......The leitmotif of the Approach Paper is that all that needs to be done is to dismember the Reserve Bank of India (RBI), create a unified financial regulatory agency and concentrate even greater powers in an already all-powerful Ministry of Finance. While doing so, the Commission appears to be oblivious of the fact that the macroeconomic management would be greatly attenuated by its passion to hive off activity from the RBI. The endeavour should be to see how the present financial legislation should be strengthened to improve the efficiency and effectiveness of policies and to be able to enforce the regulations in a more purposeful manner. In yielding to its great passion to overhaul the system, the Commission has deviated from its central objective.......
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Friday, November 30, 2012
Banking’s new lingo
This refers to the news item titled “Subbarao warns against casino banking” (FE, November 18). One more interesting term has been added to the existing vocabulary of bankers and students of financial management. “Casino banking” has been termed as the practice whereby a commercial bank engages in unduly speculative or risky financial activities with the aim of achieving high profits. Some years ago (2009), the term “narrow banking” had been in vogue. A narrow bank, in its narrow sense, had then been defined as the system under which a bank places its funds in risk-free assets with maturity periods matching its liability maturity profile so that there is no problem relating to asset liability mismatch and the quality of assets remains intact without leading to emergence of sub-standard assets. This extreme risk averseness has been also dubbed as “lazy banking” and “zombie banking”. Other such terms often referred to are: “class banking”, “mass banking”, “inclusive banking”, “logical banking”, “safe banking”, etc. What next? “Sitting-on-the-fence banking”—neither going this way nor that? “Water-on-the-duck’s-back banking”—no policy guidelines ever affect this sector? Perhaps it’s time for RBI to come out with an A to Z primer (arm-chair banking to zombie banking) to educate the layman about such interesting definitions.
- JS Broca, New Delhi FE
MSU wakes up after RBI rap
VADODARA: After the embarrassment of a civil suit filed, M S University has decided to seek the approval of the Reserve Bank of India (RBI), to fill up the RBI Chair, left vacant by the university for a decade. The university has also decided to request the country's central bank to withdraw the civil suit it filed in an Ahmedabad court. Simultaneously, MSU will write to the RBI, saying that it will appoint the RBI Chair professor within six months, if the reserve bank provides its approval.......
Banking Ombudsman: Redressal for customer complaints against banks
....Presently RBI (Reserve Bank of India) has compelled banks to hear customer on priority basis. On direction of RBI every bank has to appoint nodal office for redressal of customer grievances. Every bank has designated higher level office at head offices and other senior level officer at controlling offices and at large branches.......
Read..........
The job market
In a speech in Mumbai earlier this month, Reserve Bank of India Governor D Subbarao made a striking point about the changing world order. There was a time in the eighties and nineties, he said, when parents across the world told their children not to waste food because there are millions who go hungry. Today, he added, with the rise of protectionism in advanced countries, parents there might well be telling their children, “If you don’t get a job, Indians will take away your job.”
BS
RIGHTS angle
....“In the last ten years, we have handled 10,000 complaints. Hundreds of cases go to court, I have gone and argued myself!” Over the years, he has fought for transparent MRP, filed class-action suits for standardisation in the size of packaged goods, and got the RBI to implement a daily rate of interest in the savings account. “It was a significant win, benefiting over 35 lakh people!”..........
Why do ministries interfere with the functioning of statutory bodies?
.....Statutory bodies like the RBI should not be made subservient to the whims and fancies of officials in ministries for exercising the powers they are expected to exercise as part of their mandated functions. The RBI has faced problems on such issues relating to banks earlier due to blurred clarity in powers and interpretation of law. Perhaps, the RBI has learnt from the recent experiences while handling new generation private sector banks which did not survive and the interests of the clientele had to be protected by the regulator with GOI support. Last ten years or so, the RBI has been loitering around North Block for permission to continue a pension updation granted by RBI in exercise of powers available under the Reserve Bank of India Pension Regulations which is being questioned by the finance ministry that has interpreted the pension regulations differently. An amendment to RBI Pension Regulations made to conform to the GOI interpretation of the regulations is pending with finance ministry for more than a year......
RBI’s inclusion and ministry’s exclusion agenda - M.S.Sriram
............All banks, including RRBs, are fully computerized, and inter-operability networked. Wage and pension payments for the poor are to be routed through bank accounts. Identification is becoming easier. Mobile networks are spreading. Staffing of the banks is going through a demographic change due to aggressive recruitment of young officers. This was an opportunity to redefine the inclusion agenda, to make a business case for inclusion and also to redefine banking. Unfortunately, MoF is not showing the same maturity as RBI and is wasting an opportunity to demonstrate how inclusion can be achieved in a changing and interconnected world.
Currency garlands: RBI in talks with Centre
........Responding to a query on whether currency notes are allowed to make garlands to felicitate public figures or grooms in marriages, the RBI said that it had appealed to the general public to refrain from using bank notes to make garlands, decorate pandals and places of worship. The RBI said, in the press release issued on March 12, 2008, that such actions deface bank notes and shorten their life. “Bank notes should be respected as they are symbols of sovereign and the public should not misuse them so that the life of bank notes is enhanced,” the statement said........
Microfinance - From utopia to dystopia
......The Microfinance Institutions (Development and Regulation) Bill, 2012, which empowers the Reserve Bank of India (RBI) to regulate microfinance and waits Parliamentary approval, is being opposed by the Andhra government. A prominent Union minister is also against the proposed legislation. This is despite the fact that RBI wants to regulate the sector quite firmly. It had appointed the Malegam Committee, which recommended, among other things, a 24 per cent cap on interest rates. MFI representatives are uncomfortable with the Malegam Committee. Yet, the Andhra government is opposed to even RBI regulating microfinance........
Credit growth outpaces deposit growth
........“People have withdrawn more cash this festival season [making liquidity situation tight] contrary to what we were expecting,” RBI Deputy Governor HR Khan told reporters couple of days ago at the sidelines of an event here. He also admitted that there is a slight reduction in deposits and increase in advances creating the liquidity pressure.......
'Any decision on common finance regulator only after FSLRC report'
.......Under the existing architecture, the financial sector is regulated by eight agencies including Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (IRDA), Pension Fund Regulatory and Development Authority (PFRDA) and Forward Markets Commission (FMC). As per the proposal, there would be five new agencies besides Reserve Bank and FSDC. The new ones would be UFA, Financial Sector Appellate Tribunal (FSAT), Financial Redressal Agency (FRA), Debt Management Office (DMO) and Resolution Corporation........
Banks report fraud cases involving Rs 6,457 crore in 2012
....On measures taken to prevent/reduce incidences of frauds, Chidambaram said, "RBI is sensitising banks from time to time about common fraud prone areas through issuance of modus operandi circulars on various types of frauds." He further said RBI has advised banks to introduce a system of concurrence audit and constitute a Special Committee of the Board to exclusively monitor frauds of Rs 1 crore and above.....
Realty: RBI, FM reading the same but from different pages
.....Clearly, the RBI has done its bit by asking banks to take a hit on loan recast. The bigger question is can Finance Minister P Chidambram can do his bit by breaking this builder-investor-politician cartel to clean up the real estate market and ensure affordable housing in India?......
RBI announces OMO after four months to infuse cash
With cash tightening, the Reserve Bank of India (RBI) has announced open market operations on Friday, to support banks and primary dealers. Open market operation is a cash infusion measure and implies outright purchase of government securities by the RBI from banks and primary dealers. RBI’s open market operation for Rs 12,000 crore will happen after a gap of more than four months. The last such operation was held on June 22, when cash had tightened due to RBI’s interventions in the foreign currency markets to support the rupee against the dollar.........
NPAs of public sector banks on the rise
The non-performing assets (NPAs) of public sector banks rose close to one percentage point from 3.17 per cent to 4.01 per cent in six months to September 2012, the government informed Parliament on Thursday. To improve the health of financial sector, reduce NPAs and improve asset quality of banks and to prevent slippages, the Reserve Bank of India has issued instructions that each bank is required to have a loan recovery policy, Minister of State for Finance, Namo Narain Meena, informed the Rajya Sabha......
Educate public about economy: Rangarajan
The strides made by business journalism in the country since 1990 was a reflection of the growing importance of the economy and journalists must strive to create economic literacy among the people, said C Rangarajan chairman of the Economic Advisory Council to the Prime Minister. The former RBI governor made this remark while distributing the 14th annual Polestar awards for ‘Excellence in IT and Business Journalism’ ......
Right time to lock into recurring deposits
With the Reserve Bank of India (RBI) indicating policy easing on interest rates as soon as January 2013, you may well use the window to lock into high deposit rates if you are looking for assured returns. If you have a lump sum, fixed deposits would be the right instrument for you, but if you prefer regular savings, recurring deposits (RDs) would work for you........
Superior service
.......The fears expressed by the author with regard to use of financial resources by private banks can be tackled by proper supervision and control by the RBI. In fact, the central bank has done a good job in insulating the banking system from external shocks arising out of the international financial crisis in 2008. The RBI has also made timely interventions in regulating the functioning of private banks and protected the interests of the depositors in the past.
RBI wants involvement of private banks in government's joint lending plan
The Reserve Bank of India has suggested that private banks be involved in the government's proposed joint lending mechanism for corporate debt, and demanded deliberations on the issue before the policy becomes operational, according to an official............
Central Government to launch account number portability service soon
............The Finance Ministry has asked Reserve Bank of India and Indian Bank Association to issue necessary guidelines in this regard. The Finance Ministry recommended that ANP be implemented in the nation before cash subsidy scheme. The RBI recently has formed a high-level committee to prepare a roadmap of ANP. The Finance Ministry told the ANP facility can be provided to those customers whose accounts are being opened through AADHAR cards. .......
ICICI Bank Website has the Best User Experience for Online Customers
.......According to a release, user experience (UX) is a specialized field dedicated to 'ease of use' of online products and services. In the recently concluded 6th Economic Times Banking Technology Conclave, RBI's Executive Director G. Padmanabhan, during the keynote address, highlighted the importance of user experience in online banking, "Banks need to examine how they can make electronic transactions safe and secure while providing customers equal or more ease, comfort and convenience compared to branch banking.".......
Rights issue on cards for govt banks
Ahead of the implementation of Basel-III norms in the banking sector, public sector banks are looking to raise capital, with a rights issue being the preferred mode of capitalisation. Several public sector banks are of the view that allowing banks to raise capital through a rights issue, instead of a preferential allotment of shares being subscribed by the government. It would give all shareholders an equal investment opportunity...........
Bulk note acceptor at Federal Bank
THIRUVANANTHAPURAM, NOV. 29:
Federal Bank has installed a bulk note acceptor at its new branch at Thiruvananthapuram Chalai, a trading hub. The machine will work round the clock and accept bulk amounts of deposits, sort, count, and instantly credit the amount to the account of the deposit cardholder.......
Thursday, November 29, 2012
Smile index
BS
J&K Bank elaborates various schemes to customers
.....During the discussions various aspects regarding the safeguards to be ensured by the customers and the need for awareness to ensure safety of their funds were also discussed. The officials also clarified several issues relating to bank and banking services raised by the answer session. The meeting was presided over by M Rajeshwar Rao, CGM and Banking Ombudsman, New Delhi and was attended by K.K Saraf, Regional Director, RBI, Jammu, D.G Kale, General Manager, Customer Service Department, RBI......
Is gold import stressing Indian economy?
India’s numero uno ‘golden achievement’ is not making the government proud these days. In fact, the Indian government is not happy as the finance ministry and the Reserve Bank of India (RBI) say gold is putting extreme grave pressure on the country’s economy! Can high gold imports and consumption create economic stress on a developing country like India?.........
RBI issues draft norms on fixed rate loan products
The Reserve Bank of India (RBI) has brought the issue of long-term fixed rate loan products, including home loan, on the discussion table. On 9 November, RBI published on its website the draft report of a committee headed by K.K. Vohra, Chief General Manager, Internal Debt Management Department, RBI, assessing the feasibility of introducing long-term fixed interest rate loan products. The Vohra committee was set up after it was pointed out in the April 2012 monetary policy that while interest rates on deposits are predominantly fixed, most of the retail loan products, especially home loans, are sanctioned on floating rate, which exposes borrowers to interest rate risk..........
Allow MFIs to become business correspondents: MFIN
.....MFIN demand for allowing NBFC-MFIs to become business correspondents comes close on the heels of the Finance Minister P. Chidambaram’s remarks that financial inclusion architecture is incomplete without microfinance........
FM P Chidambaram asks banks to initiate penal action against wilful defaulters
NEW DELHI: Worried over rising bad loans, the government has asked state-owned banks to crack the whip on willful defaulters and initiate penal proceedings against them............
Farce of PSBs competing with one another
Finance Minister P. Chidambaram is right when he says Indian banks should not fight shy of consolidation because we need global-sized banks to take on the might of foreign competition, both in our home turf as well as abroad. And this is not the first time he has made this suggestion. But one wonders why he has not impressed upon his own Government to kick-start the process of consolidation by starting off with public sector banks (PSB). What is the big difference, after all, between Punjab National Bank, for example, and Canara Bank, given that both are substantially owned by the Central Government?.......
Bank mergers
Regarding the editorial “Banking muscle”(Business Line, November 28), while it is desirable to have banks of international stature, in a growing economy such as India’s, the need is to have more banks/branches, especially in the rural areas, and to improve efficiency of service. The expansion of banking networks, banking products, is required. Expanding the existing banks through acquisition of smaller ones may have the adverse effect of fall in efficiency, and thereby, profitability.
T.R.Anandan, Coimbatore (HBL)
Now FM Is Bent Upon To Destroy Indian Banking Sector - Regulators Are Our Only Hope
With the grace of God, India has always seen some wonderful people (of course only a small percentage), who are honest and dedicated, and do not bend even under pressures. In recent times we have seen people like RBI Governor, CAG Chief, SEBI chief etc. who have resisted the government attempts to dilute our strong fundamentals
....It is not that I am against issuing of new bank licences to corporate, but I am worried about the hurry shown by FM to hasten the process without putting in place the guidelines and nudging RBI for starting the process of issuing new bank licences to corporate. Raja too issued spectrum in great hurry. The question arises why FM is in such a great hurry? Is he afraid that his government may not last for long and then he will not be able to oblige corporate close to Congress? Can this great hurry lead to some other scam. Government has already lost all credibility. RBI Governor has clearly said that they are considering the same on merits and will initiate steps as soon as amendments are put on record. Now let us suppose RBI clears these and later on this Government falls, then who will take responsibility for such action by RBI......
FM: Integrate microfinance firms with financial system
.............“We are hopeful that the Bill will be cleared by the Standing Committee, then brought to Parliament for passage. Once the Bill is passed, I hope that it will provide an adequate legislative framework for the entire gamut of micro-finance services,” .......
Read - IE
Read - IE
Buying a home to get cheaper as RBI says no to restructuring of real estate loans
....Builders will get the benefit of paying the same loan over a longer period without feeling the pinch to repay, RBI Deputy Governor KC Chakrabarty is supposed to have told bankers in a recent meeting, said the two bankers who did not want to be identified. Banks will be at ease once the loan is prevented from becoming a sub-standard asset, Chakrabarty said........
Banks can perform only if economy improves: PNB's Kamath
........But the finance minister clarified the government did not have a roadmap for consolidation and added that the process had to be driven by the management-boards of banks. So, consolidation is not on the top of my mind as of today. Though I cannot comment on this as the chairman of the Indian Banks' Association (IBA), but as chairman of PNB, it not a priority. But if there is an enabling environment and availability of opportunity, I will not hesitate to encash that opportunity.........
Don’t use LIC to prop up divestment
If the Reserve Bank of India (RBI) is the lender of last resort for the Indian Government, the Life Insurance Corporation of India (LIC) — with some prodding from the Government that owns it — seems to be imposing the title ‘saviour of last resort’ on itself. ..........
Micro-finance is in danger zone: Jairam Ramesh
Micro-finance is in a "danger zone" and to think that poverty alleviation in India is possible through this "discredited model" is "crap", Rural Development Minister Jairam Ramesh said today. "Nothing can stop an idea whose time has gone. And micro-finance is in a danger zone. It is a discredited model. It has raised more questions that it has answered," the Minister said in his valedictory address at the Micro finance summit here.....
Indian corporate bond market still remains a mirage
........Many in the government and elsewhere have often stressed on the need for developing the Indian corporate bond market to fund infrastructure projects given that banks which have funds of short- to medium-term maturities run the risk of a mismatch by financing long-term bonds. But the central bank had in the past not quite shared this view. Former Governor Y.V.Reddy has said that nowhere in the world are infrastructure projects financed by the public bond market except perhaps in the deepest bond market in the world - the US. It may not be easy for the government to nudge the regulators in that direction considering the local version of a fiscal cliff. And, as a long-term observer of the Indian securities market put it, it is also a matter of perspective. The RBI reckons that it has done quite a bit on reforming and deepening the government securities market. But the fact remains that.........
SBI to open 24-hr locker-cum-gold loans branch in Vizag
VISAKHAPATNAM, NOV 28:
State Bank of India (SBI) is opening a dedicated ‘Locker Shoppe-cum-Gold Loans’ branch in Visakhapatnam having round-the-clock operations, a top officer said today. “The proposed branch would remain open for 24 hours for locker operations and gold loans which would be sanctioned up to 8 pm everyday,” said SBI General Manager (Andhra Circle) Gopal Krishan Kansal on the sidelines of a function.......
Bank staff and CVC
“Take public sector bank staff out of CVC purview” (Business Line, November 26) is a relevant suggestion. While the CVC machinery at the Central level and at individual bank levels is doing a wonderful job in vigilance-related tasks, yet an atmosphere has been created where the general mass of bankers feel demotivated and, in fact, scared to take even genuine banking business and credit-related decisions. The Government must revisit the rules that force bankers to file FIRs against borrowers for their credit defaults. Frauds have to be prevented, fraudsters have to be penalised but innocent bankers and right decision makers need to be protected at all costs. The wearer alone knows where the shoe pinches.
I.K. Kilam (HBL)
University in Chandigarh at work on software for banks
Chandigarh based Punjab Engineering College (PEC) University of Technology is developing a software to ensure security of information that banks use, under guidelines issued by the Reserve Bank of India (RBI). The project is being funded by IT major IBM India, and the PEC University is working on the technology development for the project.......
Karnataka Bank implements revised RBI norms on KCC
MANGALORE: Karnataka Bank Ltd. has introduced the revised guidelines of Reserve Bank of India on Kisan Credit Card (KCC) scheme. This will help large section of farmers across India. As per the scheme which is effective from November 15, farmers can avail working capital loan in the form of overdraft for raising various crops and maintaining their farm equipments and also term loan for meeting their investment credit requirements.........
Read - TOI
Read - TOI
Fraudsters turn cloning HDFC credit cards into a business
......"Domestic cards were cloned by Kamal and international cards by Devender Chauhan of Agra with the help of a professional hacker. The data of genuine customers was stolen through the skimmer (an instrument used to copy the data of a card) and then copied on a plain card having magnetic strip," ........
Banks wary of lending to MFIs, says Nabard study
Commercial banks are losing their confidence in lending to microfinance institutions (MFIs), according to a National Bank for Agriculture and Rural Development study. This is evident from the fact that fresh lending to MFIs by banks during 2011-12 declined by 38 per cent to Rs 5,205 crore against Rs 8,449 crore last year..........
Making ATMs run like a well-oiled machine
How would an operator in Chennai monitor whether the light in an automated teller machine (ATM) in Jammu has been switched on/off or whether the air-conditioner inside an ATM in Sikkim is working? There is help for such problems in the form of machine-to-machine (M2M) technology, which has been developed by a Chennai-based company. The ATMs will be connected through the Internet and will communicate with each other, transmitting vital data to a central location........
Wednesday, November 28, 2012
Should Corporate Bonds Count as SLR?
....The main
objective of SLR bonds is to generate liquidity whenever needed. This
can be done either through repo market or through outright sale. Gsecs
are well-accepted collateral in a deep and liquid repo market and are
also eligible for availing refinance from RBI. The g-sec secondary
market is also reasonably liquid and can generate cash on T+1 basis. The
repo market in case of corporate bonds is yet to take off and the
secondary market is illiquid and lacks market infrastructure similar to
g-secs. SLR instruments, issued by the RBI through a transparent auction mechanism, are easily accessible to all classes of investors......
Public sector bank chiefs go on-the-fly to control NPAs
Bad loans, or the so-called non-performing assets (NPAs), are rising. And provisioning norms – which mandate the money banks have to be set aside for impaired loans — are tougher.With the going tough, chiefs of public sector banks have decided to take matters into their own hands, literally. Using mobiles, they are now monitoring the ground level situation on bad loans real-time, and directing efforts to maximise recoveries.........
Banking muscle
Bankers’ conferences are a platform to flag new or flog old ideas. Last week’s meet at Pune saw Finance Minister P. Chidambaram using the opportunity to reiterate a pet theme of his – of the need for consolidation among Indian banks. We must create at least 2-3 banks of international size as the Chinese have done, Chidambaram noted, repeating what he had also been espousing in his earlier stints as Finance Minister. In fact, this issue has been flagged ever since financial sector reforms got underway with the opening up of the Indian economy in the early 1990s, receiving real prominence with the second Narsimham Committee on banking sector reforms in 1998. .......
Eyes wide shut
At a banking conference last week, spiritual leader Sri Sri Ravi Shankar was teaching bankers how to meditate. As a starting point, he asked the audience to close their eyes. Many bankers did not do so, despite being asked several times. It was the programme host who provided the explanation at the end of the session: they are bankers, he said, that’s why they’re a little scared to close their eyes.
BS
Bankers get a dressing down for failure to extend education loans
Collector Darez Ahamed on Tuesday lambasted a number of bankers for their failure to extend education loans. “Do not sit on the applications. If you feel that they are not eligible, reject them as it becomes legal and then they can approach the courts if need be,” he told them. Speaking at the third district–level consultative committee meeting of bankers here, he pointed out that as many as 164 applications for education loan have been pending with one particular bank, 114 of them in one particular branch.......
.........Those who took part included A.S.Pillai, AGM,RBI, K.Kothandapani, district manager, NABARD, and K.Sumathi, project director, DRDA.
Till the RBI manages its dollar war chest effectively, its focus on inflation will not yield results
....perhaps the greatest across-the-board negative impact on growth has originated in the severe monetary brakes that the Reserve Bank of India (RBI) has applied. The story of the 13 consecutive interest rate hikes beginning in March 2010 and ending in October 2011 is well known. Less well known is the severe restraint the RBI has applied to monetary growth. Adequate monetary growth provides the grease that oils the forward movement of a growing economy. While too much of it can make the aggregate demand run ahead of real incomes and, thus, fuel inflation, too little of it can arrest, even cripple, the forward movement. Over the decades, the RBI has maintained a relatively steady double-digit annual growth in the monetary base, which determines the availability of credit in the economy........
Now, let the money talk
.......Business correspondents across the country will pan
out with hand-held devices, similar to the card machines you see at
shops, that will work as mobile all-time-money kiosks, for consumers.
The machine will enable both authentication and identification of the
recipient and the local ATM. Aadhaar, which the RBI has notified as
Know-Your-Customer (KYC) data for banks, will help increase the reach
of banking system and financial inclusion by leaps and bounds,
something banks have been struggling with, as it makes little economic
sense to open a branch in a remote village. And that is not all. The
electronic digitised platform created by UID for Aadhaar will also help
insurance companies, mobile operators, consumer companies and even app
providers to reach out and expand their consumer base......
Chains of gold
. A scheme where individual Indians can sell gold for hard currency may help reverse the one-way flow, but this is probably too radical for the mandarins to consider. Creative financial engineering could perhaps find other ways to unlock that store of 25,000 tonnes. RBI Deputy Governor Subir Gokarn recently suggested offering gold-backed bonds or reverse mortgage schemes on household holdings of the metal. Previous experiments with such schemes have not been successful. This was partly due to rigidity in income-tax treatment and also because jewellery had to be melted down. Any new scheme would have to be structured to circumvent such known issues — but, given the trend, the sooner such ideas are implemented, the better.
Curing Indians of gold
.....gold demand will dampen as the economy starts picking up, as investment opportunities open up and as inflation starts to slow to reasonable levels. But there’s a bit of chicken and egg here: till gold demand remains strong, the rupee will remain weak, and that pushes up inflation which then causes another rush for gold. This is where Gokarn’s suggestion—RBI will soon put out a paper on this—comes in. Today, if someone wants to buy gold as a hedge, this increases imports and hence the current account deficit. If, however, consumers get the features of gold without the physical import, things will be quite different........
Gold demat? Why is the RBI suggesting a Ponzi scheme
.....Suggesting dematerialisation is like suggesting a cold shower for high fever. The logic could be that since the body is hot, why not cool it down? Why go through the elaborate exercise of trying to identify the infection that is causing these symptoms? But this is the remedy being proposed for the problem of high gold imports. Gokarn is treating the symptoms and not the root cause. The root cause behind Indians buying gold is currency debasement on account of the Reserve Bank running a very accommodative policy by monetising the fiscal deficits of successive governments. This can’t be addressed by making gold imports difficult or by “dematerialising gold”........
India's investment grade outlook stable: Moody's
......Moody’s said a reversal in the central bank’s monetary policy stance would revive investor sentiment. The Reserve Bank of India has hinted it might cut rates from January. In its last policy review meeting, the central bank had kept the repo rate unchanged at eight per cent, but cut the cash reserve ratio by 25 basis points to 4.5 per cent.......
If liquidity remains tight, RBI to conduct OMOs: H R Khan
The Reserve Bank of India ( RBI) will conduct open market operations (OMOs) to infuse liquidity in the system if the present tightness persists. While speaking on the sidelines of the Ficci-BOAO conference here, Deputy Governor H R Khan said, “Whenever there is need, we will do OMOs.” Adding, when asked if there was a need at present, “At this point of time, I can’t say if there is a need to do OMOs.”........
Microfinance sector showing signs of recovery: Report
......According to the State of the Sector Report 2012, brought out under the aegis of microfinance facilitation organisation Access Development Services, the loan amount disbursed by microfinance institutions, as well as the average loan ticket size, has shown signs of recovery in fiscal 2011-12. But the industry is struggling to recover from the impact of the SKS Microfinance crisis and the imposition of State-level regulation in Andhra Pradesh, which led to a virtual cessation of microfinance activity in what was till then the largest market for microfinance in the country........
My View on "A CASE FOR PAYING INTEREST ON CRR BALANCES"
I agree with the comments of Shri Chandramouliswaran. I thank him for the suggestion that I should contribute to the debate on the payment of interest on CRR balances flowing from the article under reference. I have already argued for not paying interest as the banks are making money through the working of the money multiplier (See “Nothing for banks to gripe about”, Business Line, September 11,2012 and the subsequent article “Government gets it wrong on CRR” of November 7,2012.) The question of paying interest on CRR balances does not arise, as the system is amply rewarded by the power to create money out of thin air. Obviously, in such matters, while the RBI looks at the system, individual banks think in terms of the bottom lines of their balance sheets. That the banks and the system will benefit more from a lower CRR with no interest payment than a higher CRR with interest payment has been pointed out by other experts on the subject. If the interest is to be paid on balances with RBI what will be the role of the reverse repo rate? The first part of the statement that “SLR is primarily aimed at restricting the expansion of bank credit as also to ensure solvency of banks” is not correct. Investments in SLR also contribute to the working of the money multiplier when government spends its balances with the RBI. There is no difference between credit and investment so far as the money multiplier is concerned.
The Market Stabilisation Scheme was introduced to sterilise the inflows of foreign currency mopped up by the RBI by selling rupees through intervention undertaken to stabilise the value of the domestic currency. Who would have bought those bonds without interest payment? Unlike OMO where the banks have a choice to participate or quote their own terms, CRR works across the system like a blunt tool and is more effective than the former. The author argues that an interest rate of 8-9 per cent will make it attractive for banks to park money in the central bank. What will be its impact on the market rate for government securities?
In the USA thanks to the three versions of Quantitative Easing the system is flooded with liquidity. The created money is making a round trip to the Fed. Due either to the reluctance to lend on risk aversion or the lack of demand for credit, banks find the interest of 0.25 per cent on total balances with the Fed more attractive than investment in Treasury Bills. As on September 14, 2012, the yields on one-month, three-month, six-month and one-year Treasury Bills were 0.08, 0.11, 0.13 and 0.18 per cent, respectively (See “Will the Fed’s QE 3 work?”, A. Seshan, Business Standard, September 20,2012). Banks’ total cash reserves with the Fed amounted to $1.55 trillion on September 5, 2012, of which 93.5 per cent was excess. This is what will happen if the suggestion of the article is implemented. It may lead to an acute shortage of liquidity and credit and destabilise the money market.
- A.Seshan
Cash Reserve Ratio “By” the Banking System but is it “For” the Indian Banking System
......For many, CRR was an imposition on the commercial banks operating in the economy for the purpose of controlling credit default and creation was perfectly in accord with the regulation and culture which prevailed in yesteryear of Nineties. If we look into today’s scenario, we find just the opposite. Indian economy along with the global economy is becoming highly globalized, integrated, interrelated, where interest rates are predominantly market-determined and there is also no automatic monetization of budget deficits. The central bank controls the supply of money and can increase or decrease the same by buying and selling bonds through open market operations which is undertaken independently.......
Don't delay new bank rules too long, Asia urges Europe
......"The fact is that the U.S. and euro zone are the most important regions where Basel III should have been implemented," Anand Sinha, Deputy Governor of the Reserve Bank of India, told a Thomson Reuters Pan-Asian regulatory summit in Hong Kong. "It would have been very helpful, even if there is a delay, if the U.S. and euro zone could have indicated a definite timeline, that is not there."......
Inflation in India higher than other BRICS nations: Thomas
New Delhi: Inflation in India is higher as compared to other BRICS countries, Food Minister K V Thomas informed Parliament on Tuesday. "According to the RBI sources, inflation in India is higher as compared to other BRIC nations," he said in a written reply to the Lok Sabha....
Reviving microfinance
....a spate of suicides allegedly triggered by excessive indebtedness in rural Andhra Pradesh had Andhra’s government acting populist by forbidding MFI officials to visit households to recover loans, and by requiring MFIs to register each of the operations with a local authority. This led to massive difficulties in recovering loans, as numerous borrowers took advantage of the law to refuse repayment, in a state which was responsible for almost a third of the industry’s $5.3 billion loans. And it didn’t help when RBI followed suit by recommending a cap on interest-spreads........
Chidu hopeful of early passage of micro finance Bill
....“Once the bill is passed, I hope that it will provide an adequate legislative framework for the entire gamut of micro-finance services,” he said at Microfinance India Summit 2012 here. The Bill seeks to empower the Reserve Bank to regulate the micro finance industry and fix interest rates ceiling on loans to be provided by lenders.....
MFIs should follow respectful method of loan recovery: FM
.....MFIs in some states especially Andhra Pradesh faced problems on account of use of strong arm tactics for recovery of loans. This also resulted in suicide by some borrowers.
Chidambaram also asked MFIs to verify data on borrowers with credit bureau to avoid multiple borrowing or over indebtedness. "I will request the micro finance sector to adapt itself to the expectation of public at large, especially, with regard to their code of conduct," he said.......
RBI changes in FEMA may spell more trouble for UPA
Government may face fresh trouble in Parliament over the recent RBI amendments in FEMA to allow FDI in multi-brand retail, with CPI(M) today saying these have to be voted within a time-frame as laid down in law. The statement by senior CPI(M) leader Sitaram Yechury came on the fourth day of disruption of Parliament over the FDI issue as he blamed UPA government for the impasse saying it was not willing to have a vote on the FDI issue.......
Delhi High Court sets aside order in CRB Capital case
......A Division Bench of the Court comprising Justice B. D. Ahmed and Justice Veena Birbal quashed the order on a bunch of appeals by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and others. The RBI opposed the sanctioning of the scheme approved by more than 50 per cent of the stakeholders of the company at a meeting here, arguing that the Court could not approve it without deciding its petition for winding up the company. It further argued that the scheme was violative of the provisions of laws and against the public policy.......
ED to probe Flipkart, Bharti Walmart for violations of FDI rules
............“The Reserve Bank of India has informed that matters related to Bharti Wal-Mart/Cedar Support Services Ltd and M/s Flipkart Online Services Pvt. Ltd, respectively, have been referred to the Directorate of Enforcement for further investigation,” the government said in a statement on Monday.........
White label ATM
.....While travelling to remote locations, you may have faced problems in terms of availability of ATMs. But that problem may soon get solved. RBI has put conditions on opening white label ATMs in such a way that non-bank entities will have to open the maximum number of ATMs in tier III and tier VI cities, including towns and villages.......
Remittances into Kerala to rise 40% this year
......Recent policy measures by the Reserve Bank of India have also given a fillip to the remittance business. After the interest rates on NSE and NRO accounts were deregulated last year, banks looked to shore up low cost deposits through this route, by increasing rates which were controlled. NRE saving deposits mirror domestic saving rates at 4% while interest on NRE term deposits range from 8.5% to 9% (domestic term deposit rates also range from 8.5% to 9%). "Earlier, such deposits were tied to the LIBOR (London Interbank Offered rate) rates,".......
SBI to set up 600 more cash deposit machines
.....The decision to install more cash deposit machines is also driven by the multiple benefits that are likely to accrue, including commercial establishments using the facilities bringing more new business to the bank. SBI has now 135 such machines in various cities, and the daily cash collection through them is Rs.3 crore.......
DENA, UNITED TO GET NEW HEADS
Ashwani
Kumar, executive director (ED) of Corporation Bank, is on course to
join Dena Bank when Nupur Mitra CMD of the bank retires by December. The
government has issued a notification relating to this and told him to
join Dena Bank by mid December itself. Meanwhile, Bhaskar Sen, CMD of
United Bank of India is also due to retire in December. However, it is
not yet clear as who will succeed him. Earlier, Archana Bhargava, ED of
Canara Bank, was tipped to take over as CMD. However, the buzz is that
she is moving to Bank of Maharashtra as a second ED.
ET
ET
Tuesday, November 27, 2012
The Swami and the economist
Anyone who doesn’t know what Reserve Bank of India Deputy Governor Subir Gokarn looks like may mistake him for a spiritual guru. At least that is what the wife of Bank of Maharashtra Executive Director C V R Rajendran initially thought. Gokarn’s special address at a banking conference hosted by the bank last week was followed by a special discourse from spiritual leader Sri Sri Ravi Shankar. In his inauguration speech, Rajendran said, “When we were going through the profiles and photographs of the invitees, my wife asked why there were two Swamijis at the conference.” When Rajendran told her Gokarn is an economist, his wife asked whether there is a relationship between the two. There is, he replied. “One is the cause of my problem and the other is the solution; one decides how many sleeping tablets I take in a day and the other tells me how to relieve this stress.”
BS
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