RBI's real assets

Your feature “Ten heads’ five years in office” (August 10) was innovative and interesting. But as someone who served the Reserve Bank of India (RBI) under 13 governors from C D Deshmukh to Manmohan Singh, I feel the things for which these 10 men can be most remembered have not been rightly perceived in many cases, and more particularly in the case of C D Deshmukh. Sir Chintaman’s regime in RBI can be remembered for numerous things, among which the Bank’s transition from private to public ownership would not rank very high. In fact, he is known for his opposition to RBI’s nationalisation that occurred in spite of him towards the tail end of his monumental innings. And it made no difference at all to the Bank’s day- to-day working. Much higher in the list would come his stewardship of the Bank during the crucial war years, his creation of RBI’s research department that emerged, within a short time, as the country’s premier laboratory of economic research, his role at the Bretton Woods Conference resulting in India becoming a prominent member of World Bank and IMF even before it became independent, his handling of negotiations with Britain for repatriation of the Sterling Debt (which became the main source of finance for India’s development in the initial years following independence) and the delicate task of heading RBI as the central bank of both India and Pakistan for many months with the two countries at war with each other. Yet at the top of the list of Deshmukh’s achievements, I would place his laying the foundations of a strong banking and financial system in the country that has saved it from disaster some 60 years after he left RBI.

The Indian banking system was in a shambles during the World War II, with numerous ill-managed institutions mushrooming, none of them empowered to protect depositors’ interests. There was no law to regulate and control their functioning. Then there was the situation created by Partition, with banks based in Pakistan shifting to India, leaving their assets behind and depositors migrating to India and making demands on them here. Brick by brick he remedied the situation, starting with Ordinances and culminating in the framing of the Banking Regulation Act, which created the system of licensing, inspection and control of banks by RBI. The Bill was piloted in Parliament with one of his chosen officers nominated as a member of the House for the purpose. As a result, bank failures in India became, more or less, a thing of the past. Today, while the banking system all over the Western world is shaking, in India it is causing no concern. Interestingly, many years after Deshmukh left RBI in 1949, it was he who was called upon in 1970 to chair the committee for drafting RBI’s history.

Another formidable governor who is not on the list, as his term exceeded five years, was Benegal Rama Rau (1949-57), who created history by resigning because RBI’s autonomy was being encroached on by an aggressive finance minister. Incidentally, S Jagannathan was not from Audit service; he was from the Indian Civil Service (Bihar cadre).

R C Mody, New Delhi (BS)

25 P OUT, RS 1,000 COIN IN?

An example of how penny- wise and pound- foolish UPA government handles corruption

Lawmakers can be pennywise, pound- foolish. On Thursday, even as members in Parliament were wallowing in nostalgia about withdrawal of 25 paise coins ( chawani), the Rajya Sabha gave its nod to a legislation that permits the government to mint coins of Rs 1,000 denomination. The move is sure to stir a hornet's nest with activists like Baba Ramdev demanding a ban on high denomination currencies to curb corruption. The entire rationale for denominatisation has been that high denomination notes facilitate illicit transfer of money, activists point out. Gujarat Chief Minister Narendra Modi had some time back ridiculed the Centre's decision to put 25 paise coins out of circulation and wondered whether this was the Congress government's " strong step" to unearth black money! He had added that just when people were backing Baba Ramdev's demand for demonetisation of thousand rupee notes, which was the only way to unearth black money, the Centre has responded by spiking the 25 paise coins. Though Pranab Mukherjee did not say when the Rs 1,000 denomination coins could be introduced, he indicated that the move is intended to check the menace of spurious notes.

FPJ

Coming soon: A Rs 1,000 coin

India will now have coins of the denomination of Rs 1,000. The proposal got the Parliament’s nod, even as lawmakers lamanted the end of an era with the phase-out of 25 paise coin. Finance Minister Pranab Mukherjee said the payment and receipt by way of coins was being limited to Rs 1,000 by an individual, as suggested by the Reserve Bank of India, for sake of convenience. The Coinage Bill, 2009, passed by the Rajya Sabha, limits payment by an individual through coins up to Rs 1,000. The Lok Sabha had passed the bill without discussion in March. Mukherjee said at present it was only an enabling provision being inserted in the coinage law. He did not indicate when it could be introduced. Replying to concerns on counterfeit notes, the Minister said it was a battle the government would fight continuously, especially when some countries were using it as a tool to destablise the Indian economy. "I do not want to name the countries. Everybody is aware of what their objective is,” he said. Concerns have often been expressed over fake currency coming from Pakistan routed through Nepal. While the Finance Minister shared members' nostalgia over withdrawal of 25 paise coin (chavanni), Mukherjee said it was part of an economic evolution. There used to be coins in the sub-unit of a paisa in the past, he added.  BJP leader SS Ahluwalia reminded the House that the distinguishing feature of the 25 paise coin was that once upon a time, that was all one required to become a member of the Congress. “A chavanni membership of the party was a badge of honour,” said Ahluwalia, a former Congressman who later joined the BJP. Ahluawalia’s speech elicited praise from all sections of the House. Congress MP Mani Shankar Aiyar said he wondered why Ahluwalia constantly created a hubbub (hangama) when he could speak so well. To this, Ahluwalia retorted that he had known Aiyar from the time he was an official and sitting in the officers’ gallery. Later Ramdas Agarwal of the BJP also congratulated Ahluwalia.

BS

From S&P with love

The first term for RBI Governor D Subbarao was announced by finance minister Pranab Mukherjee at a press conference on September 1, 2008. His predecessor, YV Reddy, too, was introduced to the office by then finance minister Jaswant Singh. The extension for Subbarao was however announced by the PMO, and it did not even say if the appointments committee of the Cabinet, which is supposed to clear all top level government and public sector appointments, had met to clear the extension. Was it a convenient coming together of the global turmoil and the appointment hour that pushed the extension through?

FE

Great Lakes Financial Inclusion Conference

Central board of RBI directors meet in Mumbai

Mumbai: The RBI's central board of directors met here Thursday to review key economic, monetary and financial developments in the country. The meeting was chaired by RBI governor D Subbarao. Deputy Governors K C Chakrabarty and Subir Gokarn were also present at the meeting, the apex bank said in a statement. Besides, the meeting was also attended by Economic Affairs Secretary R Gopalan and Chief Economic Advisor in the Ministry of Finance Kaushik Basu, among others. A day before the board meeting, Subbarao had met officials of the Maharashtra state government and bankers at specially convened meeting of the State level bankers committee (SLBC). Issues, such as crop loans, crop insurance, financial inclusion, cooperative banks and credit-deposit ratio in Maharastra were discussed during that meeting, RBI said.

Zee News

Less profit from RBI may upset finmin Budget math

Mumbai: The Reserve Bank of India (RBI) will transfer R15,009 crore in surplus profit to the government this year, 20% below the previous year’s R18,759 crore.  The lower amount will dampen the finance ministry’s non-tax revenue, in a year when tax receipts are also expected to trail Budget estimates.  For this fiscal, the government has projected an income of R19,129 crore from dividends and surplus from RBI and other public sector banks. The lower realisation from RBI means banks will have to pay higher dividends.  The RBI central board on Thursday approved the transfer of surplus profit for the year ended June 30, 2011 to the Government of India. The central bank’s financial year ends on June 30.  Last fiscal, the finance ministry had projected R27,461 crore from this stream but got only R22,748 crore. The payment is as per the lower projections, but given the lower anticipated revenue from taxes, this puts additional pressure on the fisc. Though details of RBI’s income and expenses in 2010-11 are yet to be published, income is expected to have fallen due to lower returns from overseas assets in which it has invested India’s forex reserves.  The RBI parks foreign exchange reserves in high-rated bonds and deposits. It follows three principles — safety, liquidity and returns while deploying reserves abroad. Analysts point out that returns had been low due to near-zero interest rates in developed economies.  RBI’s income in 2009-10 was R32,884.14 crore, 45.85% below the previous year’s R60,731.98 crore, thanks to low interest income from foreign currency assets. The surplus transferable to the government also in 2009-10 dipped to R18,759 crore from R25,009 crore in 2008-09.  Earnings from foreign currency assets and gold declined 50.58 % in 2009-10 to R25,102.55 crore from R50,796.21 crore in 2008-09.

FE

LS passes SBI subsidiary banks bill, gives more power to Centre

New Delhi: The Lok Sabha Thursday approved a bill that will empower the central government to deal with the issues concerning subsidiary banks of the State Bank of India. The Lower House passed the State Bank of India (Subsidiary Banks) Amendment Bill with voice vote after Minister of State for Finance Namo Narain Meena assured that government does not intend to privatise the state-owned  banks. The Left Parties, however, staged a walk out as the Minister moved the bill for passage. The bill, according to Meena, will confer powers on the central bank to approve authorised capital of the SBI subsidiary banks in consultation with the Reserve Bank. Earlier such powers were exercised by the RBI. The situation changed after the central government took over the equity of the SBI held by the central bank. The central government, following the amendment, will also have powers over to approve other activities of the subsidiary banks like appointment of managing directors, preferential allotment of shares, issuance of bonus among others. Allaying apprehensions of the members that government was paving the way for the privatisation of the state-owned banks, Meena said, "this bill is not about privatisation ... (government) does not intend to privatise PSU banks". The initiatives, he said, will improve the functioning of the subsidiary banks of SBI. On consolidation in the banking sector, Meena said, neither the government nor the RBI has issued any directive in this regard.

Zee News

RBI surplus profit dips 20%, liquidity overhang blamed

The Reserve Bank of India’s transferable surplus dipped by 20 per cent to Rs 15,009 crore for the year ended June. This is the second time in a row that the central bank has reported a drop in the surplus, which is transferred to the government. The central board, at its meeting held on Thursday, approved the transfer of surplus profit to the Centre amounting to Rs 15,009 crore for 2010-11, as against Rs 18,759 crore for the year ended June 30, 2010, RBI said in a release on Thursday. In 2009-10, the surplus had dipped by 25 per cent to Rs 18,759 crore from Rs 25,759 crore in 2008-09. A senior treasury official with a large public sector bank said the low yield on international assets, bonds and deposits, in an environment marked by overhang of liquidity, had partly contributed to a drop in surplus profits. The liquidity was pumped by governments in developed nations to kickstart economic growth, after the global financial system was hit by financial crisis in 2008. As one avenue to park funds, RBI invests foreign currency reserves in bonds issued by other governments. India’s foreign exchange reserves stood at $309 billion at the end of June 24. The volatility in the value of international currencies also has a bearing on earnings of the central bank, said a treasury executive with another public sector bank.

BS

Corporation Bank plans services for senior citizens

Bangalore: Mangalore Headquartered Corporation Bank, a premier public sector bank, is in the process of according special and exclusive services for senior citizens. "Though it is in the conceptual stage as of now, we are confident the bank will roll out certain special services for senior citizens shortly," Narendra Singh, Executive Director of the Bank told.

http://www.siliconindia.com/shownews/Corporation_Bank_plans_services_for_senior_citizens-nid-88382.html 

RBI dashes hopes of pause on rate hikes

“The RBI has said it will continue doing what it is doing... that it will continue raising the policy rates till the time inflation comes down to 7 per cent. It has said inflation data need to be seen. If inflation comes down, it will pause. But, if it remains stubbornly high and close to two digits, it will continue the hike.”.....

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Inflation to stay, see 12.9% by Jun 2012: RBI survey

Urban households expect inflationary pressure to sustain through this fiscal and the first quarter of 2012-13 and feel there may not be any softening of food prices, an RBI survey shows. While June, 2012 household inflation is expected to be 12.9%, up from the 12.7% perceived for March 2012, daily-wage workers and housewives expected higher inflation rates to continue. As per the 'Inflation Expectations Survey of Households: June, 2011 (Round 24)' conducted by the apex bank, the rise will be mainly on account of movement in food prices. It also found that 25% of the respondents surveyed believe that the Reserve Bank is taking necessary action to control inflation. While the housewives surveyed said they expect inflation to be 13.1% by June 2012, daily wage workers said it would be 13.4%. On the other hand, financial sector employees and self-employed projected inflation to be 12.1% and 13%, respectively, by year-end. "Unlike in last round of the survey, the percentage of respondents expecting price rise have gone up for all product groups (viz., food, non food, households durables, housing and services)," the survey said. It further added: "However, expectations on general price rise were mainly influenced by movements in food prices". The survey found that households expect inflation to rise further by 170 basis points during the next 12 months from the perceived rate of 11.2% in April-June quarter of the current fiscal. Headline inflation, as measured by Wholesale Price Index (WPI) has been hovering above 9% since December, 2010. It stood at 9.44% in June. After a brief period of moderation, the rate of price rise of food items has also started climbing and food inflation stood at a four-and-half month high of 9.90% for the week ended July. "From September 2010 round of the survey, household inflation expectations are higher than the official inflation rates. In the current round also, the same trend has been observed," the survey said. RBI found that 98.7% of the respondents believe that prices will increase. This shows that more urban households have come to the view that inflation is on the upswing than during the previous survey when 96% respondents had given such a view. The survey was conducted in April-June 2011 and covered 4,000 urban households across 12 cities for the July-September 2011 quarter and the July 2011-June 2012 period. The latest survey is the 24th conducted by RBI to find inflation expectations of Indian households. RBI has been conducting such surveys on a quarterly basis since 2005.

BS

No let-up on inflation control – S.S.Tarapore

The sinking of global markets should not result in a volte face on India's inflation management. To sacrifice inflation control in the pursuit of higher growth rates would be disastrous from a political economy point of view.

The recent Report of the Prime Minister's Economic Advisory Council (PMEAC) is a watershed in that it is forthright in asserting that while India was able to negotiate the global economic crisis quite well, we have been unable to find our way back to the path of rapid asset creation and growth. The policy drift has led to an unintended slowing down of initiatives to restore investment and economic confidence. The Report is emphatic that: “It is certain that the RBI will have to continue to maintain a tight monetary policy for quite some time, given the combination of domestic inflationary situation, the international backdrop and the fairly strong growth that the domestic economy is experiencing”.  The Report recognises that the international situation is not entirely supportive of economic growth. The crisis in Greece, Portugal and Ireland, spreading to Spain and Italy, could have severe repercussions on the global economy. The fiscal deficit in the US of over 10 per cent of GDP and the unprecedented monetary easing have exhausted the capacity to stimulate the economy any further. The large political differences in the industrial countries on how to proceed with fiscal consolidation cast a cloud over any prospects of global recovery.  After the announcement of the RBI's monetary policy on July 26, the Finance Minister, in an unusually categorical statement, warned market participants that there would be a need for further interest rate hikes.  The downgrading of the US rating by Standard and Poor's, from AAA to AA+, resulted in a massacre in global financial markets on Friday August 5, which also spread to emerging economy markets. It is significant that the earlier downgrading of the US by the Chinese rating agency did not impact financial markets. Even without any pronouncements by rating agencies, it was common knowledge that the US had a very serious problem but it took S&P to deliver its verdict to trigger a global sell-off. The recent roiling of global financial markets should not result in a knee-jerk reaction in India to abandon the sagacious advice in the PMEAC's Report.  Unfortunately, advocates in influential policy circles in India are already calling for a reversion to monetary-fiscal easing, as was undertaken in 2008.  It would be a serious error of policy if India were to forget its present over-riding priority of expeditiously crushing inflation as monetary-fiscal easing at this stage would only stoke the inflationary fire, leading to serious social tensions. Thus, there is merit in not aping the policies in the major industrial countries.  Investment guru Marc Faber has asserted that the present global economic crisis could be much worse than in 2008. But before such an eventuality, authorities in the industrial countries would take recourse to printing money and this could result in a War. Nouriel Roubini foresees that Quantitative Easing (QE) 3 could be followed by QE 4 and QE 5. This would, inevitably, generate strong inflationary pressures globally which would inevitably spread to emerging markets. There has been almost instantaneous clamour by Indian industry to soften monetary-fiscal policies. Moreover, some influential policymakers have already voiced empathy with this viewpoint. It is essential that in India basic policies are not excessively swayed by recent developments in the global economy. We have India-specific problems and these must be addressed on a priority basis. The sinking of global markets should not result in a volte face on the present avowed policy of inflation control. The clear policy of crushing inflation should not be reversed because of global developments.  As Dr C. Rangarajan, the economic policy helmsman, has cogently argued, there is an important difference between the level of inflation and the rate of inflation. For instance, if the inflation index rises from 100 to 110 we consider the inflation rate to be 10 per cent. But if the level rises further to 120 we take solace in the fact that the rate of inflation is 9 per cent in the subsequent period.  To the Common Person, the fact is that he groans against an even higher level of prices. Policymakers never talk of a roll-back of the level of prices as this is erroneously considered as a contagion to be totally avoided. We have waited far too long to tackle inflation, which is Public Enemy No.1. Given the vast tracts of poverty, sacrificing inflation control at the altar of higher rates of real growth would be disastrous from a political economy point of view and moreover, would be morally repugnant.  If at all, the monetary-fiscal tightening should be accelerated and not weakened. The crucial issue is whether the Indian authorities would be excessively swayed by global developments to ease monetary-fiscal policies or whether they would be steadfast in their commitment to control inflation in India.

HBL

Banking reach target tough to achieve

PATNA: The banks in the state face a tough task of extending banking facilities to all 9,213 villages, each with a population of over 2,000, by the end of the current fiscal, as only 2,449 such villages had been covered so far. As many as 6,764 such villages remain to be covered.  Deputy CM Sushil Kumar Modi, who reviewed the banks' working at the State Level Bankers' Committee (SLBC) meeting held on Thursday, said the bankers should pull their socks on this front to meet the target. "We want you to cover all these villages within the 11^th  Five Year Plan itself, which ends in March next year," said Modi.  SBI chief general manager (CGM) Jeevandas Narayan, who chaired the SLBC meet, said that the bankers faced great responsibility, as the new RBI plan of extending banking facilities to all the villages having less than 1,000 people would begin to be implemented from the next fiscal (2012-13).  Modi said the bankers had adopted three modes - mobile banking, e-kiosk for online banking by linking with Vasudha Kendra in the blocks concerned, and business correspondent (BC) model in which BC deployed by a bank in a village operates through a handset to conduct banking transactions - to cover these villages. SBI has adopted e-kiosk mode to reach out to its target villages.  The plan envisages a no-frill account with zero balance of at least one person from every family. Modi said that 66 lakh no-frill accounts had been opened in the state till June 30. Of them, 51.62 lakh accounts were active, while the remaining 14.38 lakh accounts were not active, he added.  According to him, the RBI, in view of the trend witnessed in the country, had asked the bankers to allow overdraft withdrawals of Rs 500 to Rs 1,000 so that no-frill accounts did not become dead, and it would also inspire the account holders to make small savings. Otherwise, active no-frill account holders could make overdraft withdrawals in the range of Rs 5,000-Rs 10,000 in a year, Modi said.

TOI

Finance ministry to clear norms for new bank licences next week

NEW DELHI: The finance ministry will clear guidelines for new bank permits by next week, potentially setting the stage for the Reserve Bank to roll out licences after a gap of eight years. Once the finance ministry gives its go-ahead, RBI is expected to make the norms public and invite applications for new private banks, a promise the finance minister had made in the 2011-12 budget.  The central bank had already sent the draft licensing norms to the government in January. Confirming that issuing new licences was high on the government's agenda, financial services secretary DK Mittal said, "We are working on that. After we send our comments, it will be for the RBI to take a final call."  He did not elaborate on what changes the government has suggested. "There is no policy paralysis," he said, referring to the growing perception of a slowdown in decision-making. In his budget speech, Finance Minister Pranab Mukherjee had said that RBI would issue the guidelines for banking licences before the close of this financial year. Regulator RBI then put out a discussion paper, 'Entry of New Banks in the Private Sector', in August 2010 inviting comments from banks, non-banking financial institutions, industrial houses and other institutions. A finance ministry official said the main difference between the government and the RBI continues to be over the proposed 74% foreign direct investment limit in new banks.  RBI has suggested capping FDI in new banks to 49% in the first 10 years, which could be subsequently raised to 74%. FDI up to 74% is allowed in private banks at present. "RBI is apprehensive that if 74% FDI is allowed initially then its initiative to push foreign banks towards the wholly-owned subsidiary model would be defeated," the official said.  The finance ministry, though, is not in favour of a different regime, arguing that it would send a wrong signal to foreign investors. The finance ministry and the RBI are now working to narrow down their differences. "There is a view that, with less than 50% foreign holding, downstream investment of the new banks will not be required to monitored," the official said.  "The compromise could be that instead of 10 years, the new banks could be allowed to lift FDI limit to 74% after seven years." While the two are unanimous on the need for imposing stiff conditions on new players to ensure promotion of financial inclusion, there is some disagreement on how to go about it. In the draft guidelines, the central bank had proposed that new players should have at least a fourth of their branches in rural areas with population of less than 10,000. The ministry, however, wants these branches in tier III and tier IV cities having a population of up to 50,000.  

ET

Finmin seeks CVC nod before approving Sridhar’s name for Sebi director’s post

New Delhi: The finance ministry has sought the Central Vigilance Commission’s (CVC) clearance of S Sridhar, one of the two shortlisted candidates for the two vacant posts of whole-time member on the board of the Securities and Exchange Board of India (Sebi). The move, which follows adverse comments on Sridhar by the VK Shunglu committee that probed irregularities in the Commonwealth Games, could potentially delay the appointment to the market regulator’s board, which is short of two whole-time members since last month. According to two finance ministry officials, Sridhar's name will go to the Cabinet’s Appointments Committee headed by Prime Minister Manmohan Singh only after CVC clearance. The Sebi board is required to have three whole-time directors, in addition to the chairman. There are also part-time directors, including two government nominees and one from RBI. The terms of whole-time directors MS Sahoo and KM Abraham ended in July, leaving Sebi with Prashant Saran as the only such member. Sahoo was in charge of legal affairs, enforcement and market intermediaries supervision and regulation. Abraham handled investigations, integrated surveillance and market regulation. Rajiv Agarwal, an IRS officer posted in Mumbai, is the other candidate shortlisted by a panel headed by Sebi chairman and comprising government representatives. His name has already been sent to the panel for approval. If the CVC does not clear Sridhar’s name, then the process for selecting the third whole-time member has to begin afresh, as the process doesn't leave a waiting list.  Sridhar was the former chairman and managing director of Central Bank of India, CWG’s official banker. The Shunglu panel, as reported by The Indian Express on February 23, accused Sridhar of being “interested” in CWG contracts because one of his relatives was posted in London with the CWG Organising Committee (OC).  Before the Shunglu panel submitted its report, it had written to finance minister Pranab Mukherjee and then Cabinet Secretary KM Chandrasekhar requesting information on the Central Bank of India’s dealings with the OC. When contacted, Sridhar told FE: “The allegations made against the Shunglu committee report are baseless. Some interested party is trying to frame me.” The selection committee interviewed 11 of the nearly 50 candidates who had applied for the two Sebi posts. An official said: “The ministry has already sent Rajiv Agarwal’s name for approval from ACC, which is likely to be cleared shortly.” The prime minister has set up a team of ministers led by defence minister AK Antony to study the Shunglu committee report. The allegations against Sridhar are yet to be proved. The group of ministers has been asked to consider the responses of the Union ministries, the Delhi government and its various agencies to the findings of the high-level committee headed by former Comptroller and Auditor General V K Shunglu.

FE

RBI nudges banks to lend more to weaker sections

In an RBI meeting with bankers and MFIs in July, Deputy Governor K.C. Chakrabarty had questioned bankers on why they were not lending to crisis-ridden microlenders, including those that had not defaulted on loans to banks.....

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FICCI calls for interest rate cut

New Delhi : The S&P downgrade of US debt and the possibility of a double-dip recession accompanied with anaemic growth in Europe and Japan has weakened global commodity prices.  This will reduce pressure on domestic prices, said industry chamber FICCI, seeking a rate cut by the Reserve Bank of India. The apex bank's focus should now shift from minimising risk of continued inflation to conserving the growth momentum, it said in a statement.  The RBI may be emboldened by the Fed stance of keeping the interest rates unchanged at exceptionally low levels (0-0.25 per cent) at least through mid-2013.  The slowdown in industrial growth is all pervasive, with both investment demand (capital goods growth at a measly 1 per cent during April-May 2011 vis-à-vis 49.8 per cent in the like period previous year) and consumer demand (consumer durables goods growth at 7.9 per cent during April-May 2011 vis-à-vis 27.7 per cent in the like period previous year) being hit.  To sustain investor interest in the India growth story and give a strong signal to the investor community, the RBI would do well to boldly cut interest rates, said FICCI.

HBL