Gopinath's appointment on the NSE board kicks off debate

Opinion divided on whether there is a conflict of interest

Seven months after she retired as Deputy Governor of the Reserve Bank of India (RBI), Shyamala Gopinath has been appointed on the board of the country’s largest bourse, the National Stock Exchange (NSE). Gopinath was practically No 2 with the central bank until June 20 last year, when she retired. Earlier, economist Vijay Kelkar joined NSE as its chairman soon after laying down office as the Chairman of the 13th Finance Commission. This latest appointment has started a debate on whether giving lucrative high-profile posts of independent directors to those who were once its watchdogs, would trigger a conflict of interest and whether such appointments raise a serious issue of “ethics”. This is because both RBI and the finance ministry are super-regulators to the exchanges. Though the finance ministry may not be a direct regulator in the strict sense, RBI is a regulator to the NSE— in both letter and spirit over its currency derivative segment operations. As Deputy Governor, Gopinath was RBI nominee on the Securities & Exchange Board of India (Sebi) board, where she was a direct regulator of NSE. There are, however, no rules to prevent her from joining the stock exchange. Many, though, dismiss such apprehensions. This camp says RBI doesn’t regulate exchanges; only Sebi does. If a policy has to be made for the currency segment, the market regular consults the central bank and makes the policy for all exchanges. They also say a uniform policy should be made in this regard for all sectors and not exchanges alone. While the debate continues, NSE is certainly not alone. MCX-SX has also appointed former regulators and bureaucrats on its board. It had appointed Ashok Jha and Vepa Kamesam on its board in 2009 and 2010 respectively. Jha was finance secretary in 2007 and Kamesam served as Deputy Fovernor of RBI between 1998 and 2003. Some others have directly regulated MCX in the past. But there was a gap between their retirement and taking up the MCX SX job. Jha, for example, superannuated in April 2007 -- and joined the MCX SX board only in August 2009. Kamesam retired as RBI Deputy Governor in 2003, and joined the MCX SX board in April 2010. Similarly, G N Bajpai, who retired as Sebi chairman in 2005, joined the advisory board of Financial Technologies in 2008. S A Dave, who headed Sebi in the late 1980s, joined the MCX board in 2009. Prior to that, Dave after retiring, worked on the board of several private companies including Housing Development and Finance Corporation. Both NSE and MCX did not want to comment on the issue. Gopinath could not be contacted. On the Bombay Stock Exchange, there are several retired government officials on the board. But, all of them joined after a cooling off period of at least a year. Being autonomous bodies, the RBI and Sebi do not have a “cooling-off” period in their respective service rules. The Forward Market Commission, the commodity market regulator, has however set a one-year cooling off period, before its members join any private firm. With the exception of G V Ramakrishna and C B Bhave, who retired only recently, all other former Sebi bosses are on boards of at least four or more listed companies, but this they did after a cooling off period of at least one year.

BS 

NSE to have 5 women on board; ropes in Gopinath, Umarjee

....“…responsible and effective decision-making at the highest levels requires representation of views from people with different backgrounds. Yet such diversity of thought is not possible if all individuals are of the same gender or from the same social grouping. The creativity and innovation that comes through diversity of thought is critical to remaining competitive in the fast changing global market in which we now operate,”......

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Monetary policy at crossroads – S.S.Tarapore

Monetary easing should always be slower than tightening; since the RBI opted for baby steps while tightening, it cannot easily relax monetary policy. A long pause makes sense at this stage.

All eyes are on the Reserve Bank of India (RBI) monetary policy announcement of January 24, 2012. Some top policy advisers in the government have explicitly stated that the RBI should reduce interest rates. Governor D. Subbarao, as part of forward guidance, has said that a decline in interest rates is on the cards, but has cautiously added that it is not possible to indicate precisely when monetary policy will be eased. Those pleading for a reduction in interest rates point to the year-on-year fall in food prices to minus 3.36 per cent. There are shrill noises that this signals deflation, and hence the case for reduction in interest rates. The expected slowdown in real growth to 7 per cent (some analysts expect it to be lower) and the sluggish industrial growth makes out the case for industry to be given a stimulus by way of an interest rate reduction. Pronab Sen, Chief Economist of the Planning Commission, in a percipient observation, says that the fall in food prices is essentially because of the base effect and in the next few months food inflation is likely to rise back to the 6-7 per cent range. When food inflation was at the higher reaches of the teens, no hearts bled asking for a sharp increase in the repo policy rate to double digits! The overall inflation rate is persistently over 9 per cent and although it may fall in the ensuing period, largely because of the decline in food prices, there are as yet no signs of a significant and enduring reduction in the overall inflation rate. Moreover, fuel inflation is still over 15 per cent. The fiscal situation is precarious and the gross fiscal deficit of the Centre, in 2011-12, could be 6 per cent of GDP or even higher. With the government's borrowing programme being raised sharply over the budgeted figure, crowding out is inevitable. To minimise the disruption in the commercial sector, as also to prevent yields on government securities rising, the RBI is undertaking substantial purchases of government securities under its Open Market Operations (OMO).  The upshot of all this is that inflation is likely to remain stubbornly high. Unlike in 2008, when the RBI rapidly brought down interest rates, the present macro indicators are not encouraging and a premature easing of monetary policy could rekindle inflationary pressures. The external payments position is a cause of some concern as the current account deficit (CAD) is likely to be around 3 per cent of GDP and there have been substantial outflows of portfolio capital. Advocates of monetary policy easing would argue that political economy imperatives warrant a reduction in policy interest rates. While baby step reductions would appease the strong commercial lobbies, such reductions would not meet political economy compulsions. In the past, monetary policy has remained unaffected by political economy constraints of impending elections. In 1977, just before the elections, the RBI undertook a sharp tightening of monetary policy with a 10 per cent incremental cash reserve ratio (CRR).  Again, during the foreign exchange crisis of 1991 and the absence of effective governance, the RBI went ahead with a massive monetary tightening of interest rates, reserve requirements and direct controls. As such, the RBI should not take account of the present political compulsions. Any easing of monetary policy should be on the merits of the case. When inflation hits double digits, there is strong support for monetary tightening, but the moment inflation falls back into single digits, the lobbies for interest rate reductions gather momentum. As monetary policy is eased, inflation raises its ugly head. Needless to say, monetary tightening should always be faster than the subsequent easing. The old central banking dictum is that interest rates should go up by ones and down by halves.  Given that in recent years the RBI has opted for baby steps while tightening, it cannot easily relax monetary policy. As such, there is great merit in a long pause before reductions are made in policy interest rates. There is a viewpoint that if policy interest rates cannot be brought down, the CRR could be reduced. The CRR is the most potent monetary policy instrument and if the situation is such that policy interest rates cannot be reduced, it would be a serious error of policy to reduce the CRR. After the easing of monetary policy in 2008, the tightening of policy interest rates has been of the order of 3.75 percentage points since March 2010, but the CRR was raised by only one percentage point. As such, a reduction in the CRR would not be an appropriate policy response. It would be best to wait till March 2012 before taking a view on monetary easing. Too early an easing could result in a resurgence of inflation. As the sage monetary economist, the late Professor P. R. Brahmananda said: “Not caring about inflation is like going into battle without caring for the wounded, the dying and the dead”.

HBL

Jnana Jyothi FLCC Trust website launched

Manipal : In terms of RBI directives and also as decided in the Karnataka State Level Bankers Committee meeting at Bangalore, Syndicate Bank and Vijaya Bank Co-sponsored Jnana Jyothi Financial Literacy and Credit Counselling Trust with its Registered Office at Manipal in October 2010 to strengthen Financial Inclusion in the Country. The Trust during the financial year 2011-12 has opened all over India 23 Centres out of which 12 in Karnataka, 5 in Andhra Pradesh, 2 in Kerala and 4 in Uttar Pradesh are functioning effectively. Financial Literacy is an integral part and a maiden step towards financial inclusion. The Trust, with an objective to spread awareness of Financial Literacy among the general public, has initiated another major step of launching its own website with domain name www.jnanajyothiflcc.com covering various financial products and services offered by the Banks. The website was inaugurated on 11.01.2012 by Sri D.T. Pai, Chairman cum Managing Trustee of JJFLCC Trust.

http://www.bellevision.com/Bv/index.php?action=news_diggest&type=1771

VITALINFO - Great work.................

Assam Gramin Vikash Bank turns 6

.... During the first six years of its operation, the bank had witnessed a compounded growth rate of 169 per cent and the number of customers of the bank has crossed 45 lakhs. During his latest visit to the state, governor of the Reserve Bank of India, D Subbarao rated the performance of the bank as outstanding.

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Can manage inflation if food prices keep declining: Pranab

“Food inflation is still negative... There is a declining trend... If this trend continues, then the overall inflation will be manageable,”

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India Central Bank's November Dollar Sales Point to Intervention

..... Last week, RBI Deputy Governor Subir Gokarn reiterated the stance that the central bank won't defend any particular rupee level, but added that it would "respond strongly to any sharp one-way moves" in the local unit.......

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RBI to consider falling food prices in monitory policy review

NEW DELHI: The Reserve Bank today said that it will take into account the declining food prices while taking a view on the monetary policy which comes up for review later in the month. "The impact of food prices on (inflationary) expectations is certainly a factor that needs to be taken into account," RBI Deputy Governor Subir Gokarn said here. Although there is no direct relation between food inflation and monetary policy decisions, he said prices of essential kitchen items do impact inflationary expectations in the economy. "The role of food inflation is essentially on expectations ... there is no direct link between monetary policy action and food prices," Gokarn said. Food inflation remained in the negative territory for two consecutive weeks and was (-) 2.90 per cent for the week ended December 31.  The overall inflation in November was 9.11 per cent and Chief Economic Advisor Kaushik Basu said he expects the WPI number to come down below 7.5 per cent in December helped by declining food inflation. Food inflation accounts for 15 per cent in the overall inflation basket. Overall inflation has been above 9 per cent mark since December 2010. Gokarn said, "Increasing affluence is driving significant demand increases ... and the fact that inflation or prices are rising quite sharply basically suggest that the supply response is relatively weak". The Reserve Bank has raised rates 13 times since March 2010 to control inflation by taming demand. It is scheduled to come out with its third quarter policy review on January 24. The industry wants the Reserve Bank to reduce interest rates with a view to arresting slowdown and boosting industrial growth. The industrial growth which turned negative in October, showed an increase of 5.9 per cent in November. Food inflation, Gokarn said, as a phenomenon "is something to be treated as a persistent source of inflation, with pressure on prices and policy response to it naturally has to be driven in that perspective".

ET

RBI may defer rate cut as industrial growth rises

..........After raising key policy rates 13 times since March 2010, RBI opted against increasing rates in December. Economists said RBI governor D Subbarao may want to watch how the situation pans out over the next couple of months and opt for a rate cut later. The government, however, seemed to suggest that the policy focus needs to change to boost investment in the economy and spur economic activity further......

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Growth will moderate in December, then rise: C Rangarajan

C Rangarajan, veteran economist who chairs the Prime Minister’s Economic Advisory Council, expects industrial growth to pick up from this month, he tells Indivjal Dhasmana. A short and edited interview:

Industrial growth bounced back in November, from contraction in October. What is your outlook for the remaining months of this financial year, particularly considering the high base effect of December?

Some moderation could be seen in December. However, industrial growth will pick up after that, which will have ramifications for overall economic growth. I expect overall economic growth to be over seven per cent this fiscal (the economy grew 7.3 per cent in the first half).

What does the November industrial growth figure tell RBI in terms of policy response?

RBI’s policy actions will depend on the headline inflation number for December. While food inflation is in the negative zone, we are not sure about the rate of price rise in manufactured products. So, this will give an important indicator to the central bank.

Many economists have suggested RBI wait a bit longer before cutting policy rates and choose the cash reserve ratio (CRR) or open market operations (OMOs) to manage liquidity. What would you suggest?

I think OMOs are a preferred tool, because you can calibrate liquidity management this way. CRR is somewhat a blunt tool. Even a quarter of a percentage point cut in CRR unleashes a great amount of liquidity in the system.

Mining continued to witness a contraction in November production , for the fourth month in a row. Do you see it as a drag?

Mining will improve from December. Coal production has picked up in December.

Capital goods also witnessed a continued fall in November. Will it affect future industrial growth?

The decline in capital goods abated somewhat in November. Their production will improve in the months to come.

BS

Account number portability

In October 2011, the RBI deregulated interest rates on savings account deposits, subject to a few conditions, following which a few private sector lenders have hiked rates to as much as 7 per cent. And now, the Finance ministry is working on savings bank account number portability, which will allow a customer to retain his account number while changing his bank, if at all he decides to do so for different reasons. The move is a step in the right direction, as it would help customers change banks without the need of following ‘Know Your Customer' norms again, and also expect higher returns on their savings in a competitive environment.

- Srinivasan Umashankar, Nagpur (HBL)

Credit card PIN

Regarding “Credit cards: RBI keen on ‘zero liability' to customer” (Business Line, January 10), before introducing the policy, the RBI should insist that banks assign PIN for all credit cards.  When all debit cards are protected by PIN-enabled transactions at point-of-sale machines, such as ATM transactions, why not credit cards? Though Verified-by-Visa or MasterCard SecureCode mandates are in place, they help to protect only online transactions. Without PIN, credit cards are vulnerable to theft and fraudulent transactions.  Moreover, ‘zero liability' policy without PIN will increase the moral hazard problem among credit card users, since they won't be accountable anymore.

- Dhinesh Rajamanickam, Bangalore (HBL)

Shop online without credit, debit card

.... A virtual card can be generated by doing a one-time registration with your bank. The virtual card number is set up using your existing physical credit card. You get a unique login and password. Just specify the amount you want to spend with your virtual card. The card generated will have a new 16-digit number, CVV2 number and expiry date. You can use it like any credit or debit card for online shopping......

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RBI cautions foreign banks on speculative FX trades: report

Mumbai: The Reserve Bank of India has cautioned some large foreign banks for encouraging local companies to participate in speculative trades in the foreign exchange market, the Business Standard reported on Thursday. The RBI, in a meeting with senior officials of foreign banks, cautioned them for taking part in these trades as it felt that the transactions were partly responsible for the sharp fall in the rupee against the dollar, the newspaper said, quoting three people familiar with the development. The rupee has depreciated nearly 16 percent in 2011 against the US dollar. “RBI was aware that many foreign banks were encouraging speculation in the market. But it could not take any action as most of these trades were done offshore outside its regulatory purview. There was a meeting last month where RBI issued oral warning to some of these banks,” a source privy to the discussions with the regulator, told the paper. Most of these trades were done taking advantage of the difference between the forward premium rate in India and the offshore non-deliverable forward market rates, the report said. The RBI, on 15 December, reduced the net overnight open position limit (NOOPL) of authorised dealers in the foreign exchange market with immediate effect, potentially reducing capacity of market participants for taking trading positions.

Firstpost

RBI playing hardball with AI debt restructuring plans

RBI seems to be playing hardball with Air India's restructuring plans. CNBC-TV18 learns that banks' refusal to provide for the restructured assets follows the RBI refusing to agree to bank request on exemption on provisions with respect to cumulative redeemable preference shares, reports Swati Khandelwal......

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The wages of policy inertia and profligacy

..............India may end with sub-7% growth in 2011-12. There is danger that slow growth may change from a cyclical to a structural problem.......

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Patchy recovery

..... The key question for next week is what message the Reserve Bank will read into these numbers. If Mint Road reads them as optimistically as Yojana Bhavan does, the central bank will be confirmed in the view that it has projected in recent weeks — that interest rates should not be raised any further, but nor should they be lowered just yet.....

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Place your bets on India

..... Crisis situations will erupt in the power, coal, rail and banking sectors. Markets will continue to de-rate, lose global relevance, and investors will write off the country till 2014. Even the RBI cutting rates will not be enough to trigger a capital expenditure cycle, as policy constraints will continue to hamper investment. Markets will continue correcting from both time and price perspectives. All this is independent of the continuing global uncertainty....

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Black money in polls: EC writes to RBI

Stepping up measures to combat the flow of black money during forthcoming polls in five states, the Election Commission has written to the Reserve Bank of India (RBI) to ensure that banks are not "misused by unscrupulous persons" for bribing voters with cash. The EC has written the letter to the Reserve Bank of India in the backdrop of an incident where the Income Tax department recently seized cash of Rs 12.38 crore belonging to ICICI bank at Delhi's border with Ghaziabad (Uttar Pradesh). The amount, suspected not to be conforming to cash movement rules stipulated by RBI, was seized by the I-T department on the directions of the Election Commission. "...Request you [RBI] to conduct a thorough enquiry of the case [seizure at Ghaziabad] and to ensure that the banking channel is not misused by the unscrupulous persons to carry cash to the constituency during election process, for the purpose of bribing the electors," a letter received by the RBI Deputy Governor in Mumbai from the poll body said. Five states -- Uttar Pradesh, Punjab, Manipur, Goa and Uttarakhand are going to Assembly polls in various phases, begining January 28. The EC, in its letter, also reminded the RBI that it has earlier written to the banking regulator after it received similar complaints during the Assembly polls in Tamil Nadu.

BS

Fake currency worth Rs six crore seized in Delhi

.... "Seized counterfeit Indian currency notes have most of the security features of genuine currency notes and for a man on the street it would be difficult to find the difference on mere looking,"......

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'Nepal-based Indian runs racket'

Investigators following the fake currency trail into North India, especially Delhi and Uttar Pradesh, have zeroed in on a Nepal-based Indian national, known.....

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Can Chaudhuri turn the tide for SBI?

.... “the credentials and quality SBI has, I don’t think it will have a problem in coming out of any issues it faces in the short term”,.....

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False dawn

The main problem today is neither growth nor inflation, but an investment freeze. And that is bad both for future growth and for fighting inflation.............

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