Meltdown fears are back

Address by Shri V.K.Sharma, Executive Director at the Second Pan-Asian Regulatory Summit, organised recently by Thomson Reuters in Singapore

Systemic risks in the global markets can be best identified and measured by looking at some select key parameters which, between them, indicate the extent of asset bubbles and the corresponding under-pricing of risks. In other words, it is not so much high volatility, which is the ‘effect', that should be a cause for concern as persistent and excessively low volatility, which is the ‘cause', and was the hallmark of the pre-crisis period.  

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One rupee sets off one's imagination !

One often hears of poor supply of coins and the Reserve Bank of India releasing more coins and in new formats. The 1-rupee coin released recently with the rupee symbol looks like the 50-paise coin. This has led to the bazaar talk that the 50-paise coins may soon go the way of 25-paise coins. The RBI site still claims: “Coins in India are presently being issued in denominations of 10 paise, 20 paise, 25 paise, 50 paise, one rupee, two rupees and five rupees.” It also says: “Coins up to 50 paise are called ‘small coins.” So we can take pride that we have done away with small change and deal only in rupees. Sign of growth! 

HBL

'Allow systemically important NBFCs to float perpetual bonds'

Industry chamber Ficci today suggested that systematically important non-banking finance companies (NBFCs) should be allowed to raise funds through perpetual bonds. "Both deposit-taking systematically important and non-deposit taking systematically important NBFCs should be allowed to raise perpetual bonds," Ficci said in a statement. Currently, only non-deposit taking systematically important NBFCs are permitted to augment their capital in this way. Ficci has also suggested that the recommendation of the Usha Thorat committee fixing the period of default prior to classification of loans as non-performing assets (NPA) should be introduced in phased manner. The working group on 'Issues and Concerns in the NBFC Sector' headed by the former Deputy Governor had suggested a 90-day period of payment default for recognition of NPAs by NBFCs, in line with banks. At present, the period of default prior to classification of loans as NPAs in the case of NBFCs is higher, at 180 or 360 days, compared to 90 days for banks. A 90-day period for recognising the NPAs of NBFCs, in line with banks, would impose an avoidable provisioning burden on the NBFCs and could result in NBFCs deciding to opt for early foreclosures, depriving their borrowers of an income generating asset, it said. It is to be noted that the Thorat panel, in its report to the RBI in August, suggested tighter norms for NBFCs with the aim of strengthening the regulatory and supervisory framework for such lenders. Considering the experience of NBFCs in terms of foreclosure losses, the extant NPA norms should be followed, Ficci suggested. If at all this 90-day provisioning stipulation is to be introduced, it needs to be carried out in a phased manner, given that its impact on the industry will be very high, it added. The committee had also made a recommendation for income tax deduction of NPA provisions. The proposal to enhance NPA provisioning may be made effective only when income tax deductions for such provisions are allowed, Ficci said. In addition, it said loans in the form of NCDs should not be treated as capital market exposure.

BS

No information about illegal gold sale: RBI, Finance Ministry

NEW DELHI: Two key economic regulators of the country - Finance Ministry and Reserve Bank of India - do not have any information about the the consumption of unaccounted gold in the country. The RBI and the Finance Ministry have given a sworn affidavit before the Central Information Commission that they do not have any information about the illegal gold sale in the country. The affidavits were issued on the direction by the Information Commissioner Deepak Sandhu who asked them to file a sworn affidavit that they do not have any information about the consumption of unaccounted gold in the country. The direction of the transparency panel comes on an RTI application by activist S C Agrawal who sought to know sale and consumption of unaccounted gold in the country and related issues. The application filed before the Department of Revenue was transferred to a number of authorities within the Finance Ministry with each of them claiming that they do not have any information on the issue. No reply was furnished to the applicant. When the matter came before the CIC, Information Commissioner Deepak Sandhu directed the Finance Ministry, nodal ministry in such affairs, to file a sworn affidavit that no information was held by it.

ET

Inflated problem

Inflation has been a persistent problem for the Indian economy for nearly six years and worryingly for policy makers, Wholesale Price Index (WPI) inflation has been above nine percent for close to a year. Experts say that the price of commodities like food has risen steadily despite a string of good monsoons and record harvests. Sajjid Chinoy, India Economist at JP Morgan says the substantial price rises being experienced by rural India are a combination of a number of factors: supply bottlenecks, rising incomes, greater demand, and changing consumption habits. Critically, Professor Mahendra Dev, Director of the Indira Gandhi Institute of Development and Research points out that the cost of some food items in rural areas may be two or three times higher than official figures. WPI inflation dipped to 9.72 percent in September, down slightly from 9.78 percent in August. However, it still remains fiercely high and analysts in India widely anticipate that the Reserve Bank of India will, for the 13th consecutive time, lift interest rates later this month. The Reserve Bank of India says that it is mindful of a slow down in economic growth and the impact that the rising cost of borrowing is having on businesses and consumers alike. However India's Central Bank has also warned that it is not likely lower interest rates until inflation is brought under control. The timing of India's economic woes is not great. The country is struggling to keep growth and domestic consumption on track at a time when the world's major developed markets, and some of the country's biggest trading partners, are bracing for yet another slowdown.

BBC News

Let’s kill GDP, inflation will fall

......There has been much talk by the experts that India was behind the curve in tightening. By behind the curve is meant that RBI was too slow in raising rates. But the curve is not a one-way street. You can be (and RBI is) behind the curve by raising rates too much.............

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Consolidation likely ahead of Diwali

The stock market is likely to remain firm ahead of Diwali, as the financial performance of Indian Inc has so far not disappointed street expectations. However, the Reserve Bank of India's policy move could spoil the party at Dalal Street. With headline inflation showing no signs of any correction, market participants expect another rate hike of 25 basis points. The RBI is meeting on October 25 to decide on key interest rates.  Corporates are mounting pressure on central bank to pause on current rate tightening, as they are already struggling to raise funds to meet capital expenditure. However, the RBI Governor, Dr D. Subbarao, has reemphasised that inflation must ease before the central bank can reduce interest rates, signalling a tight monetary stance for now. Sustained buying by foreign institutional investors helped Indian markets recover sharply last week. Markets even ignored the weak industrial growth for August on hopes that the global atmosphere would continue to be conducive, as Euro-zone is indicating some actions will be taken to contain the region's economic woes.  The slowdown in industrial production is not an India phenomenon alone. The HSBC Emerging Markets Index declined to 51.9 in the third quarter of 2011 which, according to it, ‘is the slowest in nine quarters.' Of the big-four emerging markets, Brazil and India recorded the fastest rates of decline in new export orders. “Consequently, employment growth as measured across manufacturing and services eased to the slowest for nine quarters, reflecting a weaker rate of job creation in services and a stagnation of manufacturing employment. India recorded a decrease in headcounts for the first time since Q1 2009,” said HSBC report.

HBL

Financial markets that are efficiently regulated

The Reserve Bank of India (RBI), until the constitution of sector regulators like Sebi, Irda, etc, undertook the responsibility of developing various segments of the financial market. Setting up of institutions like the Industrial Development Bank of India,  Unit Trust of India (UTI), National Housing Bank (NHB) and National Bank for Agriculture and Rural Development  and so on, establishes historical track of the role played by the RBI in the development of the financial markets......

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Negotiating the next curve

If the RBI persists with rate hikes despite the onset of slowdown — just as it did not raise interest rates earlier when required — it may miss the bus yet again.

Monetary policy is all about getting the timing right. In 2008, when the wholesale inflation rate suddenly jumped from 4.5 per cent in January to cross double-digits in June, the Reserve Bank of India (RBI) was quick to respond. By August, the central bank had raised its repo rate as well as the cash reserve ratio (CRR) of banks to nine per cent. It wasted little time either when inflation took a plunge from December, following the global economic crisis, to hit negative territory in June 2009. Well before that, the repo rate was brought down to 4.75 per cent and the CRR to five per cent. But subsequently, even as industrial growth recovered towards the year-end alongside unleashing of inflationary pressures, the RBI was slow to react. By the time it did — from around March 2010 – inflationary expectations had already built up. The very fact that 200 out of the 350 basis points increase in the repo rate since then has come after January this year shows how ‘behind the curve' the RBI — and those in the Government prompting it from behind the scenes – have been. The hope that inflation would somehow wither away was simply misplaced. The danger today is of a different hope — of growth still being sustained at an accepted level even as the belated monetary policy actions are beginning to dent it. On October 25, RBI will hold its next policy review. With the annual wholesale inflation rate at 9.72 per cent for September — the 10th successive month it has been over nine per cent and the 21st at eight per cent-plus — it could consider yet another 25 basis point rate hike. But doing so would be counter-productive. The current inflation has been largely food and fuel driven with spill-over effects on wages — against which monetary tightening has proved ineffective, especially post-NREGA. While investment has slowed down, it has, however, more to do with general policy paralysis and waning business confidence than interest rates. High interest rates has mainly impacted the real estate and auto sectors; even that is probably now starting to harm steel or cement consumption more than reining in overall inflation. Demand compression, to fight an inflation fundamentally rooted in supply-side bottlenecks, may only exacerbate a slowdown that is already visible to many.  Against this background — more so, with July and August posting dismal industrial growth and September excise collections falling year-on-year for the first time in 17 months — the RBI would be best advised to press the pause button on further rate increases. Having not raised interest rates when it was required and now insisting on no stoppage until inflation falls to six per cent — the so-called ‘threshold' beyond which growth apparently gets hurt — would only be an invitation to recession. Hopefully, RBI will not miss the miss the bus again.

HBL

Economic policy: Shooting in the dark

... As the central bank wrestles with the dilemma of whether to continue, pause or stop in its tracks, it needs to know, and with far more certainty than at present, how far its policies have slowed down the level of economic activity, how far they have impacted inflation and so on. In short, it must be able to get its finger on the pulse of the economy and also ameasure of the pulse rate.....

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Revive economy

As commented in your editorial “Restoring confidence” (Business Line, October 14), the growth rate is disappointing. It is high time the government concentrated its energies on early resolution of the Telangana issue, which is causing untold misery to the people of all regions in AP.  Also, the Congress should expedite early passing of the Lokpal Bill in Parliament — not for the purpose of pleasing Anna Hazare and his team — in the interests of all stakeholders of the country. Both the Government at the Centre and States, at the political level, and the RBI from the monetary viewpoint, should strive hard to put the economy on an even keel to arrest further decline in growth rates of the economy.

K. N. V. S. Subrahmanyam (HBL)

Coordinated measures needed to control price rise

....While the RBI is planning to announce its second-half monetary views and measures on October 25, it would be interesting to know that fiscal measures still continue to influence the monetary policy of the central bank and only a coordinated approach by the government and the RBI could bring down inflation.....

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Financial inclusion bogged by too much concern with regulatory prudence, rather than bold experimentation: FICCI report

....Banks have been advised by the RBI to submit their financial inclusion plans for reaching 72,825 financially excluded villages by 2012 and to integrate these with their normal business plans. While much has been achieved, as is the norm in any regulatory regime, what has been done by the banks has been the minimum necessary to gain approval (or at any rate regulatory forbearance). Thus significant areas of the rural hinterland of the major states are now reasonably served with banking services. ........

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Finance Ministry for white-level ATMs to boost banking access in country

NEW DELHI: In a bid to increase the penetration of banking services, the Finance Ministry has favoured setting up of white-level ATMs in the country. White-level ATMs are not owned by banks but by private ATM service providers. Customers from any bank can deposit or withdraw money from such ATMs. "Such ATMs will help take banking services to remote places," official sources said. Besides, it will help sponsored banks to set-up ATMs without incurring capital expenses for owning money dispensing machine, sources said. The Finance Ministry has given its view to the Reserve Bank in this regard, sources said, adding that the lead bank or sponsored bank of a district would be given the responsibility of filling cash and meeting other operational requirement. Thus, the bank will be saved from making investment for setting up ATMs, and even other expenses like technical infrastructure and security would be borne by non-bank entities. Currently, white label ATMs are not permitted by the RBI. State-owned IDBI Bank is considering to create a separate venture with private ATM service providers for running white-label ATMs, so called because they are not owned by any bank. At present, brown label ATMs are allowed in the country. In such cases, the hardware as well as lease is under the ownership of the service provider, while connectivity and cash handling and management is the responsibility of the sponsor bank. The ATM is named under the brand of the sponsor bank but the ATM machine is not owned by the bank. At present, banks allow customers of other banks five free-of-charge cash withdrawals at their ATMs every month but end up paying around Rs 3,000 crore a year to settle inter-bank transaction costs. At present, the installed base of ATMs is India is 75,000 as of June 2011. 

ET

ATMs spew fakes, banks deny bail

What will you do when you get a fake note from an ATM?

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Banking Reforms: Foreign v/ s Desi Consultants - DR. N. A. MUJUMDAR

The recent directive by the Finance Ministry to public sector banks ( PSBS) to implement the Report prepared by the Boston Consulting Group ( BCG) on improving banking operations has raised the basic question of who should be preferred: foreign or desi experts? The Report exhorts banks " to strive for excellence on five dimensions" branch sales and service, new channels, lean operations, organisation design and bad debt management". The Report also calls for a need to change the compensation structure

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Banks offer freebies to lure credit card customers

....According to a data released by the Reserve Bank of India (RBI), transactions using credit card during the April-August period of this financial year stood at Rs 37,678.25 crore against Rs 29,024.75 crore in the same period of 2010-11.....

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Rosaiah hails KVB's efforts in taking banking services to the masses

....The capital adequacy ratio stood at 14.83 per cent, well above the Reserve Bank of India's stipulated ratio of 9 per cent and the net non-performing assets at 0.21 per cent was one of the lowest in the country, he said. The bank has been earning profits since inception and declared dividend uninterruptedly, declaring even 120 per cent in the last three years. The bank has earned laurels from many quarters and is recognised as the best old private sector bank.....

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High food price, a crisis on our plate

...The high food prices are the result of structural factors with shortages getting aggravated as demand continues to outstrip supply. So, even as the RBI continues to focus on demand management, what will ultimately help control inflation is sustained increase in agricultural supplies. ........

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