The clairvoyant

India Inc may have wanted Reserve Bank of India Governor D Subbarao to cut rates on Friday, but the fact is he has done his best in present tough scenario. In the face of letting go growth and focusing on inflation control, Subbarao, as his predecessor, has shown greater maturity in judging the ramifications of global as well as local events much earlier than others. When Y V Reddy was RBI Governor from 2003 till 2008, he received more brickbats than bouquets. But once the financial crisis hit the global economy and India weathered the storm with token damage, his percipient policies were celebrated, both in India and globally, as being ahead of the times. Today Subbarao stands in the same position. Strong rate-tightening steps taken by RBI over the past few quarters have badly impacted the investment and consumption cycles. The deteriorating global macro-economic environment also does not auger well for India’s economic growth. All this is reflected in the paltry GDP and IIP growth numbers of the past few months. The recent correction in global commodity prices would have been good news for commodity importers such as India, but a sharp depreciation in rupee at the same time prevented the transmission of any meaningful benefit to you and me. Despite the fact food inflation has come down substantially from its high of 9 per cent to 4.35 per cent in week ended December 3, the wholesale price index remains sticky above 9 per cent. That is not comforting. While the signal India Inc was looking for in the RBI policy remains mostly absent and focus on growth is yet to return, the fact remains that inflation is still a big concern for Subbarao. While food price inflation has dropped to a four-year low, a reversal in core inflation will be a major trigger for any reduction in policy rates. It is clear that Subbarao, a former finance secretary, is keeping all key rates unchanged till a clearer picture on inflation and inflationary expectations emerges. There could be lingering worries that any further hike in oil prices will undo the inflation calculation yet again. Considering that the risk of a fresh spurt in inflation remains high and the rupee remains under pressure, the timing and extent of further action by Subbarao will depend on a continuing assessment of how these factors shape up in the months ahead. With Subbarao standing pat, it is clear that RBI feels growth can be sacrificed but the rising cost of living has to be tamed immediately on a priority basis. While finance minister Pranab Mukherjee has hinted that the government now has a clear preference for rate reductions to support growth, Subbarao is his only choice to re-stimulate economic activity in the economy due to the lack of fiscal maneuverability. And Subbarao has every right to feel that inflationary expectations have not been fully controlled. The status quo on policy rates is largely in line with what the market had expected. RBI has reiterated that further rate hikes may not be warranted and a reversal of the rate cycle will be in line with the risk to growth. That is arguably the best line Subbarao could take and he has done so.

FC  

RBI right in pressing pause key – A.Seshan

The central bank has done well to keep the status quo rather than succumb to the pressure to reduce rates. The declining trend in inflation may turn out to be a false dawn, calling for a return to tightening measures. The RBI's neutral stance in its latest review — making a pause in its hard money policy — was somewhat predictable. In the first place, it had itself given an indication to that effect, ceteris paribus, on the last occasion. Secondly, a series of bad tidings for the economy tells us that the country is buffeted by problems both on domestic and external fronts, and cannot not bear with another dose of monetary tightening — despite inflation persisting above 9 per cent. The multiple whammies hitting the country are well known and need not be listed here. The only silver lining in the gathering clouds is the fall in the annual inflation rate from 9.73 per cent in October to 9.11 per cent in November; though small, it has provided a breather to the central bank. More importantly, the WPI for December 3, 2011, showed the rate of food inflation drop sharply to 4.35 per cent, reinforcing the trend seen for the previous week at 6.60 per cent. RBI can derive some satisfaction from the fact that its monetary policy actions are beginning to bear fruit on the prices front, though with a lag; its moves have led to a deceleration in the growth of aggregate demand. It could afford to shift its priority slightly towards promoting growth — not by loosening its grip on the flow of funds in the economy, but by not tightening it either. The RBI embarked on a dear money policy to help the economy experience a soft landing. Vested interests try to make it appear as though the country is facing a recession. A 7-7.5 per cent growth with an inflation rate of 7 per cent expected at the end of the year is something that many countries will be glad to achieve. The trends in monetary variables so far have been satisfactory from the point of view of an anti-inflationary approach. However, it remains to be seen whether the trend on the price front is going to continue. It is clear that with the expected non-realisation of revenue targets, ballooning expenditure and the lowering of growth estimates, the fiscal deficit will exceed 4.6 per cent of GDP envisaged in the budget. The only question is the extent of excess. It will certainly have an impact on prices, even if there is a bumper rabi crop. In that, case the declining trend in inflation may turn out to be a false dawn, calling for a return to tightening measures before long.  The press release of the central bank reveals awareness of a possible recurrence of high inflation. Rupee depreciation and oil prices are other factors to reckon with. Hence, the Bank has done well to wait and watch before relaxing the existing policy parameters, resisting pressures from official and business circles. The tempo of government expenditure is likely to gain further steam soon in view of elections to important State assemblies in the coming months. Their results might as well decide whether the UPA will have enough votes to get its candidate elected as President in mid-2012. The importance for the ruling coalition of having a pliable President in a situation of no party enjoying a clear majority in the Parliamentary election of 2014, or even earlier, needs hardly be emphasised.  Hence, the focus will be on floating new schemes before they are disallowed by the Election Commission, or expediting the expenditure on the existing ones in order to tap the vote bank before the appropriations expire on the last day of March. For starters, there is already an announcement by the Prime Minister on instituting a credit risk guarantee fund of Rs 1,000 crore soon for the poor. The UP Chief Minister has indicated her intention to ensure year-round employment guarantee for the rural residents – an initiative that the Centre may emulate at an appropriate time. The problem facing the country is not on the supply side. There is no shortage of supply of industrial or agricultural goods with the exception of coal. It is a failure of management of supplies, not of monetary policy. The real villain is to be found on the aggregate demand side. Three-fourths of the fiscal deficit budgeted for the year was ‘achieved' in seven months. There is no respite in issuing doles in the name of an employment guarantee scheme that sees neither inputs nor outputs. Now, the government is reported to be planning an advance payment of wages for work not done! What is disturbing are the results of the two surveys on inflation expectations and consumer confidence (See RBI Bulletin, December 2011). The households in the sample expect the annual rate of price rise to become 12.2 per cent and 12.9 per cent three months and one year ahead, respectively. It should worry the central bank no end as it sets store by expectations in formulating policy. Around two-thirds of the households are aware of the RBI's monetary actions. Of them, only about one-fourth is convinced that the Bank is doing the needful. Of the latter respondents, less than 60 per cent feel that the RBI policies have an impact on controlling inflation. Does it mean that, by and large, even the average ‘knowledgeable' citizen does not believe in the effectiveness of monetary policy?

(The author is a Mumbai-based economics consultant.) HBL

RBI keeps key rates unchanged in monetary policy; indicates cut from now on

....... Commenting on the RBI's move to keep policy rates unchanged, C Rangarajan, Chairman of PMEAC said that the pause in the rate hike was an appropriate thing to do and that headline inflation would come down in the future..............

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RBI pauses - finally!

The Reserve Bank of India took a pause from its rate tightening cycle in its mid- quarter monetary policy announcement today. After 13 consecutive hikes over the past 20 months, the Reserve Bank of India decided to stay still and do nothing. It also provided guidance that a reversal in its tightening cycle may happen if conditions improve. The RBI's last 13 hikes cumulatively amounted to a 350 basis point increase in key interest rates. The repo rate (the RBI's key policy rate - the rate at which the RBI lends money or infuses liquidity to banks) remains at 8.50 per cent, while the cash reserve ratio remains at 6 per cent. Over the past few weeks, there has been a clamour from bankers and the market for a reduction in repo rates as well as cash reserve ratio, as growth was slowing down. However, with inflation still remaining high at over 9 per cent, a cut might have sent the wrong signal about its intentions. As leading economist and a former Deputy Governor, Dr S.S.Tarapore, put it in an edit page article in Business Line today, "A monetary policy relaxation would earn encomiums for the RBI but would be deterimental to long term growth with price stability". Even earlier, Dr Subir Gokarn, Deputy Governor, Reserve Bank of India, had pointed out that CRR was a monetary policy tool which would not be used merely to address liquidity shortages. The RBI reiterated the guidance it had given at the time of the second quarter review. While noting that downside risks to growth remained, it said, "The guidance given in the second quarter review was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth."

HBL

RBI forms working group to enhance liquidity in secondary market

With a view to increase liquidity in the secondary market, RBI on Friday appointed a working group on government securities and interest rate derivatives markets. The committee, under the chairmanship of RBI Executive Director R Gandhi, will analyse the G-Sec and interest rate derivatives markets and promote retail participation in them. "The RBI has set up a working group comprising representatives from market and RBI officials to examine and suggest ways for enhancing secondary market liquidity in G-Sec and interest rate derivatives markets," the apex bank said in a notification. Seeking comments from stakeholders by January 17, 2012, it said that the working group will study the determining and influencing factors on liquidity of G-Sec and interest rate derivatives and the factors responsible for enabling and inhibiting liquidity in the secondary market. In its second quarter policy review in October, the central bank had said it will form a working group to study ways for increasing secondary market liquidity. The government had last month increased the investment limit for foreign institutional investors in government securities to $15 billion with a view to enhance capital flows. 

NDTV Profit

RBI organises Financial Inclusion Progarmme

JAMMU: As part of its financial inclusion and awareness drive the Reserve Bank of India (RBI), Jammu Office organised an outreach programme at village Bhata Dhurian, District Poonch on Thursday. The programme was presided over by K.K Saraf, Regional Director, RBI, Jammu and was attended by G.M Sahibzada, Executive President, J&K Bank Ltd., other senior government officials, bankers, teachers and students. A large number of villagers including women, senior citizens, MGNREGA beneficiaries and farmers also attended the programme. Speaking on the occasion, Saraf stated that RBI’s outreach programme which started during its Platinum Jubilee Year in 2009-10 were being continued with a view to deepening the penetration of financial inclusion and expanding the coverage of financial services to all sections and all regions of the country in a meaningful way, particularly to the economically backward and weaker sections of the society. Saraf further stated that Bhata Durian village is the second village chosen by RBI for outreach activities in the State for 100 per cent Financial Inclusion during 2011-12 by using Information and Communication Technology (ICT) for issuance of smart cards through the Business Correspondent (BC) model. The main aim was to achieve the objective of financial inclusion and providing doorstep banking services to the rural poor, small and marginal farmers, people of small means, women, etc. He also explained to the gathering that the biometric smart cards have inbuilt security features and are therefore safe for conducting transactions. The card holders would also get receipt for each transaction. During the programme, smart cards issued by J&K Bank Ltd. were distributed and the participants witnessed activation / transactions through smart cards not only for the common customers but also for MNREGA beneficiaries. The audience was familiarised with the history and functions of RBI through a film show. Films on features of genuine bank notes and on the functioning of the Banking Ombudsman were also shown for the benefit of the public. A short cultural programme was presented by the school children. With the help of J&K Bank Ltd., a counter for exchange of soiled and mutilated notes and issuance of fresh notes and coins was set up at the venue which attracted a huge crowd. Literature highlighting the functions of RBI and on financial literacy and education were distributed to the students and other members of audience. This was a new and unique experience for the villagers who showed great enthusiasm in getting connected to banks without visiting a ‘brick and mortar’ branch.

State Times

RBI to promote small, medium enterprises

GUWAHATI: The Reserve Bank of India (RBI), NE region wants banks to clear the credits of the Micro Small Medium Enterprises (MSME) faster to promote these enterprises for the sustainable growth of the region. To mark its centenary celebration, the Central Bank of India organized a symposium themed 'Role of entrepreneurship and bank credit for development of MSME'. RBI Regional Director Sureskha Marandi said on the occasion, "We have received complaints that many banks take too long to clear an entrepreneur's credits or loans. Banks must follow the time line of its citizen's charter while accepting or rejecting a loan. With less number of heavy industries in the region, banks should play a vital role in encouraging small entrepreneurs." Marandi said stern action will be taken against any financial institution which fails to meet the norms of citizen's charter or involves in any financial mismanagement. The RBI has also opened a 'Banking Ombudsmen' cell here where an entrepreneur can file complaints against any bank violating the citizen's charter. According to RBI statistics, only nine per cent of banks loans in India go to MSMEs.

TOI

Farmers' forum alleges anomalies in farm lending

Chennai : Direct lending to agriculture by credit institutions such as banks suffer from various anomalies, according to a farmers' forum. The Centre has stipulated that 13.5 per cent of total loans advanced by banks have to be direct agriculture lending, “Credit institutions are, however, deliberately reporting higher disbursal of direct agriculture credit than what is actually given, possibly to the extent of 100 per cent in some cases,” said Mr Ajay Jakhar, Chairman of the Bharat Krishak Samaj, in a letter addressed to the RBI Governor, Dr D. Subbarao. The letter comes within days of the Union Finance Minister, Mr Pranab Mukherjee, telling the Chief Ministers of the East Zone that banks have achieved 50 per cent of the target set for farm credit in the first half of the current fiscal. In the Budget for the current fiscal, the Finance Minister fixed Rs 4.75 lakh crore as target for agriculture lending. Elaborating his charges by pointing out to “information compiled from credible sources”, Mr Jakhar said people living in cities such as Delhi and Chandigarh have obtained agriculture loans worth Rs 32,000 crore during 2009-10. “Farmers in Uttar Pradesh, Bihar, West Bengal and Jharkhand received loans worth Rs 31,000 crore. This is unbelievable,” he said. Though agriculture credit has increased, it has happened through urban and metropolitan branches of banks. “It is reported that agriculture loan disbursals from urban branches of banks have increased to more than 35 per cent of total agriculture lending,” the forum chief said. Going by the letter, 52 per cent of farm loans disbursed in 2009-10 went to only Andhra Pradesh, Maharashtra, Delhi, Haryana, Tamil Nadu and Chandigarh. “For obvious reasons, this actually seems unlikely,” Mr Jakhar said. Just 29 per cent of the credit is extended between June and September – the main season for kharif sowing. Another 24 per cent of loans is disbursed between February and March, a non-agricultural season but an ideal period to meet the Government target, Mr Jakhar said. He regretted that the share of loans above Rs 25 crore had increased to 16.8 per cent from 5.7 per cent, extension of loans with a limit of Rs 25,000 had dropped to 13.3 per cent from 35.2 per cent during 2009-10. According to the RBI data, agriculture lending by public sector and private banks dropped in share in priority sector lending during 2010-11. Public sector banks lent Rs 4.14 lakh crore last fiscal against Rs 3.72 lakh crore in 2009-10. However, in terms of lending in the priority sector its share dropped to 16.5 per cent from 17.9 per cent during the review period. In the case of private banks, the actual lending increased to Rs 92,136 crore (Rs 90,737 crore) but the percentage in priority sector lending dropped to 15.7 per cent from 19.4 per cent. Mr Jakhar also pointed out to a survey by Nabard that showed that non-interest and higher transaction costs imposed on farmers added another seven per cent to the interest cost of seven per cent, thus, doubling the total loan cost to 14 per cent. “These raise the questions of appropriateness and veracity of agri-credit lending,” Mr Jakhar said and urged the RBI to conduct an audit on banks' agriculture lending.

HBL

Bank officers brainstorm to curb rise in cheque fraud

NEW DELHI: Senior officials from seventeen leading banks attended a meeting organized by the Punjab National Bank to discuss ways to curb rise in frauds under the Cheque Truncation System (CTS). The first edition of the conference saw 44 senior officials from 17 banks, including banks like State Bank of India, Canara Bank, ICICI Bank, HDFC, Axis Bank among others; who brainstormed and discussed ways of controlling the menace and establishing ground rules for collecting bank's responsibility for 'due diligence and paying bank's duties'. The discussions ended with passing of a resolution on the role of banks to contain the menace and also decided to take up the issue with the Reserve Bank of India (RBI) for providing separate guidelines on reporting of frauds under CTS and other related issues.

TOI

Markets might want a rate cut, but Subbarao can’t oblige

........ So, the beleaguered economy will continue to wheeze along, with no respite from high interest rates. The markets might be sorely disappointed, but Subbarao has valid reasons for not cutting rates just yet. With the government not doing anything on the economic policy front, and the RBI holding fire on interest rates, it will be a tough ride for the economy as it enters 2012.

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Accountability needed at the Bank

The time has come for accountability at RBI. This institution makes decisions that affect the fortunes (lately misfortunes) of many Indians, rich and poor. By making its very predictable statement of no change in policy on December 16, RBI stands out alone in the entire world with its ultra-hawkish policy against inflation. This when fear of very low growth, and deflation, is the problem facing most economies in the world..................

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Rupee grabs RBI lifeline, gains most in 19 months

........ In the mid-quarter monetary policy review released on Friday, RBI said the rupee depreciated mainly because of a widening trade deficit, adding pressure to the current account and the tendency of exporters to defer repatriating their export earnings. The central bank said it expects the rupee to remain under stress.

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RBI frees rates on NRE deposits to attract dollar inflows

KOLKATA: The RBI has unleashed new ammunition to support the rupee from depreciating. On Friday, it deregulated interest rates on NRI deposits to attract more dollar flow into the country. It has decided to deregulate interest rates on non-resident (external) rupee (NRE) deposits and ordinary non-resident (NRO) accounts with immediate effect. This will attract more dollar as banks are likely to increase the interest rates. In case of NRI deposits, the dollar or any other foreign currency gets credited to a nostro account of a local bank which, in turn, deposits money in local currency. This comes within a day of taking a slew of administrative measures that helped the rupee to close higher 52.70 Friday from 53.65 the previous day, giving indication that the central bank is using all its ammunition arrest the rupee from sliding further. The rupee had depreciated by about 17% against the US dollar over its level on August 5, 2011, the day on which the US debt downgrade happened. RBI said the latest measure will provide greater flexibility to banks in mobilising non-resident deposits. Banks have been freed to determine interest rates on both savings deposits and term deposits of maturity of one year and above under NRE and savings deposits under NRO accounts.

ET

Auditors should provide early warning signals: Subbarao

Mumbai : Terming auditors as the "eyes and ears" of the central bank, the Reserve Bank of India (RBI) Governor D Subbarao today said accounting professionals should provide early warning signals to ensure better supervision in the banking system and also called for an inter-disciplinary approach to the job. "In our view, auditors are the eyes and ears of RBI and we trust them to alert us to early warning signals to assist us in supervisory process," Subbarao told the 26th western regional council meet of the Institute of Chartered Accountants of India here this morning. The governor also said inter-disciplinary approach of the auditing profession should be increased to bring in more practical approach. Citing the example of different accounting standards followed by RBI and statutory auditors, Subbarao said in certain cases, the central bank has found that the statutory auditors had underestimated the extent of non-performing assets (NPAs) and provisioning requirement for banks. "In RBI's view, in certain cases, the statutory auditors have underestimated the extent of NPAs and the required provisioning. Since the RBI, as the supervisor of the banking system, relies and leverages on the work done by auditors, the profession should effectively address this issue," he said. Subbarao also emphasised on the value system like integrity and transparency, for preventing a Satyam like fraud in the country.

BS

Credit quality still an issue: Bankers

..... “Just because the RBI has paused doesn’t mean that things will change right away. But the pause will certainly boost the sentiment,”...................

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If you don't read the fine print...

........While the Banking Regulation Act covers the control exercised by the Reserve Bank of India, the consumer protection issue and the related Act does not integrate itself with RBI's control over the banks................

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'Incredible' India? Hardly, say business leaders

..... India now faces the worst-case scenario that was touted earlier this year - stubbornly high inflation, slowing growth, a mounting fiscal deficit, a rupee that risks freefall -- and both policymakers and the Reserve Bank of India (RBI) have few levers to fix it......

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Pranab hails RBI move to press 'pause' button

The Finance Minister, Mr Pranab Mukherjee, has welcomed the RBI move to change its policy stance from monetary tightening to a pause and keeping its policy rates unchanged at the latest mid-quarter monetary policy review. This could help regain growth momentum with improved macro-economic parameters in remaining period of current fiscal, Mr Mukherjee told reporters outside Parliament soon after the RBI's mid quarter policy announcement. The central bank had in succession raised policy rates 13 times since March 2010 to tame overall inflation. The Finance Minister also welcomed the RBI Governor, Dr D. Subbarao's resolve to check speculative intervention in foreign exchange market which among other factors has contributed to the sharp slide in rupee against the dollar. Mr Mukherjee also expressed confidence that overall inflation would moderate in the coming weeks. He also pointed out that there has been an appreciable decline in food inflation in November. The Finance Minister, however, expressed concern that inflation in manufacturing goods remain firm at 7.7 per cent. "There is need to improve business sentiment and regain growth momentum," he said.

HBL

A tricky balance

The Reserve Bank of India's decision to retain the policy interest rates and the CRR (cash reserve ratio) at their existing levels is entirely in line with market expectations. But the decision could not have been easy. There were strong reasons that would have justified a rate hike, or for that matter even a cut in the rate. High up in the first category is the stubbornly high inflation, which has remained above 9 per cent for 12 months in a row. Despite food inflation moderating sharply, November's inflation rate of 9.11 per cent, marginally down from the October figure, is a cause for worry. Quite ominously, the non-food manufactured product inflation, which the RBI regards as the ‘core inflation', rose to 7.9 per cent (from 7.6 per cent in October), reflecting higher input costs. The sharp upward revision of inflation figures for September to 10 per cent is another worrying development; it raises fears of similar revisions for subsequent months. On the other side, the clamour for a rate cut has centred on the fact that a rapidly slowing economy, especially in the industrial sector, requires a boost. Under the circumstances, the RBI's decision to maintain the status quo is sober and well considered. It ensures continuity in seeking to strike a balance between the often conflicting goals of reining in inflation and encouraging growth. In its second-quarter policy statement (October 25), the central bank hinted at a pause in future interest rate hikes, while giving itself room to address short-term growth issues and concerns. While both inflation and inflation expectations are currently above the comfort level for the RBI, the pressures are likely to abate in the coming months, notwithstanding high crude prices and the sharp depreciation of the rupee. The year-end target of 7 per cent for inflation is retained. However, downside risks to growth have clearly increased owing to a combination of domestic factors and a deteriorating global economy. As matters stand, a growth rate of 7.6 per cent for the current year, projected by the RBI in October, will be difficult to achieve. The central bank is not hedging its bets when it says that “from this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth.” However, as the sharp downslide in rupee shows, monetary policy must be prepared to deal with unforeseen contingencies, many of which are likely to occur due to factors outside its domain.

HBL

Status quo from RBI

.....We need to have the policymakers sort out growth and inflation issues to avoid these contradictions. Neither of them is the prerogative or responsibility of just the government or RBI. Evidently, both have to speak to each other to make things work, which is important at the end of the day.

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The turn of the wheel

In the mid quarter monetary policy review announced on Friday, the RBI has actually used the words " reverse the cycle" but left this for future action, a significant change that comes at a particularly difficult time in the Indian economy...................

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Monetary policy: pause and effect - Madan Sabnavis

........... The RBI appears to have undertaken a stocktaking exercise this time by not invoking any action ostensibly, to closely monitor developments before taking any measures on the monetary and forex front. One can surmise that its view could change in January if it is convinced that liquidity and exchange problems are more permanent. Also, the growth-and-inflation trade-off will be tested in terms of the “good harvest argument” impacting consumer spending, and hence index of industrial production, or IIP, growth and food inflation.

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‘No change', a welcome change

.....The mid-quarter policy statement has addressed the concerns on the interest rate side, by clearly indicating a likely reversal in the cycle with monetary policy actions being directed towards addressing growth related issues going forward,'' .................

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Lock kiya jaye............

With interest rates likely to head southwards, lock in your investment at prevailing high interest rates in fixed income products such as bank FDs and debt MFs.............

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Hard-pressed to fill coffers with dollars

.......RBI move props up rupee, but dip in foreign currency reserves a big worry.......................

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RBI detects counterfeit notes

New Delhi, Dec 16 : RBI has detected more than two lakh pieces of counterfeit notes in the current financial year even as it has strengthened the mechanism to detect fake currency by banks, Parliament was informed today. RBI has reported that the "data on source-wise detection of counterfeit notes during the period April 2010 to September 2011 is 264,282 pieces," Minister of State for Finance Namo Narain Meena said in a written reply in the Lok Sabha. The maximum number of note pieces (152,930) have been detected in the Rs 500 category. One special FICN co-ordination group has been formed in Ministry of Home Affairs to share the intelligence/information amongst the different security agencies of the state/centre to counter the menace of circulation of fake currency within the country with CBI being the nodal agency, Meena said. "The security features in the high value currency notes are being constantly upgraded by RBI. RBI has also strengthened the mechanism for detection of counterfeit notes by the banks," he said.

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