RBI headhunt

After the recent hike in rates, the air of uncertainty surrounding the financial sector and controlling runaway inflation, there is even more interest in who’ll be the next RBI Governor after D. Subbarao retires in September. While one school of thought is backing an extension for Mr Subbarao, there are others who have new candidates in mind. Among the names currently doing the rounds are Kaushik Basu, economic adviser in the finance ministry, who, though, is keen to get back to academia; Raghuram Rajan, Economic Adviser to the Prime Minister; Ashok Lahiri, currently on the board of the Asian Development Bank; and Economic Affairs Secretary R. Gopalan. This kind of phenomenal line-up of quality should daunt any selection panel. Babu watchers, especially those who are backing a second term for Mr Subbarao, believe that since Mr Subbarao has had no major run-ins with the government on policy matters, he may stand a chance to get to continue in his current position. 

The Asian Age

RBI’s rate hike likely to contain inflation

Monetary Policy Guns For Inflation Control – S.S.Tarapore

The monetary policy announcement by Governor Dr. D. Subbarao on July 26, 2011 is one of the most forthright Statements coming out of the Reserve Bank of India ( RBI). The merit is that it has a central agenda, namely inflation control, which, after all, should be the main focus of RBI's monetary policy. Global and domestic factors point to the continuation of strong inflationary pressures. On the global front there is the problem of the Euro debt and the threat of a country default in the United States. Even if a compromise is hammered out in Congress by August 2, 2011, it would be a temporary patchwork and the issue of the US debt would continue to loom large and have global fallouts. International crude oil prices continue to remain high and earlier hopes of a significant reduction in crude oil prices have been belied. With overall growth in the industrial countries being sluggish and loose monetary policy continuing over a prolonged period, a strong resurgence in inflation is likely. In India, the growth rate in 2010- 11 was satisfactory at 8.5 per cent ( revised numbers will show a higher growth rate). Although some slowdown in the rate of growth is inevitable, projections point to the continuation of growth in 2011- 12 of 8 per cent. The inflation rate in India, on a year- onyear basis, was expected to fall, but at the end of June 2011, the inflation rate was 9.4 per cent; the revised number will be higher and a double digit inflation rate appears inevitable. Authoritative estimates are that inflation will first worsen before it starts to decelerate. Earlier it was felt, in official circles, that inflation would come down on its own but if at all it has worsened. As compared with the RBI's comfort zone of a 4.0- 4.5 per cent inflation rate, the projection in May 2011 for March 2012 was 6 per cent. To the embarrassment of the RBI, in July 2011, it had to raise this projection to 7 per cent. Even if the inflation rate is contained at the end of March 2012 at 7 per cent it would be a mere statistical illusion, as from a high base the subsequent period would reflect a deceleration What is relevant to the Common Person is that the level of prices continues to rise. With some uncertainty regarding the final outcome of the monsoon, there are pressure points. Kharif sowings for pulses, coarse gains, oilseeds and cotton have been distinctly lower than last year Again, prices of protein rich items remain elevated. There is also a considerable element of " suppressed" inflation which is reflected in under- recoveries of subsidized fuel which is estimated at Rs one lakh crore. Whether the administered prices are raised or the subsidies are borne by the government, this would add to inflationary pressures. Till recently, it was argued that the inflationary pressures were transitory; it is now clear that inflation is strongly embedded in the manufacturing sector and the longer the authorities wait to contain inflation, the more difficult will be the task. The merit of the RBI's July 26, 2011 policy is that the RBI has trained its eye exclusively on the issue of tackling inflation. While vested interests large industry, banks, financial institutions and financial markets urged the RBI not to raise policy interest rates any further, responsible media and economists recognized the need for stronger monetary policy action. The response to the increase in the repo rate, ( the rate at which RBI provides accommodation to banks against government securities), from 7.5 per cent to 8.0 was that the measure was " shocking", that it was utter " madness" and that the economy would go into a tailspin. Of course, the stock market tanked on news of the measure and there was instantaneous adverse response. This knee- jerk response is bound to cool off as market participants recognize that the measure, though necessary to tackle inflation, is not disruptive to the production process. To attain the objective of first bringing down inflation to 7.0 per cent and subsequently down to the RBI comfort zone of 4.0- 4.5 per cent would require a lot more measures. The RBI would need to persevere with 0.50 per cent increases in the policy rate at the time of its mid- term review on September 16, 2011 as also the full review on October 25, 2011. The very thought of considering these measures would trigger apoplexy among vested interests and they would lobby effectively to thwart such measures. The RBI must be steadfast in its resolve and not yield to such pressures. It is disconcerting that some top policymakers nonchalantly talk of a new higher ' normal' of a 7 per cent inflation rate as against the well established ' normal' of 4.0- 4.5 per cent. The RBI should take the opportunity to clearly specify that it does not reckon the so called new ' normal'. It is better for the RBI to take appropriate measures now and take the punishment from market participants, rather than be condemned later for inaction. The present repo rate of 8.0 per cent is too low relative to deposit and lending rates. The RBI is treated as the lender of first resort and not the lender of last resort as it should be. To be effective, the RBI policy rate has to be a penal rate. A disappointing feature of the July 26, 2011 policy was the total absence of baby steps towards deregulation of the Savings Bank Rate. The RBI could fix this rate as a range, say 4.0- 5.0 per cent. The State Bank of India Chairman, though against deregulation, has suggested that the present 4.0 per cent fixed rate could be raised. As a preemptive measure the SBI has fixed its term deposit rate for 7 days at 7 per cent with a waiver of penalty for early withdrawal. Savings Bank depositors should move a substantial part of their Savings Bank deposits to 7 days term deposits with banks which offer 7 per cent or thereabout. Banks cannot be complacent that the inertia of loyalty will ensure that their Savings Bank accounts will not move. A deposit rate war is imminent and the RBI should forthwith move in a decisive manner.

FPJ

Reserve Bank should be clear on its future course of action

The flat to inverted shape of the yield curves can change quickly if the Reserve Bank of India (RBI) signals a softening of its stance on inflation. The market at this juncture does not expect a softening of the RBI’s stance on inflation and is content shorting the short end of the curve.  Given the nature of the curve, the RBI’s future moves will be watched closely by the market. An unwinding of spread inversion trades will cause yields curves to move violently.....

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Reserve Bank springs a big surprise - C.R.L.Narasimhan



Recognises the signs of a slowdown but says that it is essentially confined to sectors that are sensitive to interest rates



Going by newspaper headlines and television commentaries, the larger than expected hike in the repo rate might seem to be the main, if not, the only noteworthy feature of the Reserve Bank's first quarter review of monetary policy.  Before the policy statement, there was a near consensus among market participants that the RBI was nearing the end of its monetary tightening phase.  Since March, 2010, policy rates have been raised by 425 basis points in ten instalments. Therefore, even though inflation has remained persistently high, the RBI will act by raising the rates but by not more than 25 basis points. Lending credence to the view has been the fact that there has been a slowdown and a steep hike in interest rates on top of the past cumulative monetary actions will be detrimental to economic growth.  In short, the view among market participants was that the RBI would ‘pause' after taking another ‘baby' step, a 25-basis point increase.  In that event, the 50-basis point increase has come as a ‘shocker'. Predictably, the stock markets tumbled. However, as always, it is difficult to attribute the steep decline in the indices to one factor alone. Global stock indices have been under pressure at the same time. The inability of the U.S. administration to reach an agreement with the Opposition over some critical issues of the federal budget has been the main cause for worry for the global stock markets.  Returning to the monetary policy, it is likely that the RBI intended to spring a surprise. So persistent has been inflation that something out of the way was needed. In that sense, the larger than expected hike in the policy is akin to past RBI actions in announcing monetary measures in between two policy statements to catch the markets off guard.  However, in those days there were four policy statements and the period between two statements was sufficiently long. The impact of an unexpected interest rate change would consequently be more on markets and intermediaries not expecting an intervention by the central bank. Nowadays, with eight statements in a year, the scope for announcements outside the scheduled policy dates has been reduced although there is nothing that prevents the central bank from doing so.  The other more plausible explanation as why the markets were surprised by the large hike is that the participants simply misread the direction of the monetary policy over the recent past. Deputy Governor Subir Gokarn has said that there has been a decisive change in the central bank's monetary stance consequent to the change in the inflation trajectory. Inflation is not expected to come down. A mild policy response, which is also well anticipated such as a 25-basis point hike, will not help in moderating inflation expectations. Moreover, it is not as though the RBI has totally shunned hikes above 25 basis points. As recently as on May 3 at the time of the annual credit policy, the RBI hiked the repo rate by 50 basis points.  Though focussed on inflation, monetary policy can never ignore economic growth.  The RBI has recognised the signs of a slowdown but says that it is essentially confined to sectors that are sensitive to interest rates. There is no evidence yet of a broad-based slowdown.  Several indicators such as exports as well as imports, indirect tax collections, corporate sales and earnings and demand for bank credit suggest that demand is moderating but only gradually.  The above reasoning notwithstanding, the RBI's decision to stick to its growth projection for the current year at 8 per cent — first made in its May 3 policy statement — has come as a surprise.  It is no surprise however that the year-end inflation projection has been marked up by one percentage point to 7 per cent. Inflation remains the dominant macroeconomic concern. Actual inflation so far has been even higher than expected. In particular, non-food manufactured product inflation has been significantly higher than the average rate of 4 per cent over the last six years. Crude oil prices remain volatile. The recent increase in domestic administered fuel prices and the Minimum Support Price for certain food items will keep adding to the inflationary pressures.  The overwhelming emphasis on containing inflation is to be seen in the context of the traditional trade-off between growth and inflation. That the RBI has come out decisively on the side of inflation control has been well recognised for a long time and certainly since May 3 when the annual policy was announced. The government would play its role in tackling inflation through the quarterly review. Supply side initiatives, especially concerning food and infrastructure, have been mentioned as also reining in fiscal deficit.  The burden on the monetary authorities is that much enhanced if the government does not do its bit. To quote from the policy review: One of the objectives is to “reinforce the point that in the absence of complementary policy responses on demand and supply sides, stronger monetary policy actions are required.''

HBL

Governance deficit and RBI action

Last week’s decision of the Reserve Bank of India (RBI) to raise its policy rate by 50 basis points took centre stage as much due to the surprise factor (market analysts were completely blindsided) as it did with the import (the threat of double-digit inflation is for real) of the decision. While these reactions are spot on, they ignore the subtext: it is yet another example of someone stepping forward to breach the governance deficit, just like the Supreme Court and civil society took the lead in tackling corruption.

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Little can be done by RBI to curb inflation

Monetary tightening is having a limited impact on inflation, which is driven by the supply of money to rural areas through programmes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Nirmal Jain, chairman of India Infoline, said in an interview. The Reserve Bank of India’s (RBI’s) hiking of interest rates to curb inflation will hurt corporate earnings and the country’s economic growth, he said. Edited excerpts:

Two things seem to have put the brakes on the market: RBI’s 50 basis points (0.5 percentage point) interest rate hike, and the fact that the market was taken by surprise as it was expecting the tightening of monetary policy to have reached its peak...

I think they are quite surprising and to a large extent it disappointed the market. Because today’s inflation is, by RBI’s own admission, inflation because of wage price spiral and supply constraints and as all of us know that there is a (MG)NREGA scheme, which is putting in a lot of money and driving up the wages and we hear now that people are not finding workers for harvesting or even for construction activity because you get Rs.150 for doing nothing and now husband and wife both can enroll. So I think that is driving inflation and very little can be done by monetary policies and if you read between the lines, that is what even RBI is trying to indicate. So under this context people who have thought that there is always a compromise between growth and inflation, now inflation is something which will have little impact from monetary policy, then one would go easy on that. But I think RBI has taken an extreme view on inflation and they surprised the market. I think more importantly this will impact corporate earnings and also the growth over the next 12-18 months. I think more impact on macro variables like growth will be seen in FY13 (fiscal year 2013). Because investment cycle has slowed down considerably, at these interest rates people are not, most of the entrepreneurs are very reluctant to borrow and put up a new projects or expand capacities and that will impact employment as well as growth, but this always happens with some lag. Today, what is happening is we are in a very peculiar situation, that our GDP (gross domestic product) growth is sustained by our consumption demand, which again is given by lot of money getting into the rural sector by way of government schemes as well as increased flow of bank credit. But from a longer term point of view, a growing economy like ours should focus on capex (capital expenditure), capital formation, creating productive capacity which will sustain employment and growth over a long term. But as RBI has always indicated that growth is also on their radar, so they will watch this for maybe a quarter or two. So one shouldn’t get too disappointed from a longer term perspective, I think, we should start easing of interest rate may be in six months’ time and that will put the growth back on track or expectations about growth also back on track.

Two months ago, you forecast that GDP growth will go down to 8%. Now, most experts are saying we will probably end closer to 7%. Is the situation worse than two months ago?

I think one has to watch out, but maybe the GDP forecast for FY13 will be a challenge and I think that can slow down to 6.5-7%. See what most experts are talking and worrying about is that the cause-effect relationship between monetary policy and inflation at this point of time is not so direct—primarily because supply constraints are driving food prices up and also commodity prices are beyond the control of monetary policies, and further we have inflation which is led by a lot of money being pumped into rural and other sectors by way of MGNREGA and other schemes... Of course it is a good objective to keep inflation under control, but when the cause-effect relationship is so weak, one should also look at the negative side of it. But I am again not very pessimistic from a medium to a long-term perspective... in terms of FII sentiments whatever they are looking for opportunities to invest in India and some sectors are impacted but not all the sectors by rate hike, so you have sectors like FMCG (fast-moving consumer goods), pharma or select IT (information technology) stock, they will continue to do well and attract money in the market. As far as monetary policies are concerned, one has to wait for one more (in) September-October and see how RBI and government take view on this. But if it slightly continues then I think there will be a significant impact on the GDP growth also next year.

The global condition has worsened in the past two months, but in India, you saw the government waking up on many issues, including fuel price, foreign direct investment (FDI) and economic reforms. How do you look at these two factors?

Actually government has moved ahead on the policy front and I think if this is supported by infrastructure spending also, then probably the sentiments will change significantly. Today, another key factor which is required from the government side is most of the road projects, power projects, many of them are stuck and some of them have financial closure and some of them are not able to do financial closure. We need to move ahead on that. And in that context Sebi (Securities and Exchange Board of India) has allowed NBFCs (non-banking financial companies) and mutual funds to raise infra fund. There’s a positive development, but government has to move and show some decisive steps that they want to attract capital and infrastructure projects—particularly power, road and others. I think that’s supportive to some of the policy moves that they have done in past couple of months. On whatever reforms that they have done, I think that will help sentiments become positive again.

You had earlier said you at worst see a 5-7% downside and you don’t see any trigger for an upside. Has that position changed?

I think it remains more or less same, I don’t think we have too many triggers for positive upside now and the market will try and consolidate and we continue to have 5-7% or maybe that 5,200 level, which you know market can test in case there is negative news either on global front or even internally on the political or economic front. Monsoon will be key to watch now, because it started very well but there is a bit of slowdown in the month of July. So that will be critical because food prices have been ruling high and if we have a good monsoon then at least there will be some relief on that front.  So I think in terms of triggers for positive move, one is monsoon... second is government’s infra spending, i.e. spending that they need to do; the third will be the food prices come down... fourth, I would say is the global scenario, particularly the US, if it resolves very amicably then again, see there’s always a very interesting scenario because if there’s a negative sentiment in the Europe and the US but not a collapse, then we will see more money flowing into the emerging market because they continue to do monitory easing and they makes money easy to move into a riskier asset like emerging market and India gets more allocation from that. So I think we live in a very interesting environment globally as well as in India and there are many factors at play. It’s very difficult to forecast how things will move, but in totality I mean it looks like the sentiment will be neutral to a bit of negative bias for some time, till at least the scenario on monetary policy, interest rate and inflation becomes more positive.

Mint

A curious diagnosis of inflation - ASHOAK UPADHYAY

By arguing that inflation is driven by demand pressures, the RBI is making out a case for applying the brakes on growth, even as investments are declining. This runs against New Delhi's visions of totting up a growth of above 8 per cent.

At a time when most policymakers are prone to knee-jerk responses to charges of aimlessness — witness the Finance Minister's stout denials of inaction — it is refreshing to see the Reserve Bank of India take decisive steps, however debatable, in the execution of its mandate to combat inflation.  Raising the repo rate by 50 basis points put the FM on the back foot, forcing a reluctant and weak defence of the central bank's position at a time when New Delhi policy pundits would like to believe in the magic of an economic expansion well above 8 per cent. While the RBI's action is clear and unambiguous, what is not is the justification for the move. The baneful presence of inflation is beyond argument; what is debatable are the causes of its persistence. What the RBI does, in its first quarter review, is to offer a skilful if ingenious taxonomy of inflation that at times almost sounds like a justification for its actions.  When the RBI tells us that inflation has become more “generalised” since May 2010 and particularly after December 2010, shifting its loci from food to non-food, manufactured goods, it introduces a complexity, the ramifications of which go beyond the mere fact of inflation. So far, inflation was considered a cost-push phenomenon, owing its origins and force to supply constraints. Now we hear that its perpetuation over the past seven months is on account of pressures in the manufacturing sector. As the RBI described it: “Non-food manufactured goods inflation persisted at very high levels compared to its historical average and may persist as cost pressures and pricing power remain significant.” For the central bank the “underlying drivers of the WPI have changed considerably…” Prices since December 2010 reflect the “dominant contribution of non-food manufactured products inflation.” The RBI rounds off by reminding us: “Without the presence of demand pressures the generalisation process (of inflation) would not have sustained over successive months.” What this does is to add a greater purposiveness to the central bank's war on inflation; so far it seemed a quixotic battle, as supply constraints that caused food prices to rise could hardly be addressed by monetary tightening. It still cannot, but at least now the RBI can take comfort that its weapons will work to dampen demand pressures. In its monetary review and the subsequent credit policy statement, the central bank admits the rate hikes have had only a marginal effect on the demand pressures and dourly notes they will persist into the second quarter. But the RBI also adds that growth that had already moderated will do so further. In the bargain, a diagnosis that includes the added disease of demand pressures does something else. It offers us a glimpse into the nature of economic expansion since May 2010. If the RBI's explanation of inflation is right, then the economy has been overheating. The prescription is meant to bring prices down by reducing the pace of growth. When the RBI informs us that growth is moderating and that it will do so right through the second quarter it means that the economy will cool off. If lending rates move up, then the impact of a tighter monetary policy will be felt well into the second half of the year and beyond, leading to a general reduction in consumption. The RBI prepares the reader for this when it warns that private consumption that has been more robust than investments will now start to slow down.  In a dead-pan sort of way the apex bank warns us that there are “chances of further moderation in investment and consumption as high inflation erodes real consumption and monetary policy actions to restrain demand in the short run work through the system”. Thus, private final consumption may feel the heat down the road but investments, the other component of GDP has already been singed; aggregate investments declined in the second half of 2010-11 and have not recovered. The RBI finds that “Corporate investment intentions in projects that received financial assistance dropped by 43 per cent sequentially during the second half of the year.” And why is this? Investments are driven by the power sector, metal and metal products' growth followed by telecommunication; interest rates may have dragged sentiment down a bit, as the RBI admits, but “better implementation can help in improving investment”. The RBI hastens to add that the government is on the job — some of the long pending legislation, for instance the Land Acquisition Amendment Bill was introduced in Parliament last weekend. But from a diagnostic point of view what the RBI has done is to point a finger at the government for tardy investment growth. The first quarter review of the RBI thus says a great deal about the economy and government without saying too much. What we can infer from a search for clues is an idea of overheating and a prognosis of slowing investments and consumption in the months to come as it tightens the screws even more to skim off the extra demand pressures. For New Delhi policymakers, the RBI's review should come as a reality check and force the pruning of growth expectations.  Such an exercise would encourage a closer look behind the GDP numbers at those widening cracks — slack regulatory environment, slowing corporate investments — into which the economy seems to be falling.

HBL

How the RBI policy will affect access to microcredit: M-CRIL/EDA Study

The current crisis in Indian microfinance has brought down the portfolios of Indian MFIs by 50% from their peak in October 2010. While some may see this as a cause for celebration, it has caused collateral damage to the lives of low income families, both recent and potential customers, which is a far more important issue. The RBI has attempted to resolve the issue by defining limits on interest rates, margins, incomes of microcredit borrowers, and the size of loans to be provided to such borrowers and on various other business conduct issues such as tenure, repayment frequency and collateral. This has generated hot debate but not much real light in terms of a close examination of the actual impact of the measures announced on the availability of microcredit to those who need it. The purpose of this paper is to undertake such an examination. The content of this paper is particularly important in the context of the draft Microfinance Bill (now in the public domain) that seeks to formalize some of the measures that the RBI has announced as part of its definition of qualifying assets for priority sector lending by commercial banks. The paper undertakes a time series analysis of the yields on loan portfolio of the 16 largest MFIs in India that account for over 80% of all the MFI services provided in the country. Historical yield data is compared with the pricing and margin caps announced by the RBI to determine the feasibility of MFI operations within the new regulatory regime. It also looks at the income limit and maximum loan size criteria to determine their relevance for the availability of microcredit to various income segments of the population.

http://www.microfinancefocus.com/

HOW CAN WE SAVE INDIA’S MFI INDUSTRY?

Allowing multiple channels to work and compete with each other is the best solution to the MFI problem. Besides, RBI can force them to reveal their cost of funds and justify the loan rates, cap investors’ stakes in MFIs at 5%, and make its approval mandatory for the emolument of the top brass—norms that banks follow. Both the Centre and the state also need to look for a political solution to the Andhra impasse before it’s too late. Half of India’s population still does not have access to banking services.

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Forex entitlements, both easy and liberal

With the substantial liberalisation of current account transactions in foreign exchange even for resident Indians, you can now liberally acquire foreign exchange for a host of purposes without seeking any prior permission of the Reserve Bank of India (RBI). Such forex can be released by authorized dealer banks on a simple application-cum-declaration form A-2 prescribed for the purpose under FEMA guidelines. Listed hereunder are the latest norms and guidelines announced by RBI for such transactions:

FOR TRAVEL ABROAD

You can avail of foreign exchange up to $ 10,000 in any calendar year, for tourism or private travel to any country, other than Nepal and Bhutan. For business travel or attending a conference or specialized training overseas, you are allowed $ 25,000 per trip. You can buy foreign exchange up to $ 1,00,000 in case of immigration or employment abroad.  Upon return from travel abroad, unspent foreign exchange brought back to India should be returned within 180 days from the date of your return. However, you can indefinitely retain foreign currency notes or traveller’s cheques (TCs) up to $ 2,000 for future use. You can also retain foreign coins indefinitely without any limit.

USE OF INTERNATIONAL CREDIT CARDS

You can use your international credit cards (ICCs) for making payments towards expenses, while on visit outside India, to the extent of the limit of the card (without any separate monetary or item-wise ceiling). However, ICCs cannot be used for purchase of prohibited items like lottery tickets, banned magazines, payment of call-back services. You can also use your ICCs, while in India, for making payment in foreign exchange through Internet for purchase of books, downloadable software and import of other permitted items under foreign trade policy.

FOR STUDY AND MEDICAL TREATMENT ABROAD

You can avail foreign exchange up to $ 1,00,000 or up to the estimate from the institution abroad, whichever is higher, per academic year. You can avail up to US $ 1,00,000 to meet any expenses for medical treatment abroad. Banks can even release a higher amount on the basis of an estimate from a doctor or overseas hospital. You can further avail up to $ 25,000 per person for meeting lodging, boarding and travel expenses of the patient and also the accompanying attendant. You can also remit up to $ 1,00,000 for maintenance of your close relatives abroad.

AVAILING FOREIGN EXCHANGE

You can buy foreign exchange for the above purposes from any authorized bank or money changer. If the rupee equivalent exceeds Rs 50,000, the entire payment must be made by crossed cheque, banker’s cheque, pay order or demand draft only. You can bring foreign exchange into India without any limit. However, if the value of cash currency exceeds $ 5,000 and/or the cash plus TCs exceed $ 10,000, it should be declared on arrival, to the customs authorities at the airport in currency declaration form. Your foreign exchange earnings or gifts received from close relatives can be retained in India in foreign currency in an exchange earner’s foreign currency (EEFC) account with a bank in India.

LIBERALISED REMITTANCE SCHEME

Under this scheme, all resident individuals (including minors) are freely allowed remittances by up to $ 200,000 per financial year (April-March) for any permitted current or capital account transactions (explained hereunder) or a combination of both. You can also consolidate remittances under this facility in respect of your family members. You can also open, maintain and hold foreign currency accounts with a bank outside India for coordinating remittances and investments under this scheme, without prior approval of RBI. You can freely acquire and hold immovable property, shares (listed or otherwise), units of mutual funds, debt instruments, securities or any other assets outside India, without prior approval of RBI. You can also use the limit of $ 2,00,000 under this scheme for making any gifts or donations to any person outside India. Remittances under the scheme can be used for purchasing objects of art, subject to the provisions of other applicable laws. An individual, who has availed of a loan abroad as a non-resident, can repay the same under the Scheme, on return to India as a resident.  Outward remittances can be made either in the resident individual’s own name or in the name of a beneficiary abroad, by using the application-cum-declaration form prescribed for the purpose. It is mandatory to have PAN to make remittances under the scheme.

Mirror (Ahmedabad)

New bank licences on the back burner

Companies with ambition of setting up a bank will have to wait longer. The much-hyped grant of new bank licences has been put on the back burner, as the government is not keen to go ahead. Sources familiar with the developments said the government had conveyed its view that the matter be set aside to RBI, the authority for issuing fresh licences. RBI had framed draft guidelines for new bank licences and submitted these to the finance ministry for its views. The ministry is yet to formally get back to RBI. The sources said the government, facing heat in the 2G scam for granting licences to private sector telecom companies, did not want another potential controversy. “RBI and the government had reached a consensus on most of the important issues in the draft guidelines, including grant of licences to corporate houses. The government had also agreed to amend the RBI Act to vest more power with the regulator. Things have slackened after that,” said a source. Following an announcement by the finance minister in the Budget, RBI last year initiated the process for issuing fresh licences by publishing a discussion paper inviting comments from the public. The paper highlighted several issues such as the initial capital requirement, promoter shareholding and whether industrial houses should be allowed to open banks. Several corporate houses, including the Tata group, the Birlas and L&T, had shown interest in foraying into banking. Several non-banking finance companies and microfinance companies also showed interest. RBI, however, made it clear that companies related to the real estate sector would not be allowed to enter banking. After the financial sector reforms of the early 90s, the guidelines for giving new bank licences to private sector entities were issued in January 1993 and revised in January 2001. The objective was to instill more competition in the banking system to increase productivity and efficiency. Ten private sector banks were set up after the 1993 guidelines and two after the 2001 guidelines.

BS

A K Gupta takes charge as Canara Bank ED

New Delhi : A.K.Gupta has assumed charge as the Executive Director of state-owned lender Canara Bank. Prior to taking charge, Gupta was field general manager with Punjab National Bank looking after the states of Haryana, Himachal Pradesh and Union Territory of Chandigarh, Canara Bank said in a statement. Gupta, who joined PNB in 1976, has wide experience in the fields of treasury, merchant banking and credit. During a long stint of 35 years, he also served as Managing Director of PNB Gilts.

MSN News

Sibal new plan: Convert 1.5 lakh POs into banks

The humble post office is all set to undergo a radical change with a proposal to convert over 1.5 lakh post offices across the nation into full fledged banks on the anvil. Telecom Minister Kapil Sibal wants to reach out to the masses in the rural areas with modern banking facilities through the post offices. "We want to commercialise the department. We will seek a licence from the RBI to convert all our post offices into banks," Sibal said. The lack of modern banking facilities in rural areas and dependence of villagers on informal sector for their credit requirements has prompted the government to work on financial inclusion by way of setting up 'postal banks'. "The State Bank of India can't build branches all over India, but there are post offices across India. The branches are already there, so infrastructure expenditure is not required. So you can actually give banking facilities at relatively lower costs, which would be extremely beneficial to people," he said. The post offices currently offer financial services like savings bank, postal life insurance, pension payments and money transfer services. Its total corpus stood at Rs 5,82,832.9 crore as on March 31, 2011. DoP's revenues grew 11% to Rs 6,954.09 crore in 2010-2011 from Rs 6,266.70 crore in the previous fiscal. However, negative growth rate in some circles has pushed the Department's deficit to Rs 6,625 crore in FY'11, almost equal to the annual revenue of the Department. 

BS

RBI imposes penalty on Udupi-based bank

Bangalore : The Reserve Bank of India has imposed a monetary penalty of Rs five lakh on Udupi-based Teachers'' Co-operative Bank Limited for violation of its directives on collection of third party account payee cheques. A show-cause notice had been issued to the bank, which had submitted its written reply in response, the RBI said in a statement. Subsequently a personal hearing was also granted. Based on the reply and the action taken by the bank in this regard, the RBI came to the conclusion that the violation was substantiated and warranted imposition of penalty, the statement said.

MSN News

Banks, HFCs plan joint strategies for defaults in G Noida

Mumbai: With over R1,300 crore at stake, both the banks and housing finance companies are now planning joint strategies to tackle the possible default crisis arising out of their real estate exposure in the Noida Extension region, after the Allahabad High Court cancelled land acquisition by the Greater Noida Authority in several villages. The banks are now planning to ask the Indian Banks’ Association (IBA), the official representative body of banks, to assess the situation and prepare a strategy before moving to the Reserve Bank of India for resolving a possible default crisis. National Housing Bank, the regulator for housing finance companies (HFCs), is also assessing the situation. “We are in the process of collecting the information on the HFCs’ exposure to the disputed region, both in terms of individual (direct retail loans) and projects. Largely, there are individual loans,” RV Verma, CMD, said.

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Rising frauds becoming challenges for banks

..... “Fraud by employees exceeding Rs 10,000 should also be reported to the police so that the person guilty of the offence does not go unpunished,” the RBI said......

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