RBI releases book on Regional Economy of India: Growth and Finance

The book covers important research findings of economists working in regional offices of the Reserve Bank of India

Dr. Subir Gokarn, Deputy Governor, Reserve Bank of India released a book on Regional Economy of India: Growth and Finance last Friday at the Annual Conference of the economists of the Reserve Bank of India. Edited by Deepak Mohanty, Executive Director, Reserve Bank of India, the book is jointly published by the Reserve Bank of India and the Academic Foundation. The book covers important research findings of economists working in regional offices of the Reserve Bank of India. Given the divergence in growth potential, financial development and inflation across regions in India, studies on regional economies become particularly relevant. The analysis in the book reveals that –

The share of agriculture has shrunk across the states

The share of services has risen sharply

However, industrial growth remains uneven.

Urban-rural inequality has worsened.

There is, therefore, a need for concerted action on agricultural growth and infrastructure development besides increasing the penetration of formal financial sector to alleviate the constraints on growth and to control inflation.

There is also a need to prioritise expenditure towards social sector to develop the quality of the labour force and promote well-being.

IIFL

Gokarn says cash crunch temporary; announces 4th OMO

Even as the monetary authority said it will announce the fourth tranche of government bond buy back in as many weeks today to infuse liquidity, deputy governor Subir Gokarn termed the current cash crunch as temporary and is due to the advance tax payout that sapped Rs 69,000 crore from the system. "The immediate pressure on liquidity is due to the advance tax payout. We have had about Rs 69,000 crore going into the government kitty last week and now we will have to wait and see. Obviously, that money is going to be spent over a period of time. "So the current pressure is purely short-term. And we don't expect this to remain and things will normalise over the next few days," Gokarn said on the sidelines of a round table organised by Ficci here. Gokarn further said RBI will announce another open market operation (OMO) later today but did not quantify it. Since the last mid-November, it had announced three buyback of government securities of Rs 10,000 crore each. This comes in the wake of the deep cash crunch in the system. Yesterday, banks borrowed a record Rs 1.66 trillion-- which was a yearly high--from the temporary liquidity adjustment window of the central bank. Today, the lenders reportedly borrowed a tad less at Rs 1.64 trillion from the short-term borrowing window called repo. Banks borrow from this daily cash injection window at 8.5 percent. The RBI is scurrying to infuse liquidity into the system as there are no takers for the government debt in a sapped market, even as the government is trying to finish its borrowing plan for the fiscal. The government is slated to borrow a whopping Rs 4.7 trillion from the market this fiscal and it has already taken in 68 percent of that. When asked whether the RBI will put up an OMO calendar going forward or till liquidity returns to the market, Gokarn answered in the negative saying, "I don't think we want to put the OMO in a calendar. We are basically responding with our OMOs to the emerging liquidity conditions." "To the extent that we see there is tightness, as I just said, today's situation is temporary because of the advance tax pressure, but even before that and after that there may be pressure and we will respond to that accordingly. "We are announcing another round of OMO today. And we will follow that pattern," the deputy governor who is in charge of the monetary policy said. On the rupee, he said, "although the rupee is at 53 a dollar, it has been relatively stable (now) if you go by the intra-day volatility, than it was some weeks ago. And this shows that some of the measures we have taken recently are helping to keep some boundaries on the rupee."

IBN Live

BCSBI's new governing council

The Banking Codes and Standards Boards of India (BCSBI) has reconstituted its Governing Council. The members of the new council are:

Mr A. C. Mahajan, former CMD of Canara Bank;

Mr C. Krishnan, former ED, RBI;

Mr H. N. Sinor, Chief Executive, AMFI;

Mr M. M. Chitale, Practising CA;

Ms Rama Bijapurkar, Market Strategy Consultant; and

Mr N. Raja, CEO, BCSBI.

Mr Mahajan has been appointed as the Chairman of the Council. BCSBI is an independent banking industry watchdog that is mandated to ensure that customers get the services that they are promised by banks. 

HBL

RBI Governor to visit Vijayawada on Thursday

Reserve Bank of India current Governor Duvvuri Subba Rao, who got a two-year extension against traditions, will visit the city on Thursday to address Jandhyala Dakshina Murthi Memorial Trust Seventh Memorial Lecture on RBI in everyone’s Life. Hailing from Eluru in West Godavari district, he will also address and interact with members of The Andhra Chamber of Commerce and Industry same day and speak on ‘Current issues in Macro Economic Management.’ Addressing a joint press conference, the Chamber president Muttavarapu Murali Krishna and former Vijayawada Mayor Jandhyala Shankar said that at a time when the country was reeling under such an economic upheaval in adverse international conditions, Mr. Subba Rao was playing a key role in stabilising the Indian economy and it was an opportunity for the citizens here to listen to him. While Mr. Subba Rao will address the members of Chamber at 10.50 a.m. at A-Convention Centre in Brundavan Colony, he will share the dais with National Statistical Commission Chairman R. Radha Krishna at the Siddhartha Academy Auditorium at 5.45 p.m. After his schooling from the Sainik School in Korukonda, near Vizianagaram, he graduated in Physics B.Sc. (Hons.) from Indian Institute of Technology Kharagpur and the recipient of Director's Gold Medal. Before being selected for the Civil Services by topping the 1972 batch, Mr. Subba Rao got a M.Sc. degree in Physics from IIT, Kanpur. At the press conference the Chamber secretary R.K. Chukkapalli said that in his career Mr. Subba Rao worked as the joint secretary in the Department of Economic Affairs, Ministry of Finance, Government of India between 1988 and 1993. Subsequently he became the Finance Secretary to the Government of Andhra Pradesh between 1993 and 1998. He was in the Prime Ministers’ Economic Advisory Council from 2005 to 2007 before becoming the Finance Secretary in 2007, he added.

HBL

UK-based co denied security nod to supply currency paper

UK-based De La Rue has been denied security clearance to provide paper for printing of Indian currency notes as its supply last year failed to meet some of the required specifications. De La Rue had contracts with Bharatiya Reserve Bank Note Mudran Pvt Ltd for supply of bank note paper to India, Minister of State for Finance Namo Narain Meena said in reply to a question in Rajya Sabha today. However, during July-August 2010, it came to the notice of the authorities that the paper being supplied by the British currency paper maker was "not conforming" to some of the prescribed specifications. "Accordingly, the supply of the paper was suspended. The deficiency in the paper was subsequently admitted by De La Rue also. Meanwhile, the security clearance was denied to De La Rue and thus the supplies were not resumed," Meena said. The minister further said that as on date, no paper is lying in godowns in India for transportation to currency printing presses. "In the absence of security clearance to De La Rue, the supplies cannot be resumed and stocks cannot be used," Meena added. Meena also said Bharatiya Reserve Bank Note Mudran has also informed that the contract with the UK company can be terminated relying on fact that the paper supplied by it was not strictly as per the contract specifications. Bharatiya Reserve Bank Note Mudran, a wholly owned subsidiary of RBI, was set up in 1995 with a view to augment the production of bank notes in India to enable the central bank to bridge the gap between the supply and demand for currency notes.

BS

Women Swipe Debit Cards Less

Women might be bigger spenders than men, but they use their debit cards less frequently, says a survey by the Reserve Bank of India (RBI). The central bank had commissioned the survey to assess customer satisfaction in the usage of automated teller machines (ATMs) across the country. According to the survey, debit cards are mainly used for withdrawing cash and shopping. The use of debit card for shopping was the highest in Maharashtra and Andhra Pradesh. Shopping with debit cards was found to be more popular among young spenders. Debit cards are yet to become popular for payment of bills and ticket purchases. The number of debit and credit cards as on 30 September 2011 was 25 crore and 1.76 crore, respectively. Though the number of outstanding credit cards saw a decline, the volume and value of transactions with credit cards recorded a growth of 13 per cent and 22 per cent, respectively, in 2010-11.

Business Today

out of control

...The Reserve Bank of India is acutely conscious of the problems with outflows, and the consequent impact on foreign exchange reserves. On the one hand, it refrained from intervening in the foreign exchange market except to contain volatility and excessive speculation. On the other, it has opened up other avenues for capital inflows by freeing up interest rates and other restrictions on foreign currency deposits......

Read............

19 banks penalised for flouting derivative norms

The Reserve Bank has imposed penalties on 19 commercial banks, including SBI, HDFC Bank, ICICI Bank and Citibank, for violating norms on derivatives, Parliament was informed on Tuesday. RBI has informed that they had imposed penalties on 19 commercial banks on April 26, 2011, for contravention of various instructions issued by RBI in respect of derivatives such as failure to carryout due diligence in regard to suitability of products and selling derivatives products to users not having risk management policies, Minister of State for Finance, Mr Namo Narain Meena said in a written reply in the Rajya Sabha. RBI has issued show cause notices to banks. In response to this, banks submitted their written replies, he said. “On a careful examination of the banks’ written replies and the oral submissions made during the personal hearings, the Reserve Bank of India found that the violations were established and the penalties were thus imposed,” he said. While a fine of Rs 15 lakh each was slapped on Axis Bank, Barclays, HDFC Bank, ICICI Bank, Kotak Mahindra and Yes Bank, Rs 10 lakh each was imposed on Citibank, BNP Paribas, SBI, Credit Agricole —CIB, Development Credit Bank, ING Vysya Bank, Royal Bank of Scotland and Standard Chartered Bank, he said. Besides, a fine of Rs 5 lakh each was slapped on Bank of America, DBS Bank, Deutsche Bank, HSBC and J P Morgan Chase Bank, he added. Mr Meena also said that RBI has informed that the estimated loss of Rs 33,000 crore in the foreign exchange derivative transaction may not be the actual losses but the gross Market to Market (MTM) gains or losses to the customers.

HBL

Banks asked to look for new credit delivery tools

The Reserve Bank of India (RBI) on Tuesday asked banks to equip themselves to deal with emerging challenges and be prepared to cash in on the opportunities unleashed by higher growth in dealing with the needs of small and medium enterprises. “Banks have to look for new delivery mechanisms. They must economise on transaction costs and provide better access to the currently under-served. To serve new rural credit needs, innovative channels for credit delivery will have to be found,” said K. C. Chakrabarty, Deputy Governor, RBI, while speaking on ‘Empowering MSMEs for financial inclusion and growth — issues and strategies', at the Central Bank of India SME Conclave here. Notwithstanding the increase in credit outstanding to the sector, access to adequate and timely credit at a reasonable cost was a critical problem faced by this sector, said Mr. Chakrabarty. Another issue faced is that the MSE borrowers, especially new generation entrepreneurs, do not have collaterals to offer to avail of bank finance.The ability of MSMEs (especially those involving innovations and new technologies) to access alternative sources of capital like angel funds/risk capital needs to be enhanced considerably. For this purpose, removing fiscal/regulatory impediments to use such funds by the MSMEs should be considered on priority, said Mr. Chakrabarty. Growing incidence of sickness in the sector is another area of concern.An exit route for non-viable units was necessary to manage sickness, said Mr. Chakrabarty. “Business failure in India is viewed as a stigma, which adversely impacts individual creativity and development. The existing legislations may have to be toned up so as to provide for efficient liquidation of non-viable businesses.”

HBL

Do rising NPAs reflect an ailing banking sector?

Indian banks, once considered as bankable as the India growth story, are today feeling the heat from rising growth concerns........

Read..........

Indian money gone global

............ India is an increasingly attractive banking market, and virtually all the leading international banks are eager to expand their presence here. Surely it should be possible to demand their strict compliance with Indian laws not just here, but globally, and to officially disfavour those organisations that don’t play ball when global compliance is sought..................

Read............

The crisis now is worse than in 2008, says India Inc

.... There are some who point out some critical differences between the crisis now and in 2008. Maruti Suzuki Chairman R C Bhargava says, “In 2008, the banking system had collapsed and banks were not willing to lend either to corporates or to individuals, to buy a car for instance. In 2011, banks have cash but consumers are not buying because of high interest costs, high fuel costs and inflation — problems the government can easily resolve.”..........

Read................ 

'Merger of small MFIs will help ailing sector'

The consolidation — mergers and acquisition — of small microfinance institutions (MFIs) struggling to raise money would help address the problems of the ailing sector, said Reserve Bank of India (RBI) Deputy Governor, K C Chakrabarty. The sector, struggling with high non-performing assets (NPAs), should consider mergers for increasing its creditworthiness. Small lenders should come together if they want to secure funds with ease. “Then they (MFIs) should become big....They should merge”, Chakrabarty told reporters on the sidelines of an event organised by Central Bank of India. The apex bank brought MFIs under its direct supervision by creating a separate category of MFIs —non-banking financial company MFIs. The new guidelines prescribe stringent provisioning and lending norms. While large entities are in some way able to raise funds, smaller ones are on the verge of closing, as their sources of funding have dried. Though Chakrabarty suggested a way out for small MFIs to sustain their business, he said those with a good credit history continue to receive funding from banks. “There are enough MFIs taking money and paying it back. These are getting the money,” he said. However, despite the new regulations, Chakrabarty said banks needed to be cautious in lending to the sector. “Banks need to be selective. If they feel the borrower is capable of paying back, they would lend,” he said. Banks reiterated the views expressed by the regulator. “Consolidation of MFIs would be a step in the right direction, as it helps increase their capital base. Also, it would lead to healthy competition between big MFIs and definitely better regulation and management of the sector,” said A S Bhattacharya, chairman and managing director, Bank of Maharashtra. Another senior official of a public sector bank said banks were taking into account the capital base, regions of operation and activities of MFIs before lending. Credit rating agencies also feel bringing together small and scattered micro lenders would help in changing the perception of lenders towards the sector. “Consolidation would help in diversifying risks and increasing the loss absorption capacity of MFIs. The advantages of large-scale operations can also be leveraged for raising funds,” said Naresh Takkar, managing director, ICRA. Yesterday, RBI had allowed MFIs to raise up to $10 million through external commercial borrowings.

BS

Subir Gokarn says rupee 'relatively stable' due to steps taken

..... "The measures we have already unveiled are not the only ones we have. There are a number of other measures we can undertake to bring stability to the money market, and when the need arises we will use them,"............

Read.............. 

Weak fundamentals driving rupee down, says RBI Deputy Governor KC Chakrabarty

MUMBAI: Reserve Bank Deputy Governor KC Chakrabarty today opined that the rupee is under pressure due to the large fiscal deficit and other weakening macroeconomic fundamentals. "If the country has high fiscal deficit and high inflation, and also has high current account deficit, I don't see why the currency will not depreciate," said Chakrabarty told reporters on the sidelines of an event hosted by the Central Bank of India and the SME Chamber here. The rupee has been the worst performer in the Asian region having lost over 18 percent this calender year. The fall was escalated since the US downgrade by S&P early August and touched an all time low of 54.30 to dollar last Thursday.  Today, it closed at 53.05 to a greenback. Though RBI had discretely intervened in the market since mid last month, selling nearly 6 billion dollars to arrest the rupee fall, besides initiating measures like freeing up the foreign currency deposit rates and capping open positions by dealers, they failed to make the desired effect.

ET

Rupee recoups losses on RBI comments

...... "Gokarn mentioned the RBI has other weapons in its arsenal to use in the foreign exchange market, which means the central bank is willing to take additional steps to arrest the rupee's fall,"...............

Read........... 

RBI’s measures to contain rupee volatility may hurt bank earnings

For now, the Reserve Bank of India’s (RBI) measures to curb speculation in the foreign exchange market haven’t stopped the slide of the rupee. Not only that, they have disclosed other problems..........

Read.........

Supporting the rupee

Though belated, the government and the Reserve Bank of India have come out strongly in support of rupee that is rapidly declining in relation to the dollar. The new measures, both administrative and policy, fall into three broad categories. One, the rules governing overseas investment have been relaxed in certain cases so as to increase the supply of dollars in the domestic market and thereby correct its demand-supply imbalance. The ceiling on debt instruments by foreign institutional investors and the interest cap on external commercial borrowings have been raised. The lock-in period for overseas investors in infrastructure bonds has been reduced. Two, in a surprise move — on the day before the credit policy review last week — the RBI clamped down on forward trading in foreign exchange. The avowed objective is to curb the rampant speculation which, in its view, weakens the rupee further. In the third category are the new incentives provided to non-resident Indians to invest more with banks in India. These are significant in themselves and they need to be evaluated in a larger context and over a longer time-frame than in the immediate term. It is fairly clear, however, that the rationale for almost all these measures is traceable to the rupee's sharp decline and the imperative of arresting it. Absent this justification, the case for introducing many of them at this juncture becomes weak. For instance, given the RBI's concerns over accumulation of short-term external debt, there is no reason for facilitating larger external borrowings by companies. Now, with the foreign institutional investors getting a greater access to the debt markets, including the gilts and corporate bond market, the external economy will be vulnerable to foreign capital flows. The RBI might have succeeded, at least temporarily, in halting the rupee's decline by sending out strong messages to currency speculators — as, for instance, by disallowing the rebooking of cancelled forward contracts in foreign exchange. But clearly these measures are in the realm of micro-management and should go once the perceived threat to the rupee recedes. The deregulation of interest rates on non-resident bank accounts cannot be justified except in the narrow context of encouraging overseas Indian investment at all costs. Past experience suggests that these deposits can exit just as easily as they enter. Besides, with the prevailing low dollar interest rates, there is tremendous scope for arbitrage with minimal exchange rate risk to the Indian expatriate. Neither individual banks nor the macroeconomy stands to gain by mobilising such funds.

HBL

Inflation above comfort level: Pranab

The government today said inflation, which is above comfort level, is a matter of concern and steps are being taken to address the price situation...............

Read.......

Policy rates unlikely to be eased this fiscal

The RBI has kept the policy rate and the CRR unchanged in its mid-quarter policy review as inflationary pressures are yet to diminish, particularly in the case of non-food manufactured products. However, the guidance provided was distinctly less hawkish, highlighting that further rate hikes may not be warranted and that subsequent monetary policy actions are likely to ease the policy rate. Nevertheless, the RBI has not provided a timeline for the same. While the pace of growth of the Indian economy has clearly moderated in the recent months, a number of temporary factors contributed towards the substantial contraction (5.1 per cent) in manufacturing output indicated by the Index of Industrial Production in October 2011. Notwithstanding the measures taken by the central bank to arrest the depreciation of the rupee, it is unclear at what level the currency would stabilise in the near term. Therefore, the RBI is expected to remain cautious regarding the possibility that a weaker rupee may result in a flaring up of inflationary pressures. Accordingly, the apex bank is likely to keep the policy rate unchanged in the fourth quarter of 2011-12, and embark on monetary easing in Q1 2012-13, once inflation moderates below 7 per cent.

Naresh Takkar, MD and CEO, ICRA Ltd -  HBL

Air India debt recast: SBI-led team petitions RBI for longer tenure

....The State Bank of India-led consortium of banks is believed to have made fresh representations to the Reserve Bank of India urging it to provide additional exemptions from provisioning on the debt-recast plan of Air India...........

Read..............