.
Mint
RBI should not pause now
Inflation is for real: if inflationary expectations have come down that is in no small measure due to the steps that it has taken until now. Given these signals, it is important that RBI continues to send a strong signal about its intention to quell inflation, at least....
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RBI interest rate increase worries CBDT
Officials say it will impact direct tax collections in current financial year. The Central Board of Direct Taxes (CBDT) is worried over interest rate rises by the Reserve Bank of India (RBI) to curb inflation impacting direct tax collections in this financial year. CBDT officials told Business Standard that companies had indicated the rate rise was raising their cost of borrowings and impacting their bottom lines, which would have a bearing on their tax payments this year. “This year’s target of collecting Rs 5.33 lakh crore is stiff and the rate rise is certainly putting pressure on collections,” said an official. He, however, said the board would devise its strategy to meet the target. The CBDT is now contemplating an enhanced focus on tax deducted at source (TDS) which constitutes around 38 per cent of the total direct tax collection of Rs 4.46 lakh crore in 2010-11. The official said a comprehensive strategy would be formulated soon for this purpose. Showing growth of 25.5 per cent, gross direct tax collection up to June 13 in the current financial year stood at Rs 69,551 crore as against Rs 55,420 crore collected during the same period last year. Net collections, however, witnessed a decline of 29.80 per cent at Rs 29,304 crore up to June 13 this year as against the figure of Rs 41,714.50 crore in the same period last year. The corporate tax collection during this period has been Rs 3,619.50 crore and personal income tax Rs 24,545 crore. Rest includes share transaction tax Rs 1,108 crore, fringe benefit tax Rs 8.50 crore and other taxes Rs 23.80 crore. Refunds during the period from April to June 13 in the current financial year stood at Rs 40,246.80 crore as compared to Rs 13,705 crore issued during the same period last year — a jump of 193.70 per cent. The interesting trend witnessed in the direct tax collection this year has seen second-tier centres like Chandigarh, Bhopal, Patna and Lucknow performing much better than Mumbai, Delhi and Chennai. Growth in direct tax collection in Chandigarh up to June 13 in the current financial year stood at 62.50 per cent over the previous year’s collection during the same period. Similarly, Bhopal, Patna and Lucknow witnessed growth of 57.80 per cent, 60 per cent and 86.50 per cent, respectively, during the same period this year. In comparison, growth rates of direct tax collections declined in Mumbai, Delhi and Chennai by 54 per cent, 99.80 per cent and 5.4 per cent, respectively. The CBDT official said the reason behind better performance by smaller centres over major ones was improving TDS collections.
BS
Muthoot Finance faces RBI probe on gold bonds
Muthoot Finance's method of raising money through gold bonds has been questioned by its competitors, including a few public sector banks. This has resulted in a probe by the Reserve Bank of India (RBI). According to a few banks, the bond issues by Muthoot Finance were not in strict compliance with norms relating to raising money from the public, and this gave Muthoot Finance an advantage over its competitors, said two people familiar with the development. “The complainants have, in their detailed report to RBI, said how the bonds were being issued to walk-in clients at any Muthoot Finance office in the country,” one of the sources said. An RBI spokesperson confirmed the probe. When asked whether there were concerns over the debentures, the spokesperson said, “We are examining the books of gold loan companies. This will probably cover everything.” Muthoot Finance, which is registered as a non-deposit taking non-banking financial company (NBFC), is regulated by the central bank and had raised about Rs 3,900 crore through non-convertible debentures. For gold loan firms, these debentures are an important source of funds, since RBI had, in February, taken the sector off the priority sector list. According to company officials, this money is raised through private placement in several tranches. The terms of these debentures can be found in the forms available in any of the Muthoot outlets, the officials said. Company officials also said the RBI audit was a routine one and nothing untoward was found. A senior Muthoot Finance official said, “The company has followed all applicable rules and regulations, and the bonds are in the form of secured debentures, which are privately placed.” He added these debenture sales would not amount to a public issue, as there was no invitation or an advertisement inviting the public to subscribe. Provisions in the Companies Act allow NBFCs governed by RBI to raise money from more than 50 people, without attracting the public issue provisions of the Act. However, such efforts should not, directly or indirectly, be aimed at raising money from members of the public or from people to whom the offer is not made directly, say experts. According to these rules, “The offer for shares or debentures made by an NBFC or a public financial institution, should not be calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by people other than those receiving the offer or the invitation.” “In short, an NBFC can send named invites to even 1,000 people. But if it keeps blank forms and takes deposits from walk-in customers, that would amount to a public issue and would attract the relevant provisions,” said a company secretary. Gold finance companies, including Muthoot Finance, have been raising money through non-convertible debentures at an interest rate of around 12 per cent per year. However, being a non-deposit taking NBFC, it is not subject to restrictions like liquidity reserves and cash reserves, conditions banks are subject to. “This makes their cost of funds much lower than their competitors and margins much better. However, it exposes them to that much more risk, since there is no protection against depreciation in gold prices or liquidity risks,” said one of the sources.
BS
RBI admits monetary policy actions may pull down growth
The Reserve Bank of India (RBI) today admitted that its own tight monetary policy, besides rising crude oil prices and uncertain global environment, poses a threat to India's growth momentum in the current fiscal. "The slackening of global recovery, high oil and commodity prices, deceleration in domestic industrial growth, uncertainty about continuation of strong growth in agricultural sector and impact of monetary policy actions pose downside risks to India’s GDP," the RBI said in a report. The slowdown in growth momentum may affect the quality of the assets of financial sector, according to the RBI's Financial Stability Report-June 2011 released here today. The central bank, which has raised key interest rates nine times since March 2010 to check price rise, has pegged India's gross domestic product (GDP) growth rate for the current fiscal at 8%, down from 8.6% recorded in FY11. The report, however, said India's macroeconomic fundamentals continue to remain strong, notwithstanding the prevailing inflationary pressures and concerns on the fiscal front. The RBI said the recent decline witnessed in international oil prices "may not help in inflation management as complete pass-through of previous escalations is still to be affected". The international prices of food, energy and commodities are expected to remain high during 2011-12, it added. Moreover, inflation is likely to face upward pressure from higher subsidy expenditure of the government and the rise in wages and raw material prices, according to the report. Referring to the recent growth in India’s exports, the RBI said it may off-set, at least partially, the expected increase in the import bill due to elevated oil and commodity prices. On the current account deficit (CAD) front, the RBI said, "there does not seem to be an impending pressure on the financing of CAD". The central bank, however, cautioned that "as the advanced economies exit from the accommodative monetary policy, there could be some slow down in capital inflows". It said concerns over the global economic environment and the uncertainty revolving around the path of global recovery, are the "main underlying factors behind global imbalances that remain largely unaddressed". Referring to the the sovereign debt crisis in European countries like Greece, Portugal, and Ireland and the ballooning government debt in some advanced countries, the RBI said these "remain threats to global stability".
BSMore of the same
The latest headline inflation data should queer the pitch for the Reserve Bank of India (RBI) as it makes up its mind on the end-quarter monetary policy action this week. The wholesale....
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RBI: Growth to moderate, inflation to remain firm
High inflation and the consequential policy rate increases are likely to impact domestic growth in the future, said the Reserve Bank of India (RBI) in its Financial Stability Report released today. A slowdown in investment demand and the slackening global recovery also pose downside risks to growth. The central bank said inflation was likely to remain high, as the entire impact of the rise in oil and coal prices was yet to be felt. The government's higher expenditure on subsidy and rise in wages and raw material prices would prevent inflation from declining. “Growth is likely to moderate, while inflation is likely to remain firm due to rising commodity prices,” RBI said in the report. Rising commodity prices are expected to have an adverse impact on the fiscal consolidation process, it said, adding there were risks to the fiscal deficit projections of 2011-12, since subsidies were likely to exceed budgetary provisions, owing to higher international commodity prices. Headline inflation numbers again picked up in May on the back of higher prices of food and non-food manufactured goods. While the wholesale price index stood at 9.1 per cent in May, up from 8.7 per cent in April, food inflation rose to 8 per cent in May, compared with 7.6 per cent in April. Non-food manufactured inflation rose to 7.2 per cent from 6.3 per cent in April. Higher oil and commodity prices may also led to widening of the current account deficit, though higher growth in software export and remittances is likely to provide cushioning. According to the central bank, financing the current account deficit would be a challenge, as advanced countries exit their accommodative monetary policy stance. “This could slow down capital inflows to emerging market economies, including India, as investors rebalance their portfolios,” RBI said. There is considerable uncertainty in the global financial recovery, owing to recent developments like the eurozone debt crisis, the earthquake in Japan and the geopolitical turmoil in major oil producing countries, RBI said. It added these developments may hit the confidence of investors and the spending decisions of corporations and households. The central bank also cautioned against uncertainties in the West Asian and North African (Mena) countries. “If tensions in Mena continue, or spill over into bigger economies in the region, the impact on Indian financial markets would be difficult to contain, particularly because India’s fiscal improvement is expected to slow this year,” it said.
BS
Low provisioning poses systemic risk: RBI
The Reserve Bank of India, in its Financial Stability Report, today said banks should create adequate reserves to deal with pension liabilities and avoid approaching the regulator for privileges. The directive comes in the backdrop of revised pension liabilities eating into public sector banks’ fourth quarter earnings in the last financial year. RBI said under-provisioning and non-compliance with accounting standards could pose systemic stability issues. RBI, which has taken up the issue with the Indian Banks’ Association, said, “Banks are also being advised to make a proper assessment of their superannuation liabilities and provide for them from the year in which the periodical wage settlements fall, and not from the year in which such settlements are signed.” The additional liability for State bank of India (SBI) stood at Rs 11,707 crore, for which the bank had requested for RBI's approval to spread additional costs evenly over the future working lifetime of the employees. The regulator, however, did not agree, since the rise in the liability was linked to the wage revision and could have been reasonably anticipated. “However, from a purely systemic stability point of view, the impact on SBI’s profitability being very significant, regulatory dispensation allowing adjustment against reserves to meet the additional pension liability, the net liability for the current year was allowed,” RBI said. Hence, SBI provided for Rs 2,473 crore to the profit and loss account and Rs 7,927 crore was charged to the reserves. As a result, SBI’s net profit declined 99 per cent in the fourth quarter of the last financial year. RBI said going forward, it was necessary that banks build adequate provisions for such liabilities in a phased manner since regulatory dispensation is not sought. This would also prevent burdening in the year the settlement was signed.
BS
RBI for closer look at linkages of insurance firms to financial system
The insurance sector’s linkages with the rest of the financial system needs better monitoring, to avert any possible systemic shock triggered by its core activities, the Reserve Bank of India (RBI) said.....
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RBI bars NBFCs from opening branches abroad
Non-bank financial companies (NBFCs) will not be permitted to open branches abroad, the Reserve Bank of India said today. However, NBFCs which already have branches abroad, will be allowed to continue those operations, subject to their compliance with the revised guidelines. The regulator has allowed NBFCs to set up representative offices and subsidiaries abroad. It said subsidiaries established abroad by an NBFC should not be used as vehicles to raise resources Indian operations. NBFCs would also be barred from investing in non-financial activities and their total investment should not exceed 100 per cent of the net-owned funds. “The overseas investment in a single entity, including its step-down subsidiaries, by way of equity or fund-based commitment, shall not be more than 15 per cent of the funds owned by NBFCs,” RBI said. Direct investment in activities prohibited under the Foreign Exchange Management Act or in sectoral funds will not be allowed and the level and an NBFC's net non-performing assets should not be more than five per cent of its net advances, for NBFC’s planning to set up offices abroad. While deposit-taking NBFCs would have to maintain a capital adequacy ratio of 15 per cent after investing in a subsidiary, non-deposit taking NBFCs would have to maintain a 10 per cent capital adequacy ratio.
BS
High rates, rising NPAs may erode banks' profits: RBI
The Reserve Bank of India (RBI) today said high interest rates and a rise in non-performing assets (NPAs) may erode the profitability of banks in the coming quarters. “The SCBs’ (scheduled commercial banks) profitability showed an improvement in 2010-11. Going forward, increasing interest rates, a rise in the savings account interest rate, amortisation of pension and gratuity liabilities and the potentially enhanced provisioning requirements for NPAs may hit the profitability of banks,” RBI said....................
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Obituary
SUSEELA KASTURI 69 Retd.Manager,RBI,Bangalore expired on 13-06-2011 at Chennai. Ph:044-24725718/9381258947
Hindu
Post office ATMs to be set up before March 2012
India Post had first announced this project in February this year, but had been awaiting the Reserve Bank of India's approval to start the project in full swing. "It's all done now. We recently received RBI's permission to set up ATMs," said the.....
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Caught in apolicy bind
The initiative for price stability and growth has to move from Mint Street to Parliament Street
If the RBI thought the last fiscal was a trying one with its set of intertwining parameters such as growth that is not fast enough, soaring inflation and exuberant policy makers, it has yet to reckon with the current year's dilemmas. These dilemmas emerge from growth that is slowing down on account of falling industrial output, especially in the capital goods sector, persistently high inflation, and policymakers who would like the RBI to reverse its tight money policy. It is against this backdrop of cross-eyed reality that the central bank will be delivering its mid-quarter review of the monetary policy today. Most bankers expect the Reserve Bank of India to raise its key rates by at least 25 basis points; others think that after nine spikes, it should loosen interest rates a bit. The third view is that markets have factored in the tight monetary policy — a euphemistic way, perhaps, of saying that the RBI measures matter little — and would, therefore, want the central bank to stay the course. There is merit in all of these views. After 15 months, interest rates have climbed considerably and the common view among corporates is that it is beginning to weigh heavily on investment plans and their order books. The RBI itself had noted in April, in its monetary policy for the current fiscal, that investment was dipping and that the business sentiment was not as roseate as it used to be. It is on account of these reasons that it had moderated its growth forecast. In retrospect, its tight money policies had worked in reducing prices, but only of those in the manufacturing sector, not those of food. In fact, all through the 15 months of consistent increases in its key rates, food or primary inflation stayed stubbornly high. All that one can say at this juncture about the RBI's tight money policies is that they have moderated manufacturing growth and, perhaps, that is why officials in the North Block would like it to reverse course. It is possible that the RBI will continue to abide by its faith in its capacity to bring about price stability and so raise key rates by 25 basis points; or perhaps, it may not. But in either case, not only will markets remain unconcerned, but so will food inflation. Yet, the RBI must be seen to be acting on the inflation front. Unfortunately, as experience has shown, its initiatives will be as futile in their objectives as New Delhi's inaction has been. Clearly, the initiative for price stability and growth has to move to New Delhi.
Business Line
SBI invites applications for chief economist
State Bank of India (SBI) on Tuesday advertised the vacancy for a new chief economist offering an annual package of Rs 60 lakh
Country’s largest lender, State Bank of India (SBI) on Tuesday advertised the vacancy for a new chief economist offering an annual package of Rs. 60 lakh, nearly triple to that typically drawn by a State Bank chairman. The appointment will be on contract basis for an initial period of three years, the advertisement appeared in news papers, said. “We have to offer competitive salary packages for the candidate in line with the industry standards,” a top SBI official, who did not want to be named, said. This is not the first time SBI is appointing a chief economist but the post has been lying vacant for quite some time. In 2009-10, State Bank’s former chairman O.P Bhatt got a total remuneration of Rs. 26.5 lakh. Traditionally, salaries of public sector bank chiefs and top executives are much lesser compared with their counterparts in foreign and private sector space and even less than some of the heads of miccrofinance firms. In September, 2010, Reserve Bank of India governor, D Subbarao had said that in the absence of suitable compensation package they would lose talent to private sector lenders. “The executive compensation in the public sector, as is well known, is lower than that in the private sector...If public sector banks are required to compete with private sector banks on a level playing field, there is a good case for compensating them too on a competitive base” Subbarao said.
Mint
RBI, ministry differ on FDI limit, capital in new banks
The central bank wants to cap it at 49% in the initial stage, the finance ministry is not averse to the idea of 74% FDI in such banks even at an early stage....
Read here..............Centre may restore interest subvention
“It has been indicated that if RBI continues with its monetary tightening measures, we may look at restoring two per cent interest subvention once again or else.......
Interested ? Read more..........Will India's economy bounce back?
"If you are growing at even 8% it is fine but we have to see whether it is the beginning of a prolonged slowdown," Bimal Jalan, former Reserve Bank of India Governor, said. But most experts say....
Continue reading.............On inflation, RBI may miss the goal again
Economists expect the RBI to stop its hiking cycle after August. “In terms of quantum they will hike rates by about 50 basis points out of which.............
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The curious case of inflation combat - Madan Sabnavis
In the last 15 months or so, the Reserve Bank of India (RBI) has relentlessly pursued the goal of inflation control as the number appears to be quite intransigent despite all the positive developments in agriculture. The results have not been encouraging so far and the impact has been limited. How do we tackle inflation then? The answer could actually be staring in front of us that we have not taken into account. To understand more, let us look at the composition of inflation in terms of what are the sectors that influence inflation. Broadly speaking, primary products have a weight of 20%, fuel products 15% and manufactured goods 65%. Inflation has been relatively high in all the sectors by the pre-2009 standards and each of them is guided by a different government body that has influence over prices. Let us look at primary products. Here the ministry of agriculture (MoA) has maintained that FY11 has been one of the best for agriculture. Yet prices have been rising and all the assurances of good monsoon, robust kharif and an ecstatic rabi harvest has not helped bring down prices. This is partly due to the fact that the ministry has been instrumental in increasing the minimum support prices (MSP) of all farm products. In the last 2 years, it has been increased by between 10% and 30%, which means that there is an inherent tendency for prices to go up as market benchmarks are increased. Last week, the MSPs were raised once again by the Cabinet Committee on Economic Affairs (CCEA) across pulses, cereals, oilseeds and fibres. This means that there is an inherent upward bias in the market even though the government physically only deals in procurement of wheat and rice. By counter-intuitive reasoning, it may be concluded that MSPs have driven inflation since the government maintains that the high MSPs have helped to shift crop patterns and increase output. Here we are not passing a value judgement on whether it is justified or not. Now let us look at the fuel prices that are increasing by around 13%. Higher crude oil prices make state-run oil marketing companies unviable and there is this constant call to align petro-product prices with those in the market (including by economists). The ministry of petroleum (MoP) decides on the pricing policy. Motor spirit prices directly feed into inflation with a weight of around 1%, while diesel comes with a direct weight of close to 5% and an indirect influence of 0.75-1% on prices. Although it makes economic sense to increase prices, it also adds to inflation. Then there is the ministry of finance (MoF), which has its opinion on the subsidy bill on food and oil. To ensure that the Fiscal Responsibility and Budget Management (FRBM) targets are adhered to, it is reluctant to increase its expenditure and hence deficit, and is exerting pressure on the MoP to increase fuel prices. Curiously, the government can enhance its expenditure without the fear of being caught in the RBI’s web of increasing interest rates as it gets its funds through the regular auctions, which come in at an average rate of around 8.4-8.5%. The last sector, manufacturing, is the one which generates core inflation (non-food and fuel). If manufactured food products and textiles are excluded (as they are agro-based), then this group accounts for 45% of inflation and core inflation would be only 5% in April 2011. In fact, since April 2010, this entire group has shown an increase of between 5% and 6.5% consistently until April 2011 with limited volatility. This is where RBI policy can work. But for this to happen we need to answer some questions. First, is consumption supported by bank finance increasing demand of houses (mortgages) or automobiles or consumer durable goods? Is investment by industry growing rapidly? Is industry holding on to large inventories? If the answer is yes, then interest rate hikes will lower demand by increasing cost of credit. But if the answer is a shoulder shrug then we may be barking up the wrong tree by raising rates. The point that emerges is that we have a situation where different arms of the government are speaking different languages and expecting RBI to tackle inflation. So we have a case of food and fuel prices increasing on which RBI has no control—after all, no one borrows money to eat food. The poor anyway continue to starve as they are not credit worthy. Therefore, RBI may be forced to treat a malaise over which it really has limited control. What is the solution? The MoA, CCEA, MoF, MoP and RBI should all sit together and discuss the inflation strategy. Currently we have every authority looking closely at its own jurisdiction and taking decisions to ensure that their houses are clean, while RBI has the tough job of finding solutions to inflation. We certainly must have all these ‘arms’ talk to each other continuously with a macro eye. This will ensure that we have a singular approach to inflation and eschew this seemingly chaotic situation where RBI is on one side and the others are pulling the strings in the other direction.
The author is chief economist, CARE Ratings. These are his personal views
FE
Macro-economic fundamentals strong despite inflation, fiscal concerns: RBI
....Adding a note of caution, the RBI said the failure of a single bank could have a domino effect on the entire banking system due to the “connected and ......
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BoM convenes 111th state level bankers committee meeting
Dr KC Chakrabarty, Deputy Governor, RBI, Ratnakar Gaikwad, Chief Secretary, Maharashtra state and A S Bhattacharya, Chairman & Managing Director, Bank of Maharashtra and Convenor SLBC, Dr Alok Pande, Director, Financial Inclusion GOI, review the state specific financial inclusion plan and annual action plan for 2011- 12 at a meeting in Mumbai on Tuesday. The state annual credit plan has been increased to Rs 54,618 cr for the year 2011- 12.
Fress Press Journal
Is ICAI overstepping its jurisdiction in seeking to question SBI? - Nagesh Kini
The Institute of Chartered Accountants of India wants an explanation from the State Bank of India on the huge profit erosion in the March quarter, while it turns a blind eye to complicity of its members in cases of financial indiscipline
"SBI faces queries from the Institute of Chartered Accountants of India", read the headline in a newspaper a couple of days ago. The news report went on to say that "Taking a strong note of the SBI's huge profit erosion for the March quarter, due to a rise in the provisions, the president of the accounting regulator ICAI on Friday said it will ask the country's largest bank to explain the reasons for earmarking the higher provisions for bad loans." Does this make any sense? ICAI, the Institute of Chartered Accountants of India, which ought to be the regulator for chartered accountants and auditors, has chosen to put its foot in its mouth, and it should explain under which provisions of either the Chartered Accountants Act or the Banking Act it is authorised to raise queries of this nature with any bank in the country, and in this case the largest one at that. There already exists another regulator, the Reserve Bank of India (RBI), which is empowered under the RBI Act to regulate, direct and question the banking sector in India, as well as the statutory and branch auditors and chartered accountant directors that are appointed on the boards of banks. Additionally, the appointment of the chairman and managing director for public sector banks, as well as the other banks, requires its nod. Frankly, the ICAI has put its foot in its mouth. It has no jurisdiction over the banks at all. Even morally, it has no business whatsoever to raise questions about the State Bank of India (SBI) and its accounting now, when it has miserably failed in acting in another matter of the Global Trust Bank, where the blacklisted auditor firm, PriceWaterhouseCoopers (PwC), was reinstated on the RBI panel after the deputy governor retired, ostensibly with the ICAI's active connivance. The PwC's partner was the chairman of ICAI's Ethics Committee, now charged in the Satyam fraud! Bad loans and non-performing assets simply do not occur overnight. They incubate over the years, when all signs of incipient or impending illness are winked at, at all levels. The provisioning is carried out at the highest levels going right up to the board of directors, which includes chartered accountants. The banking sector has a plethora of checks and balances, like periodical submission of stock and receivable statements, reviews at each renewal, internal inspection and stock audit by chartered accountants, and more. If, after all this, the advance turns bad, it goes to prove that there has been definite failure of monitoring and reporting and that it was winked at, at the top too. The cash-for-loans scam had the active involvement of a director who was a chartered accountant. The auditors are additionally required to submit a detailed Long Form Audit Report (LFAR), aptly renamed "Lafda Report" in Mumbai lingo. How the loans got past all these scrutinizes, at various stages, over the years, needs to be specifically inquired into. The auditors need to clarify whether they have reported on SBI and ICICI Bank exceeding the lending limits to RIL, BHEL and ONGC. The ICAI ought to issue notices to its members, chartered accountant bank directors, statutory and branch auditors, inspection and stock auditors, those who prepare project reports and those who arrange loans, each of whom is guilty at some point in time, and not the banks who are answerable to the RBI, their regulator. It has now been proved by these massive provisions being made recently that banks in India have been hiding huge losses on account of non-performing assets (NPAs) year after year. Why they were not provided for in earlier years needs to be explained also by the earlier auditors, in particular, who are equally guilty of dereliction of duty and passive connivance. SBI's chairman and managing director Pratip Chaudhuri, Bank of India's Alok Misra, Bank of Baroda's AK Khandewal blowing the whistle has reportedly not been appreciated by the banking regulator. Deputy governor KC Chakrabarty, himself a former chairman and managing director of a public sector bank, has indeed been candid in his observation that financial reporting should not be "as per the minds of bank chairmen, when chairman changes, profits tend to fall. Things should not turn topsy-turvy if bank chairman changes." That bank auditors are hand in glove with the chairman and managing director is the cause of scams, cash-against-loans, corrupt percentage practices, financial jugglery, political pulls and pressures, as has been the case with the Maharashtra State Cooperative Bank. While the justice system in the US has been swift, prompt and unsparing, like Arthur Andersen paying for the Enron mess, the auditors Ernst & Young being held more responsible for the collapse of Lehman Brothers than the bank's management, and PwC USA being ordered to pay millions in the Satyam affair, our regulators, whether it is the Securities and Exchange Board of India, the RBI or the ICAI, are still mulling over whether each has a cause for action under the law in the Satyam saga. By questioning SBI and not the chartered accountants involved, the accounting regulator ICAI has turned itself into a laughing stock.
(Nagesh Kini, formerly a practicing chartered accountant-RBI empanelled bank auditor, is now an activist.)
(Nagesh Kini, formerly a practicing chartered accountant-RBI empanelled bank auditor, is now an activist.)
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