Statistics Day Conference - July 5, 2011




The RBI Governor, Dr D. Subbarao, along with the Deputy Governor, Dr Subir Gokarn; Professor Sastry Pantula and Professor Rajeeva Karandikar at the 5th Statistics Day Conference at the RBI headquarters in Mumbai on Tuesday

 

The Reserve Bank of India organised the 5th Statistics Day Conference on July 5, 2011. Statistics Day marks the birth anniversary of Prof. P.C. Mahalanobis, the legendary statistician who contributed enormously on the development of statistics and statistical infrastructure in the country. On this occasion, distinguished statisticians viz., Prof. Sastry G. Pantula and Prof. Rajeeva L. Karandikar spoke on topics relevant to statistical analysis in central banks such as time series and financial statistics. Recounting the value of immense contributions of Prof. P. C. Mahalanobis in Statistics, Dr. D. Subbarao, Governor, Reserve Bank of India in his inaugural address highlighted the relevance and importance of statistics and statistical analysis to support policy formulation. He emphasised that policy calibration, be it monetary policy, regulatory actions or decisions in pursuit of financial stability, is improved by the quality of data at our command and our ability to analyse and interpret that data.;Citing an example of the new series of index of industrial production (IIP), Governor indicated that while the new series is consistent with the other related indicators, the old series was contrary to the underlying trend of the deceleration after the global financial crisis. The new series also shows that there has not been an industrial slowdown in the second half of 2010-11, contrary to the indication of the old series. Referring to the interpretation of inflation data, Governor indicated that WPI has been opted as a second best choice in absence of a single CPI representing the whole country. Further referring to RBI’s preference for non-food manufactured product inflation as an indicator of demand side pressure, Governor indicated that core inflation is a derived measure from the headline inflation which is designed to capture the persistence component of inflation and amenable to policy. While it is true that commodity prices influence the non-food manufactured products component of WPI, it is also true that the pass-through from higher commodity prices to WPI depends critically upon the underlying demand conditions in the economy. In this context, Governor welcomed the compilation of new CPI (rural and urban). However, there is a need for a longer time-series data for making them suitable for policy purposes. Drawing upon the basic principle that drove Prof. Mahalanobis in his use of data and statistical analysis, Dr. Subir Gokarn, Deputy Governor emphasised the need for understanding of the various actors at play and various inter-relationships between them for effective decision-making. In the context of policy challenges and analytical complexities faced by the Reserve Bank, he highlighted the need for understanding the structural breaks for better assessment of the ever evolving economy. He also highlighted the merits of triangulation i.e. approaching a problem from three different dimensions that allows one to draw a boundary around the set of reasonably accurate assessments of the situation, which then make the leap to the policy decision manageable. The first of these is the data from household surveys that are conducted regularly providing inputs to the forward looking decision-making process. The second side relates to the understanding of the business cycle indicators from the company surveys. The third side of the triangle is an extensive consultation process, with banks and other financial institutions, manufacturing and service companies, various industry associations and professional economists. Thus, effective triangulation represents an efficient alignment of three different dimensions of data and decision-making. While welcoming the participants, Shri Deepak Mohanty, Executive Director briefly discussed the role and responsibilities of the statisticians in Reserve Bank of India. He stressed the need for timely and accurate data, dissemination of data on real time basis, maintaining global standards, need for a quarterly policy model using DSGE framework, assessment of asset prices, data on employment and surveys for the assessment of the Reserve Bank’s financial inclusion initiatives. Prof. Pantula, in his keynote address, emphasised the value of time-series modeling for central banks. However, he cautioned at the lack of understanding the true data generating process and application of alternative testing models consistent with the underlying economic dynamics. Prof. Karandikar emphasised the limitations of using Gaussian model for the bulk of the financial risk solutions. While the tail of the distribution could be suitably captured by alternative modeling techniques, forecasting of black swan event like the recent financial meltdown is not practically possible. Based on the theme, the conference had technical sessions on time series analysis and financial statistics where internal research papers highlighting various aspects like growth inflation nexus, financial conditions index, credit risk modeling, and portfolio selection were presented.

6th TAFCUB Meeting held at RBI Jammu

The sixth Meeting of the State Level Task Force on Urban Co-operative Banks (TAFCUB) was held at RBI Jammu office under the Chairmanship of Arnab Roy, Regional Director for Jammu & Kashmir (Chairman of TAFCUB). The meeting was attended by Co-Chairman M. Abbas, Registrar, Co-operative Societies, Jammu & Kashmir, Subhash Gupta, Chief Executive, NAFCUB, New Delhi and H.S. Khitaulia, Deputy General Manager, UBD, RBI, Jammu . Chief Executive Officers of Citizen Cooperative Bank Ltd. Jammu, Urban Co-operative Bank Ltd. Anantnag and Kashmir Mercantile Co-operative Bank Ltd., Sopore also attended the meeting.  The meeting reviewed the performance of the Urban Co-operative Banks in the Urban Banking Sector in the State of Jammu and Kashmir. Opening of new branches by Devika Urban Cooperative Bank Ltd. Udhampur, Urban Cooperative Bank Ltd. Anantnag and Kashmir Mercantile Bank Ltd., Sopore, imparting training to the staff of UCBs by RBI, installation of Core Banking System in all the four Urban Cooperative Banks, elections in Citizens Cooperative Bank Ltd, Jammu and DUCBL, Udhampur along with latest policy developments were the major issues discussed in the meeting.

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Striving to Regain Lost Glory

When M.V.Tanksale took charge at Central Bank of India, he made it clear to the top management that he wants to restore the premium position that the bank held in the past. Central Bank, which was the second leading public sector bank for almost 25 years post nationalisation, lost its ground to its peers due to poor people management, says industry expert. The veteran banker now faces the challenging task of steering a bank where employee morale is low. In the past few years, the bank has fallen behind its peers such as Punjab National Bank, Union Bank of India and Bank of Baroda. It has also lost its status of a category A bank, which is granted by the government on the basis of total business. Central Bank has not been able to keep up with the pace of growth of some of its peers. For instance, between 2007 and 2011, Bank of Baroda reported a 313% growth in net profit, Union Bank of India’s net profit rose 215% and UCO Bank’s net was up 186%. But during the same period, Central Bank posted a 151% rise in net profit. Mr Tanksale has sent across the message that he would strive to move the bank up the ladder and get it back into the pack of five top banks in the country.  Described as a prudent leader and motivator, Mr Tanksale will have to play a key role in lifting the drooping employee morale at Central Bank, say officials from the bank.  “This bank needs someone with exceptionally good leadership quality because people management is the biggest issue here,” said a retired banker from Central Bank.  

Prior to this appointment, Mr Tanksale was Executive Director at Punjab National Bank, where he worked briefly under K.C.Chakrabarty, who is described as a tough task master. After Mr Chakrabarty moved to the Reserve Bank of India as one of the Deputy Governors, Mr Tanksale held charge of PNB for about four months before appointment of the new chairman. Affable and soft-spoken, Mr Tanksale started his career with Union Bank of India where he eventually rose to the top post. He also led the marketing team at Union Bank. He spearheaded the launch of the transaction banking division that offered a wide range of products and services to customers on a technology based platform. Mr Tanksale is described by former colleagues as a knowledgeable person and an expert in resolving problems. He is said to be experienced in the ground realities of lending and mobilising deposits having spent a major part of his career in branch offices rather than in corporate head office.  His educational background is no less impressive. He holds a bachelors degree in sciences, masters in humanities, is a qualified cost accountant and has done company secretariatship. Mr Tanksale now has the onus of taking some bold strategic decisions to drive the bank that has a strong presence in the most lucrative western region of the country where it has more than 3,000 branches. His leadership qualities will play a crucial role in the days ahead, said Central Bank officials. But with slightly over two years in hand, Mr Tanksale will have to move fast to help the lender get back it glory days.

ET

Subbarao Notes Problems With India Inflation Indicators

MUMBAI – India's central bank Governor Tuesday said a representative consumer price index could better indicate inflationary pressures, underscoring yet again the Reserve Bank's reluctance to rely on the wholesale price index, the main price gauge in an economy with a skewed income distribution.  "It is not entirely erroneous conceptually, the consumer price index is a better indicator of demand-side pressure than the wholesale price index...but there is no single representative consumer price index for the whole country," Duvvuri Subbarao said.  The world's second-fastest growing major economy bases its inflation estimate on the wholesale price index, unlike other major economies, which use the consumer price index. The country's wholesale price index has 555 items and was updated last year to the base year of 2004-05.  In the past year, however, the Reserve Bank of India had to revise its inflation forecast three times as its projections fell below the actual outcome.  "Systematic under-prediction of inflation numbers by the Reserve Bank of India last year is a cause of concern...the provisional numbers which are significantly off mark can impact policy decisions," Mr. Subbarao said.  The RBI now expects inflation to remain at an elevated level in the first half of the fiscal year before gradually moderating to 6% by March 2012.  Mr. Subbarao said the under-projection of inflation was due to a larger-than-expected increase in global crude oil prices and other commodities and a smaller-than-expected decline in food prices despite a normal monsoon. The volatile index of industrial production, or IIP, data also erroneously suggested a moderation in growth and demand, he said, adding that it was important for policy purposes to understand the cause of the volatility.  The IIP last month had its base year updated to 2004-05 from 1993-94, which corrected an anomaly in the statistical system. However, it still suffers from volatility.  "Volatility is larger in the capital goods sector. This again is bewildering and worrying," Mr. Subbarao said.  Speaking at the same event, Deputy Governor Subir Gokarn said the RBI is trying to ensure the monetary policy measures it takes to cool persistent inflation are the best ones in the given macroeconomic situation.  He said the RBI is now attaching increasing importance to corporate data points in the formulation of its policy. The RBI has increased interest rates 10 times since March 2010 to rein in price pressures

WSJ

RBI handicapped by unreliable data, says Subbarao

RBI Governor today questioned the reliability of the government's inflation and industrial output data. D Subbarao warned that the flawed data could potentially mislead policy calculations.  "We in the RBI have been handicapped by the reliability or lack of it or some of the basic data that we need to use for policy calculation, in particular, the data we get on unemployment and wages do not inspire confidence as regards to quality," he pointed out.

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CPI a better indicator of inflation than WPI: Subbarao

Reserve Bank Governor D Subbarao today said consumer price index (CPI) works better than wholesale price index (WPI) in capturing market dynamics and arriving at a more realistic inflation forecast. "Conceptually, the CPI is a better indicator of demand side pressures than the WPI and there is no denying that consumer prices better reflect demand side pressures than wholesale prices," Subbarao said at the RBI's 5th Statistical day celebrations at the Mint Road office.  The Governor said a sustained rise in wholesale prices either results in an eventual increase in prices by retailers or a squeeze in their margins. But if the demand is strong, retailers may exercise pricing power and pass on the increase in wholesale prices to consumers. In case demand is weak, retailers will be forced to partly absorb the increase in wholesale prices in their margins, he said. However, defending the WPI usage in the apex bank's inflation forecast, Subbarao said, "Given the limited efficacy of monetary policy to deal with food and fuel inflation, and the limits on using core CPI inflation measures, we have focussed our attention on non-food manufactured products inflation as an indicator of demand-side pressures in the economy." He admitted that there was some merit in the criticism of RBI's inflation forecasts, which has been going off the mark, but pointed out that the bank has "opted for WPI over CPI as a second best choice for a number of reasons, first and most importantly, we do not have a single CPI that is representative of the whole country. "Until recently we had four, and currently we have three CPIs representing different segments of the population," he said, pointing out that while WPI is computed on an all-India basis, while CPIs are constructed for specific centres and then aggregated to an all-India index. "Secondly, WPI is available with a shorter lag than the CPIs. Third, WPI has a broader coverage than the CPIs in terms of the number of commodities, quotations, inclusion of non -agricultural products and tradeable items," he said.

BS

Data revisions can mislead policymaking: RBI

India's central bank chief on Tuesday voiced concern about sharp revisions in macroeconomic data, including growth and inflation figures, which can disrupt calculations when setting policy.  The Reserve Bank of India (RBI) has raised interest rates 10 times since March 2010 to control inflation that has consistently outrun its forecasts. India's most widely watched monthly inflation yardstick, the Wholesale Price Index (WPI), has been revised upward, sometimes sharply, in recent months. Many economists expect an upward revision of 30 to 40 basis points to the provisional 9.06% figure for May. "Each time when we have to make an assessment of inflation situation, we are left to double guess how the provisional numbers may be revised upwards," RBI Governor Duvvuri Subbarao said in a speech. The Index of Industrial Production (IIP) is also prone to sharp revisions. "When we were making policy the IIP number available to us in February 2010 was 6.8 percent, whereas the economy was actually growing much faster," he said. "Provisional numbers which are off mark by significant margin can mislead policy calculation," he said. Subbarao added that such revisions were also factors behind the central bank making inflation projections that proved to be below the actual number in the last fiscal year. "Last year RBI's inflation projections were systematically below the actual outcome," Subbarao said. Factors that led to the miscalculation included higher-than-expected gains in oil and other global commodity prices and a lower than expected decline in food prices despite a normal monsoon, he said. He also cited "erroneous signals from the then-available IIP data which suggested moderation in growth and demand," as well as "larger than usual upward revision to the past inflation data." The RBI had initially projected inflation to be at 5.5% by end of March 2011 but subsequently revised it upwards to 7% and then later to 8%.  Ultimately, March-end inflation was revised upwards in June to 9.68% from 8.98% in April. Generally, private inflation forecasts were much closer to what was ultimately reported for the last fiscal year. The March IIP number was revised to 7.8% in June from 7.3% released in May, while a sharper revision was seen for December IIP, which was upwardly revised to 2.5% from an initial reading of 1.6%. Analysts have often expressed their discomfort over such sharp revisions. "Large systematic revisions for nearly six months in WPI shows there is a need to revisit the methodology of compiling it," said Siddhartha Sanyal, chief India economist at Barclays Capital. "Central banks now are trying to come out with swift policy response. But if there are such sharp revisions, then either the central bank will have to guess the revision amount while taking a policy response or have to revisit the policy response after the final numbers are out," Sanyal said. Some economic data that is widely used elsewhere, such as on retail sales, employment and housing, is not regularly compiled in India, adding to the challenge of policy making in Asia's third-largest economy. Subbarao also said that though there was merit in using the consumer price index (CPI) as a yardstick for inflation -- as is the practice in most economies -- there is no single representative CPI measure for the whole country. "There is merit in this criticism. It is not entirely erroneous. Conceptually CPI is a better indication of demand side pressure than WPI," Subbarao said.

Moneycontrol

'Increase in interest rates may hit growth'

The raising interest rates leads to to increase in cost of capital is a matter of concern for the industry. Any further price increase by the Reserve Bank of India (RBI) will hurt the industry growth, said B Muthuraman, president, Confederation of Indian Industry (CII) and vice chairman, Tata Steel Ltd. In an interaction with reporters at the sidelines of CII National Council Meeting in Chennai today, Muthuraman said major issues for the industry today are land acquisitions, cost of capital and commodity price. “Cost of capital needs to be moderated. Because of interest rate already slow down started in the industry. In the last 15 months, interest rates went up by 10 times. Any further increase by RBI will stuck the growth and will hurt the industry.” He noted already gross capital formation growth was only 0.5 per cent last quarter compared to 24 per cent growth in the first quarter of last year. FDI flow dropped to $27 billion in the last fiscal from $38 billion in 2009-10, a drop of around 28 per cent. Credit growth, especially to infrastructure sector, including petrochemical, iron and steel, cement, power, roads sand others, is not good. “Private consumption has started slowing down”. Commenting about country's GDP growth, he said from the World's perspective India's GDP growth of 8-.8.5 per cent is a good number, but ideally we must growth by 9.5-10 per cent, looking at domestic challenges. For which, supply side needs to be addressed, agriculture productivity need to be increased, money should be available for private sectors to increase investments into core sector, Government's diversification programme is not happening as per schedule and it has to be put on the fast track, land acquisitions stagnating the industry and reforms need to be speed up. On the reforms for example GST implementation has to be on the speed track. Muthuraman said, GST alone can increase country's GDP by 1-1.5 per cent.

BS  

Banks get 6 months to comply with MF investment limits

Banks with investments in excess of 10 per cent of their net worth in liquid and short-term debt schemes will get six months to bring exposure in line with the ceiling. The Reserve Bank of India (RBI) has capped exposure to these schemes at 10 per cent of net worth. RBI said the total investment in liquid or short-term debt schemes with weighted average maturity of portfolio of not more than one year would be capped at 10 per cent of net worth as on March 31 of the previous year. According to analysts, 10 per cent of the combined net worth of all banks would come to Rs 50,000-55,000 crore. RBI, in its monetary policy for 2011-12, had flagged the risks arising from huge exposure to such short-term schemes. The regulator had indicated that bank investments in mutual funds would be capped at 10 per cent of net worth. Bank investments in mutual funds has come down by 30 per cent since May. Banks’ investments in liquid schemes of mutual funds had grown manifold. The liquid schemes continue to rely heavily on institutional investors, such as commercial banks, whose redemption requirements are likely to be large and simultaneous. On the other hand, mutual funds are large lenders in the overnight markets, such as collateralised borrowing and lending obligation and market repo, where banks are large borrowers. The various mutual fund schemes also invest heavily in certificates of deposit of banks. Such circular flow of funds between banks and mutual funds could lead to systemic risk in times of liquidity crunch. Banks could potentially face a large liquidity risk. It was, therefore, felt prudent to place certain limits on banks’ investments in liquid or short-term debt schemes of mutual funds, RBI said.

BS  

Is high inflation the new normal? probes RBI's Gokarn

Reserve Bank Deputy Governor Subir Gokarn today said the central bank is debating whether the prevailing higher inflation is the "new normal." "There is a public debate on whether the prevailing high inflation is the new normal figure for price rise," he told the RBI's 5th Statistical Day celebrations here. However, Gokarn, who oversees inflation management at the Mint Road office, stopped short of revealing whether the monetary authority subscribes to this view or not. But it can be noted that during the annual policy announcement, RBI had made it amply clear that its core focus would be to batten down high inflation even at the cost of sacrificing growth, and had pegged the annual inflation target for this fiscal at 6%. RBI had initially forecast an annual inflation at 5.5% by March 2011, but subsequently was forced to revise it upwards to a high 7% and then to 8% and finally when the fiscal year ended, it was at a much elevated level of 8.98%, which was ironically revised further upwards to 9.68% in June. Such wild variations in its inflation target had invited criticism from many quarters. Noting that changes in consumption patterns are affecting food inflation, Gokarn, however, said statistics has not yet proved empirically that there is a fundamental change in the food demand pattern. Stating that more accurate analysis and decision making are needed to better manage the monetary policy decisions, he said the structural break-ups in the data, such as on inflation, factory output numbers and jobs are posing challenges to this.

Moneycontrol 

RBI issues warning against fake company

Hyderabad : The Reserve Bank of India has clarified that no company/entity named Forex Achievements is registered as a company under the Companies Act, 1956, a pre-requisite for obtaining a Certificate of Registration (CoR). The CoR dated April 7, 2010, displayed by the entity on its Web site is fabricated and not issued by the RBI. Therefore, members of the public are cautioned not to deposit money with such unincorporated bodies. The RBI said it has come to its notice that some entity, which seems to be foreign is operating in India and doing Non-banking financial institution (NBFI) business, including acceptance of deposits, without obtaining a CoR. The company is misusing the name of RBI by displaying a fake CoR on its Web site for collection of deposits from the public. Persons depositing money with such unincorporated bodies would be doing so at their own risk, the RBI said in a press release. The public is hereby warned to be cautious in making investments with such entities. Before making investments, they are advised to visit the Web site of the Reserve Bank of India to check whether the companies they are placing deposits with are registered with the Reserve Bank and entitled to hold deposits. The names of such companies are available on RBI's web site at www.rbi.org.in.

Business Line

Easing the rules for NBFCs

The Reserve Bank of India's move to allow banks to buy loans from NBFCs — and treat the process as priority sector lending — represents a slight relaxation in the tight framework of regulations that now govern the non-banking financial sector. This will not only make the funding window for NBFCs a little more secure, it will also ......

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IOB to set up IT subsidiary to develop banking technology

Public sector Indian Overseas Bank (IOB) plans to set up an IT subsidiary by hands with an IT company to develop banking technology, a top bank executive said here today. IOB has appointed an IT consultant for selecting a partner for the bank in the joint venture, which would be in the nature of research and development, IOB Chairman and Managing Director M Narendra said. The bank now uses technology developed in-house for its major services and the plan was to build up more cost-effective banking technology, he said. IOB would also impart the new technology for other banks and also to financial institutions in developing countries for a price, he said, adding it would submit its proposal on the venture to RBI soon. The bank aimed to open 400 new branches across the country, mostly in semi-urban and rural areas, in the near future and also planned to expand its number of ATMs in the country to 3,000. At present, the bank has 1,152 ATMs including 346 offsite ATMs, he said. The business level of the bank touched Rs 2,71,160 crore as on June 30 last against a business turnover of Rs 2,59,000 crore registered in March 31, 2011, Narendra said. As part of its initiatives to improve services, the process of recruiting 1,000 probationary officers, 525 specialist officers and 1100 clerks was under way, Narendra said.

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