Inflation will come down by March 2012: RBI Governor

Inflation will come down by March on the back of strengthening agro-based economy in the country, Reserve Bank of India (RBI) Governor D Subbarao said in Dungabori on Wednesday. "Inflation will come down because the production and agriculture sectors will boost up the rural agro-based economy of the country," Subbarao said at a RBI Financial Outreach Programme here in central Assam's Morigaon district. The Indian economy is stable and will grow despite the global economic slow down, the RBI Governor said. Proper coordination of farmers' loan recovery was the only way out to strengthen the agro-based economy of the country as well as the North East region, he said. Subbarao said that by March 2012 every village with a population of over 2000 people in the country will get a bank. On the need for financial inclusion, he advised the controlling heads of banks to realise that there exists tremendous business opportunity at the bottom of the pyramid. Financial inclusion aims at providing basic services to all with access to savings or current account, loans, insurance services. The RBI Governor also urged the rural population not to be lured by the offer of high rates interest on their money by unauthorised bodies. He appealed the students, farmers and self-help groups (SHG) to work for better financial coordination and literacy in society. One of the main purposes of conducting this Financial Outreach Programme was to spread awareness of the importance of financial inclusion, and the financial services and products available in the banking sector, Subbarao said.

HT

RBI chief dwells on need for banking awareness

GUWAHATI, Nov 30: The Reserve Bank of India (RBI) has asked banks of the State to gear up for fulfilling the target of disbursing credit of Rs 4,500 crore in this fiscal for the agricultural sector. Addressing mediapersons in Morigaon on Wednesday, RBI Governor Dr D Subba Rao said that credit disbursement to the agricultural sector by banks was not satisfactory. He urged banks to coordinate with the State Bank of India (SBI) to meet the target. Regarding inflation, Dr Rao said, “At present the rate of inflation is 10 per cent but it is expected to come down to 7 per cent by the end of March next year.” Highlighting as why the rate of inflation is high, Dr Rao said: “The main reason behind the abnormal rate of inflation is rise in oil imports and rise in the prices of food products. In Assam, the rate of inflation is high due to rise in the prices of food products as compared to other States. Moreover, the essential commodities come from outside.” Harping the role of the RBI, he said, “The first and foremost role of the RBI is to print currency. No other bank of India has the right to print currency apart from the RBI. The second role of the RBI is to control inflation when inflation increases and threatens to go out of the manageable state. Generally, in such a situation the monetary policy has to be tightened, which means reducing the amount of liquidity in the economy. The third role of the RBI is to motivate people living in the villages of the country to have access to banking facilities.” Keeping in mind its responsibilities, the RBI organized an outreach programme at Dongabari village in Morigaon district to create awareness among the villagers regarding access to banking facilities. The main objectives of the programme were financial education and financial literacy. In Assam, there are 2,300-odd villages having a population of 2,000 which do not have bank branches and banking correspondents. The people have to travel long distances to open accounts in banks in neighbouring towns and cities. Appreciating the problems of villagers, the RBI Governor announced that by March next different bank branches would be opened at Dongabari. Moreover, there will be banking correspondents who will look after all matters related to loans, opening of bank accounts, repayment of loans on time and other banking facilities. Dr Rao also asked Assam Gramin Vikash Bank chairman SN Sahu to take the initiative of opening a branch of the bank at Dongabari village 1 and village 2 by Magh Bihu. Responding to the request of the RBI governor, Sahu announced that they would inaugurate a branch of the bank by Magh Bihu. Dr Rao also asked Sahu to conduct a training camp for the villagers. In the camp, training should be provided as to how to open an account and how to avail of banking facilities. The proposed branch of the Assam Gramin Vikash Bank at Dongabari will also provide its services to other neighbouring villages. Regarding fake currency, Rao said: “The problem of fake currency is more serious in border States, especially in the Northeast.” The RBI has also taken a noble initiative of publishing comic books on finance and banking. This move has been made in order to generate awareness among children who are the future citizens of the country. Stressing the need of education, Rao said: “Each and every child in villages should have access to quality education.” Emphasizing education of the girl child, he said: “If any family of a village does not send their girl child to school, then that family should not be allowed to open any account in any bank.” Reacting to the news that branches of various banks will soon start their operations at Dongabari, a villager named Ratna Mandal said, “This is good news for us as we shall now be able to open bank accounts easily. We shall also get loans for improving our agricultural production.” Other dignitaries who were present in the programme were United Bank of India chairman Bhaskar Sen, Morigaon deputy commissioner Aruna Rajaria and RBI Regional Director Surekha Marandi.

The Sentinel

RBI prefers stable foreign investment to gap CAD : H R Khan

Mumbai, Nov 30 : The Reserve Bank of India (RBI) prefers a stable foreign investment flow to gap the current account deficit (CAD), Deputy Governor H R Khan said here today. "We have capital scarcity and our current accout deficit continues. Thats why, we look forward to have stable FDI inflow. We will not like Indian economy to have too much of exposure on the debt sector," Khan said. A recent report by the Prime Minister's Economic Advisory Council had said the CAD will be around 2.7 percent of the GDP in the current fiscal. However, with the decline in exports andrising import bill, it is being feared that the deficit will widen further. Inflows through the FDI route are more stable while foreign institutional investors' money is more fickle. Citing the East Asian crisis of 1997, Khan said RBI has adopted a stance of going slow on opening the debt market for foreign investment. He pointed out that some East Asian nations were in trouble in the past due to opening up their debt market too soon. Referring to global FDI flow, he said, "Post-crisis, there was a lull in investment. It (global FDI flow) was almost stagnated USD 1.1 trillion in 2010. But, in 2011 first half, there is slight increase. But, there can be bit of issue due to happenings in the world." He, however, pointed out that despite occasional hiccups, India remains one of the most preferred investment destinations in the world. On impact of ongoing debt crisis in Europe on India, Khan said that recent developments had created major concerns across the world, which is certainly going to affect investors' apetite. "We have been certainly insulated (in the past), but we can't be totally decoupled (from the global economy). The more and more, we globally integrate, we derive the benefits and also have to pay the price of this," he said.

IBN Live

Regional Rural Banks' count will reduce to 46 as government starts consolidation

The government has kicked off a major consolidation exercise among regional rural banks, which play an intense role in the country's scheme of financial inclusion. It plans to amalgamate geographically contiguous RRBs within a state, to help optimise the use of resources.......

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HSBC acquisition of RBS assets may get RBI nod, but with riders

The Reserve Bank of India (RBI) will give conditional approval to HSBC's proposed acquisition of select assets of Royal Bank of Scotland NV (RBS). The regulator will, in all likelihood, approve a portfolio sale, but is against an automatic transfer of RBS's branch offices in India to HSBC. HSBC would have to apply for new branch licences.  In 2010, HSBC had agreed to buy the commercial and retail businesses of the erstwhile ABN Amro in India that RBS received as part of its share in a three-way split of the Dutch bank whose other business were acquired by Fortis of Belgium and Santander of Spain. "The RBI supervisory board discussed the details of the transactions and evaluated the regulatory aspects of the deal at its Jaipur meeting in October," said a source in the know of the development. An email query to the RBI went unanswered......

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Payment system issues and challenges : G.Padmanabhan

Speech by Mr.G.Padmanabhan, Executive Director of the Reserve Bank of India at the Foundation Day – Catholic Syrian Bank, Thrissur – 26 November 2011

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Banks vulnerable to prying eyes

... Accepting that several security guidelines have been issued for the banks, a senior RBI official in Jaipur said it's not possible to adopt all security features at one go. "It can only be done in phases," he said, lamenting that lack of such features, however, imperils the lives of staff and customers, and "not only money kept in banks, which is insured"......

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RBI asks banks to ensure opening of Aadhaar enabled accounts

MUMBAI: The Reserve Bank today directed banks to ensure opening of Aadhaar enabled banks accounts for beneficiaries of the Mahatma Gandhi National Rural Employment Guarantee scheme and other social security schemes for facilitating electronic transfers.  "In view of the timelines attached to the implementation of Electronic Benefit transfer (EBT) for routing MGNREGA wages and social security benefits including proposed cash transfers in respect of subsidies on Kerosene, LPG and Fertilisers, you are requested to ensure opening of Aadhaar Enabled Bank Accounts (AEBA) of all the beneficiaries...," the Reserve bank said in a circular.  It said that such an account based on the Aadhaar unique national identification number should also be opened for residents of villages with less than 2,000 population for promoting financial inclusion.

ET

Banks can be hauled up for not verifying customer signature

... This judgement should make banks realise the importance of functioning in a professional manner. Now, the customer can no longer be made a scapegoat and the bank will have to squarely shoulder the liability of its own negligence.

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Banks will have to be selective in free services: Oriental Bank chief

...Today, quite a lot of services are offered free to customers. There will be a system that will regulate the free services. Earlier, the cost of the free services was capable of being absorbed because of the low interest rate that we were paying. Now, we have to be selective in offering the services......

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Sikkim declared disaster affected state

Gangtok, Nov 30 : Sikkim has been officially declared as a 'Disaster Affected State' by the government to avail soft loans and other facilities from banks, official sources said today. It was also to source funds from international funding agencies such as the Asian Development Bank and the World Bank, the sources said. Banks and international agencies had been approached by the state government for rebuilding efforts following the large-scale damages to infrastructure during the earthquake of September 18, they said. This is a requirement stipulated as per the Reserve Bank of India guidelines. The notification was issued on November 21, the sources said.

IBN Live

State-run banks led by State Bank of India to install 40,000 ATMs

.... RBI's worries also stem from the fact that white-label ATMs do not carry the brand name of any bank, making it difficult for a customer to know whom to contact in case there is a problem with the cash-dispensing machine. A bank officer said to resolve this dilemma, there is a proposal to make the lead bank in an area responsible for the ATMs in their region......

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Start cutting bank interest rates, Assocham tells Reserve Bank of India

BANGALORE: Citing stubbornly high inflation, the rising cost of funds and crisis-hit global markets as the main factors responsible for a GDP growth slowdown in the second quarter, Assocham today said the RBI should start cutting interest rates so the cost of credit comes down. The escalating debt crisis in Europe and the shaky economic recovery in the United States are likely to hit the services sector in India, which contributes over 60 per cent of the GDP, the industry body said in a statement. The slowdown in the manufacturing sector -- a major contributor to industrial production -- is also expected to hit services in the third quarter, the Associated Chambers of Commerce and Industry of India (Assocham) said. "The RBI should start cutting bank interest rates so that the cost of credit comes down. Due to near double-digit inflation, the cost of raw materials has shot up, resulting in a slowdown in factories output," said Assocham Secretary General D S Rawat. Unless there is a recovery in the euro zone and the United States, the Indian economy will continue to be impacted, Assocham said.

ET

Pressure mounts on RBI to cut CRR

The Reserve Bank of India, buffeted by stubbornly high inflation and tightening liquidity, is under increasing pressure to cut the cash reserve ratio - the portion of deposits that banks keep in cash with the central bank - to ease the strain in money markets. The central bank, committed to an anti-inflationary stance, may find it justifiable to release as much as Rs 60,000 crore into the system through a 1 percentage point CRR cut, rather than reducing policy rates that will signal a shift in stance when inflation is still above target, say economists.  Many countries such as Australia and Thailand have cut rates to bolster growth as the EU debt crisis threatens growth, but India may not be able to match up since prices are not easing despite 13 rate hikes. China on Wednesday cut banks' reserve requirements by 50 basis points. A basis point is 0.01 percentage point.  With September quarter economic growth slumping to 6.9% from 7.7% the quarter before, a CRR cut could be the answer to increasing calls by corporates to ease monetary conditions, without compromising on inflation. Banks keep 6% of deposits in cash without earning interest. The last cut was in January 2009. "There is a perfect case for a CRR cut at this point," says Abheek Barua, chief economist, HDFC Bank. "The deficit is twice as much as what the RBI is comfortable with. And it is likely that additional pressure on liquidity will continue to build up, if the RBI has to intervene in the forex markets."  The RBI's policy stance is that it is comfortable with banks borrowing up to 1% of their net demand and time liabilities, i.e. about Rs 60,000 crore, from it rather than depositing funds with it due to excess liquidity. Now banks are borrowing nearly double that.  To ease liquidity, the central bank is already buying government bonds from investors releasing cash into the system. Banks are borrowing an average of Rs 1.2 lakh crore from the RBI, which could go up as approaching advance tax payments will add to the pressure.

CRR cut may not materialise soon

The central bank's sale of US dollars to arrest the accelerated slide in the rupee is also reducing liquidity. Most bond auctions this quarter have devolved on primary dealers with investors seeking higher yield.  Governor Duvvuri Subbarao has signalled at pausing interest rate increases if inflation shows signs of cooling. But he has ruled out rate cuts even if it reaches the 7% target till there is evidence of inflationary expectations easing.

ET

India’s consumer story is fading rapidly. Why won’t the govt listen?

...A worsening economy also means Reserve Bank of India Governor D Subbarao is unlikely to opt for another rate hike at the next policy meeting in December, even though doubts persist about whether inflation will really cool off by then.......

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Improve credit delivery in rural areas: RBI to pvt banks

At a time when the government and regulators are emphasizing inclusion and increase in credit delivery to those without access to formal sources of finance, private sector banks are found to have low credit-deposit ratios in rural areas as compared to public sector counterparts. In a recent interaction at the state-level bankers committee (SLBC) meeting, in which Reserve Bank of India governor D Subbarao was present, bankers brought this to the regulator’s notice. According to bank executives present, RBI asked private sector banks to boost credit expansion in rural areas. The credit-deposit (C/D) ratio indicates the amount banks extend as loans for every Rs 100 of deposit. According to RBI data, the ratio in private sector banks was 42 per cent at the end of March 2011 in rural areas, a marginal improvement from December. For government-owned banks (State Bank of India excluded), it was 60 per cent. Countrywide, banks had a C/D ratio of 75 per cent for 2010-11. “RBI has said it is imperative to have a C/D ratio of at least 50 per cent in rural areas,” said a senior official from a public sector bank who attended the SLBC meeting. Public sector banks have accused their private counterparts of using branch presence in rural areas to collect low-cost deposits, and use those resources for credit expansion in urban areas. According to RBI data, private lenders have around 1,300 branches and offices in rural areas, while for nationalised banks (meaning, government banks, excluding SBI), the figure is 14,000. Private sector banks admit lending is relatively low in rural areas but say this is due to lack of credible borrowers. "Yes, lending is relatively low in rural and semi-urban branches. These mostly lend to SME (small and medium enterprises) and farm sectors. But in rural centres, most companies do not present their accounts in an organised manner. The figures are not properly audited and, hence, it is difficult to lend to these firms,” said an Axis Bank official who wished not to be named. Private sector lenders involved in vehicle finance in rural areas said they don’t face the problem of a lower C/D ratio. “We don't have this problem in our rural branches. Our model is different from other private banks. We do truck financing, which mostly happens in rural centres. But the accounts are maintained at the nearest hub branches, which may be a rural branch or a semi-urban branch,” said Sumant Kathpalia, head of consumer banking at IndusInd Bank.

BS

Nose-diving economy

... Faced with a 17 per cent depreciation of the rupee in six weeks, the Reserve Bank governor D Subbarao, sought to allay panic by asserting that ‘India’s growth story is still credible’. If its growth had slackened, he said, it was only because of the global financial crisis. His explanation is less than credible......

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Maunam Mohanam

....In 1983, as RBI Governor, he allowed the Bank of Commerce and Credit International, which was owned by a Pakistani and which went bust in 1990, to be given a banking licence — after the RBI had resisted it for seven years......

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Win some, lose some

....Thanks to the Reserve Bank of India’s (RBI) punishing rate increases and its credit squeeze in the face of a primarily supply side inflation, growth has come down. It can hardly revive without a fiscal kick, since investments have nearly collapsed.Will the move hurt Indian business? The move is less important than the central bank’s monetary conservatism over the last decade.......

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Will RBI push the pause button on rate cuts now?

..“The RBI may choose to maintain status quo for the time being, it would start reducing rates only once inflation starts to ease, which is likely to happen in the next couple of months,” DK Joshi, chief economist CRISIL told ....

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Indicus Analytics: Off the Bharat track

.... Financial inclusion has been a priority in recent years. To achieve this goal, the Reserve Bank of India has put in place many measures to push for the delivery of financial services to the unbanked. With a mere five per cent of India’s 600,000 villages having bank branches, the financial inclusion plan (FIP) has first taken up provision of banking services.....

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Getting reliable and recent data is a key challenge, says Chawla

.....RBI does not have the wherewithal to take up competition issues and it is the legitimate domain of CCI,.....

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