Rate swaps signal RBI hikes ending

India is almost done raising borrowing costs after the most aggressive increases among the world’s biggest emerging economies, interest-rate swaps show. The amount money managers must pay to lock in borrowing costs for a year dropped to 42 basis points, or 0.42 percentage point, over the central bank’s benchmark rate of 7.5% on June 20, the lowest since November 9, according to data compiled by Bloomberg. Similar spreads are 28 in Brazil and 51 in China. India’s economic growth slowed to 7.8% in the three months ended March 31, the least for five quarters. Barclays and ICICI Bank predicted this month that the central bank will raise rates by no more than 25 basis points for the rest of the year after adding 275 since March 2010. The Reserve Bank of India increased rates eight times in the past year, compared with five times in Brazil, four in China and two in Russia. “The deteriorating global outlook may heighten financial- market volatility and create headwinds for India’s growth,” Prasanna Ananthasubramaniam, chief economist at Mumbai-based ICICI Securities, a unit of India’s second-largest bank, said. “That leaves the Reserve Bank with little choice but to halt rate increases at the first opportunity.” Benchmark bonds in Asia’s third-biggest economy are headed for their first monthly advance since March as global funds add to holdings of the nation’s debt to lock in higher yields. “Investors should look to accumulate bonds as yields are attractive at current levels,” Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura Holdings, said . “Growth is already getting affected, and the next rate hike may be the last in the cycle.” Rajpal predicts the yield on 10-year bonds will drop to as low as 8.1% in the third quarter. India has increased its benchmark rate by 275 basis points in the past year, the most among the so-called Bric nations. Price pressures are an “important constraint” for policy makers, who can “live with” inflation between 6% and 6.5%, finance minister Pranab Mukherjee said at an event in Washington on June 27. Wholesale-price inflation accelerated to 9.06% in May, from 8.66% in April, according to government data published on June 14. Rising fuel prices may boost living costs, according to Goldman Sachs Group and HSBC. Goldman raised its inflation estimate for the financial year that began in April to 8.6% from an earlier 8.1%, after retailers increased diesel prices by R3 a liter last week. “Inflation will head higher due to fuel-price hikes,” Leif Eskesen, Singapore-based chief economist at HSBC, wrote in a research note on Tuesday. “This means that the Reserve Bank will have to stay in tightening mode for a while still.” HSBC predicts the central bank will raise borrowing costs by another 75 basis points by March 2012. Tumbling commodity prices may also temper the need for higher rates in India, according to ICICI Securities. “We are close to the end of the rising rate cycle,” Kumar Rachapudi, a Singapore-based rates strategist at Barclays, said in an interview on June 27. “Another rate increase in July can be expected and beyond that, there will be a pause.”

FE

Banking for the poor more viable than for the rich: Chakrabarty

K.C.Chakrabarty, Deputy Governor, Reserve Bank of India believes that banking for the poor is always more viable than doing the same for the rich and said this is clear from the no-frills accounts that banks have opened under the financial inclusion programme. Calling for a radical approach to banking, he said, "it is an irony that the poor always end up paying more for the same product and services than the rich. And this is true of banking too." "My belief is that commerce or banking for the poor is always more viable than commerce or banking for the rich. That's why corporates get money at 7-8% and the poor MFI borrowers get it at a 60% interest rate. It is viable provided you have the ability to do business with the poor," Chakrabarty who oversees banking supervision, rural credit, customer service and the financial inclusion programme, said.  Pointing out that the inclusion banking project has already proved this point right, Chakrabarty said, "in many places, the inclusion banking is already profitable. When they are able to do transactions properly, these accounts will give them profits, and many such accounts are already doing  so." "What we are saying is that don't subsidise the poor, but don't exploit them, because so long as the rich get a thing cheap, they will not allow that item to reach the poor. And this has to change, at least in banking," he said. Pegging the overall cost of financial inclusion project at around Rs 6,000 crore for the entire banking industry, he said, "my calculation is that the entire cost of this banking programme to cover all the targeted villages will not be more than Rs 6,000 crore." Challenging banks to prove that inclusion banking is not profitable, he said, "Wherever a bank is able to provide three-four products together, it can make it profitable. When a bank uses proper technology and delivery model and devises saleable products, inclusion banking will easily be profitable." What banks should do is to create a structured delivery model through which they are able to interact with the poor and do business with them, he said, adding, "pricing is left to the banks and it will be viable and sustainable. I am sure banks can and will lend to the poor at a much cheaper rate than MFIs." On whether the apex bank is happy with the progress of the inclusion programme so far, he said, "We are never happy with anything nor are we depressed. It is not that nothing has happened on the inclusion front. Many things have happened, but we have to scale up." Stating that the real issue is not about viability, but the ability of banks to do it properly, he said, "banks are not able to do this because they don't have the capacity to do so. That is why we are asking them to build their capacities through technology and new delivery models."  Comparing inclusion banking like buying a house, he said, "you have to invest first to make future profits. You will never say your are spending money on your house, but investing in your house. Banks have to look at the inclusion project as an investment and over a period of time they will get the return on their investment."  When queried whether instead of each bank being pushed to do inclusion banking, should not the government set up a separate bank to handle this programme by diverting the money it annually infuses into it banks, he quipped. "No, the government should not get into any business as it can never be a good businessman. Its job is to facilitate, encourage and regulate business so that is it done in an ethical and in a non-exploitative manner, he concluded.

BS

ATM commissioned

RAMANATHAPURAM: Tamilnad Mercantile Bank commissioned its 190th ATM at Sayalkudi near here recently. S. Karuppasamy, Executive Director, Reserve Bank of India, inaugurated it. A.K. Jagannathan, Managing Director and CEO, TMB, N.S. Vishwanathan, Regional Director, RBI, Chennai, S. Selvan Rajadurai, General Manager, Business Development, TMB, among others took part.

Hindu

KC Speak

Speculation flares on RBI top job

Reserve Bank of India Governor Duvvuri Subbarao's three-year term is due to end in September, speculation is heating up over who will replace him if, as many in the market and government predict, his term is not extended. Government sources said candidates for a successor would most likely include Raghuram Rajan, a University of Chicago professor and advisor to the prime minister; Economic Affairs Secretary R. Gopalan; and Kaushik Basu, a Cornell University professor and chief economic advisor in the finance ministry. A new face at the top would be unlikely to result in a change in policy direction in a country where the government and central bank tend to be on the same page, although a year ago Subbarao was perceived to be more hawkish than New Delhi in its anti-inflationary stance. The choice of who will head the central bank of Asia's third-largest economy after September is likely to be made by Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee. A decision may still be months away but is a hot topic of discussion in financial and government circles. Mukherjee declined on Tuesday to say whether Subbarao would be appointed for another term. "He's a good governor," Mukherjee told Reuters in Washington, adding that it was too soon for Singh to decide on another term.  Subbarao was not available for comment. Whether it is Subbarao or a replacement, the next occupant of the 18th floor at the RBI's Mint Street headquarters in Mumbai faces an uphill battle against inflation heavily driven by forces beyond the control of monetary policy. Those drivers include infrastructure bottlenecks, global commodity prices and the unpredictability of monsoon-fed agriculture. The RBI is not constitutionally independent, and whoever heads it needs the political skills to manage the relationship with the powerful finance ministry. While Subbarao has been credited with helping steer the Indian economy through the global financial crisis and improving communication with markets, he has struggled to tame inflation, which stands at 9 percent -- highest among major Asian economies -- despite 10 rate increases since March 2010. "I am aware that the governor has copped a lot of criticism for his inflation management but to be honest, I think there were far too many causes of inflation which were beyond the realms of monetary policy," said D.K. Joshi, principal economist with rating agency Crisil in Mumbai. It is Subbarao's disagreement with Mukherjee over a few issues that has prompted a widely held view among market players and government sources that his term may not be extended. Belying his mild-mannered demeanor, Subbarao opposed Mukherjee's plan to set up a body to settle disputes between financial regulators, as well as the finance minister's plan to take over the task of debt management. Joshi downplayed the notion of confrontation. "Any governor who steps into Mint Street has to think RBI and monetary policy first, which is natural, never mind the fact that Subbarao and some of his predecessors have been mandarins at North Block," he said, referring to the building in New Delhi that houses several key ministries. Also working against Subbarao: he was not appointed by Mukherjee, a Congress party heavyweight considered the second most influential person in government, but by his predecessor. Mukherjee may well prefer to make his own appointment at the RBI in the same way he did not extend the services of former market regulator C.B. Bhave and former Finance Secretary Ashok Chawla, who were both hired by his predecessor and were widely regarded as competent bureaucrats. Of the three RBI governors preceding Subbarao, two were reappointed and one, his immediate predecessor Y.V. Reddy, was not, although Reddy's term was five years. Among potential successors, Rajan has the highest global profile, thanks in part to his book, "Fault Lines: How Hidden Fractures Still Threaten The World Economy." An economic adviser to Singh since November 2008 and former chief economist of the International Monetary Fund, Rajan is a professor of finance at the University of Chicago and topped a poll by The Economist publication earlier this year of economists who have delivered the most important ideas in a post-crisis world. Last year, Forbes named Rajan among the seven most powerful economists in the world, alongside U.S. Federal Reserve Chairman Ben Bernanke and Nobel laureate Paul Krugman. Considered by bureaucrats to be close to the Prime Minister, Rajan's pro-market views that favour reforms and tighter fiscal management may put him at odds with those in New Delhi used to spending on programmes that reap electoral dividends. A lack of work experience in India may also count against him. Gopalan , a long-serving bureaucrat and member of the elite Indian Administrative Service, is considered by politicians to be well-regarded by Mukherjee and would have the backing of India's strong civil servants' lobby. Supporters in the finance ministry and the civil service say his administrative experience, including a stint in the commerce ministry, makes him the best candidate. If chosen, Gopalan would follow a well-worn path from New Delhi to the central bank. The last three central bank chiefs were all chosen from India's bureaucracy. Of the three most-talked about potential candidates, Basu has the highest profile within India. On a sabbatical from Cornell, Basu advises the government and the finance minister on matters including inflation and is said to enjoy the confidence of both Mukherjee and Singh. Frequently in the public eye and widely quoted in the media, Basu is not a favourite of the civil servants' contingent but has many admirers at the top including Montek Singh Ahluwalia, a pro-reform member of the prime minister's in-house think-tank, and many influential ministers. Not considered to be pushy or aggressive, Basu might be less prone to a run-in with the sometimes-cantankerous Mukherjee. The two hail from the eastern state of West Bengal. 

(Reuters)  

Banks ignore RBI 25p coin directive

RANCHI: Gautam, a teenager flaunting more than 1,134 coins of 25 paise in his piggy bank collection, suddenly turned pauper on Wednesday evening as his repeated efforts to convert the coins into currency notes proved futile. Reason most of the banks in Ranchi flouted the Reserve Bank of India's directive. On February 1, the apex bank had instructed the nationalized and private banks to arrange for exchange of coins of 25 paise denomination and below at their branches. The circular said people could exchange small denomination coins at any branch of these banks along with all Issue Offices of the RBI. "Coins of denomination of 25 paise and below will not be accepted for exchange at the bank branches from July 1, 2011 onwards," the circular available on the RBI website read. The apex bank said, "It may be recalled that in exercise of powers conferred by Section 15A of the Coinage Act, 1906 (3 of 1906), the Government of India has decided to withdraw the coins of denomination of 25 paise and below from circulation with effect from June 30, 2011. From this date, these coins shall cease to be legal tender for payment as well as on account."  But on Wednesday, the last day of exchange of coins, many teenagers who had developed a hobby for coin collection over the years suffered the same fate like Gautam. Even as the RBI issue office at Patna is learnt to have exchanged coins of 25 paise and below denomination worth Rs 10,750 in Bihar and Jharkhand circle, most of the nationalized banks in Ranchi expressed ignorance about the RBI directive, indicating that the exchanges took place in Bihar but not in Jharkhand.  State level bankers' committee convener in Jharkhand, Allahabad Bank, had no idea about the directive issued by the RBI to exchange coins. General Manager of the bank D Chakravorty said he had not received any communication in this regard. "I have no idea about exchange of coins," he said. Similar was the response of assistant general manager of the SBI's Hatia branch Ajay Kumar. In the absence of any RBI issue office in the state, SBI serves as the issue branch in Jharkhand. Kumar said the bank received no communication from the RBI about exchanging coins. His response was once again ecohed by the chief manager Ranchi branch of the SBI. The Issue department of the RBI, however, refuted the banks' allegations saying the circular was not only uploaded on the apex bank's website but a separate communication was also sent to every nationalized bank directing them to collect coins from customers and send them to the RBI issue office for final exchange.  Deputy General Manager of the RBI's Issue Department P Sahi told TOI over the phone that the department received some complains a fortnight back and it was resolved. "We are ready to receive specific complaints if some customer has been returned by the bank on grounds of not having instruction."  Sahi said 10 banks in Jharkhand namely SBI, UBI, Union Bank, UCO Bank, ICICI, Indian Overseas Bank, Bank of India, Canara Bank, PNB and Allahabad Bank had small coin depots. "All these banks were supposed to receive the coins of denomination 25 paise and below and get it reimbursed from the RBI later," he said. Praveen Ranjan, the AGM at the RBI (Ranchi), asked the customers to lodge complaint against the banks that refused to exchange coins. "Though the last date of (taking coins) June 29 has expired, but in case of violation of our directive we must take up the issue at higher level," he said.

TOI

Bye bye, small change

The Anna Series was introduced on August 15, 1950 and represented the first coinage of Republic India. The King's Portrait was replaced by the Lion Capital of the Ashoka Pillar, according to an RBI document......

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End of an era

The era of the 25-paise coin has come to an end. Those of us who have long cherished its old-world charm will be left only with fond memories. In its heyday, it enjoyed considerable worth. I remember how, in my school days, I used to pick up a 25-paise coin from among other coins on my father's table to buy candies, ice-creams and new slate pencils. No breakfast at home meant an allowance of naalu ana which could buy five dosas at the village shop. It had other uses — it could buy a cinema ticket, it covered the bus fare to a town (the conductor returned the change of five paise if the fare was 20 paise) and served as a generous offering to beggars. Much earlier, it was also a day's wages and could buy one-fourth sack of rice. Inflation has rendered 25 paise valueless and a relic from the past.

G. David Milton, Maruthancode (The Hindu)

Reduce import duty on food items to curb inflation: Jalan

New Delhi: Amid rising prices burning hole in consumer pockets, former RBI Governor Bimal Jalan today said credible action should be taken to tame inflation and suggested reducing import duties on food items. "In India, inflationary expectation has to be curtailed. Actions taken to control inflation should be credible," Jalan said at the sidelines of Randstad Awards function here. He said the effectiveness of monetary and fiscal tools depends on "your ability to convince people that inflationary expectation have subdued". As per the report of research firm Crisil, Indian households incurred an additional expenditure of whopping Rs 5.8 lakh crore in last three years due to spiralling inflation and dearer food items. Suggesting ways to control inflation, which has crossed the 9% mark, Jalan said, one way could be to reduce customs on import of food and other items. "Reduce import duty on food and other articles," the noted economist said. Earlier in the day, Prime Minister Manmohan Singh said that inflation would moderate to 6.5% by March 2012, if the international oil prices soften and commodity prices do not rise further. The current inflation is much above the Reserve Bank's comfort level of 5-6%. With the recent hike in prices of petroleum products, the rate of price rise could enter the double-digit zone. Pointing out that the government did not have a magic wand to bring down prices of international commodities, Singh said, "Inflation is a global problem. China's rate of inflation has gone up sharply." Jalan said that in India, measures are taken in "bits and pieces" to curb inflationary expectations. While the government has announced several steps, including restricting export of several essential items, the RBI has tightened its monetary policy 10 times since March 2010. The RBI is scheduled to come out with its quarterly monetary policy review on July 26.

BS

Gap between growth in deposits, credit narrows as rates go north

The rate hikes by the Reserve Bank of India (RBI) has been successful in making credit unaffordable to large part of industry who are trying to cut down on their domestic bank loans. However, the latest data......

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Bankers’ Trust

RuPay plans to be a full-fledged service provider

The payment facilitator mulls for debit and credit cards which would be accepted across the world

The country’s first domestic payment card network, RuPay, plans to extend its services beyond automated teller machines (ATMs) and micro ATMs by December. It expects to match the likes of existing payment facilitators such as Visa and Mastercard and provide services such as debit, prepaid and credit card which will be accepted in India and abroad across various channels such as points of sale, Internet, interactive voice response and mobile. Says A.P. Hota, Chief Executive Officer and Managing Director, National Payment Corp. of India Ltd (NPCIL) which launched RuPay in May, “Acceptance of this card at points of sale will happen by the end of this year. Once this happens, RuPay card will be at par with international cards. In a month or two we will be finalizing our international acceptance partner.” RuPay at present has collaboration with two regional rural banks (RRBs) and two urban co-operative banks. Bank of India became the first bank last week to launch Aadhar-enabled RuPay card. RuPay, which was conceived by the Indian Banks’ Association and later approved by the Reserve Bank of India, will reduce the overall transaction cost for banks. Also many banks, which are currently not eligible for card issuance under the eligibility criteria of international card schemes, will be able to issue cards through RuPay. “It is being developed as a substitute to Visa and Mastercard. It would ensure that the Indian currency remains in the country itself and may help banks in reducing transaction costs slightly,” says B.R. Bhat, general manager, Corporation Bank. Even from merchants’ point of view, a card like this may work as a cheaper option. Says Sanju Jain, a Mumbai-based electronic showroom owner, “If the cost for banks decrease, we (merchants) might have to pay a lesser fee when a customer uses his card for shopping.” NPCIL has already acquired 500 international identity numbers (IIN). IIN is a card issuer identity number which will be issued to various banks once they enter into collaboration with the payment service provider. Though RuPay’s current strategy is focused on RRBs and urban co-operative banks, in due course it plans to tap the established banks as well.

Mint

Rupay makes headway; ties-up with more banks

Here’s taking another step towards cashless-chequeless-paperless banking. Rupay, the first domestic form of plastic money promoted by the National Payment Corporation of India (NPCI), is fast inking strategic ties with banks to promote the product. Rupay has now tied up with....

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Banks shore up top line to meet quarter-end targets

...........In March, RBI Deputy Governor K C Chakrabarty had told Business Standard: “The LAF money is not meant for lending on a continuous basis. The system cannot run like that. The facility is for meeting liquidity needs arising out of mismatches of temporary nature.”........

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A clean chit for now

The Reserve Bank of India's latest Financial Stability Report attempts to assess the health of India's financial sector in a holistic manner and pinpoint the incipient risks to stability that may arise in a systemic sense. Like its counterparts in the advanced economies, the RBI seeks to draw ..................................

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Banks taking steps to deal with July 7 employee strike

With bank employees set to go on a strike on July 7, state-owned lenders today said they were taking steps to ensure their operations were not hampered. In a communiqué to the Bombay Stock Exchange, Dena Bank said measures were being taken for the smooth functioning of its branches on July 7. “The bank is taking all necessary steps in terms of the existing guidelines for smooth functioning of the bank's branches and offices to deal with the strike," it said. Union Bank said it was assessing the situation, while Punjab & Sind Bank said the strike, if held, would have minimal impact on its operations. Other banks are also said to be contemplating steps to deal with the strike. The United Forum of Bank Union (UFBU), an umbrella body of unions, had called for the strike to protest against the government's decision to dilute its equity in the banks and give foreign investors additional voting rights. An estimated one million employees across the banking system may participate in the one-day strike, the All-India Bank Employees Association had said. AIBEA Secretary Vishwas Utangi had, last week, claimed employees from foreign and private banks have also agreed to participate in the strike.

BS

The National Trust for the Welfare of Persons advise the Reserve Bank of India

.........We requested the bank manager to allow us to withdraw money from my in-law's account. The manager sent a bank official to meet my in-law so that a thumb impression could be taken in his presence. However, when we......

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Kudos to Delhi Municipal Corporation for facilitating online RTI applications

..how Indians living abroad are finding it difficult to file RTI applications to various government departments back in their home country, thanks to red tapism. I had highlighted how despite the Department of Posts (DoP) making arrangements with Axis Bank for online payments for overseas online RTI applications, the finance ministry and the Reserve Bank of India (RBI) are sitting on the issue and have yet to take a decision............

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Now, pay more for ATM services

Get ready to pay a charge for checking your balance in an automated teller machine (ATM) not owned by your bank.  Currently, any number of non-financial transactions like balance enquiry and change in PIN from non-home ATMs are free. The number of free cash withdrawals allowed from other banks ATMs was five, beyond which charges were capped at Rs.20.  The Reserve Bank of India (RBI) has now allowed banks to charge customers for more than five financial and non-financial transactions. For nonfinancial transactions, a customer would be charged a maximum of Rs. 8.5 per transaction, while for cash withdrawals, charges are capped at Rs.20.  The new fee structure would come into effect from July 1. While customers will have to pay more, the move would boost banks’ fee-based incomes. The banking regulator has, however, provided some respite to customers on failed ATM transactions. Banks have been asked to credit wrongly debited amounts within seven days, failing which a bank would have to pay customer Rs.100 per day, provided the complaint was lodged within 30 days of the transaction.  Banks would charge customers for more than five financial and non-financial transactions at non-home ATMs. BS