Infra proj in emerging economies perceived vulnerable to risks

Mumbai: Infrastructure projects in emerging economies like India are perceived as vulnerable to risks and efforts must be made to introduce greater clarity in policy to reassure investors, the Reserve Bank has said. In the absence of proper risk mitigation mechanisms, the costs of infrastructure projects tend to increase and such high level of risks cannot be traded off against high returns, RBI Deputy Governor H R Khan said at the recent international conference on 'Frontiers of Infrastructure Finance'. Khan's speech was made available on the official RBI website on Monday. He said, "Infrastructure projects in developing countries like India are perceived as highly vulnerable to risks which constrains financing. "The aim of the policy makers should be to reduce perceived risks by introducing greater policy clarity and, at the same time, providing an environment that will reassure investors." Khan said some of the notable risks that need to be reckoned with arise during the period of construction, leading to time and cost over-runs. They also included operational risks and market risks besides interest rate, foreign exchange, payment, regulatory and political risks. The Planning Commission has pegged investment of USD 1 trillion in the infrastructure sector during the 12th Five Year Plan period that will commence from April, of which half is targeted to come from private sector. Khan said the government and the RBI have taken a number of steps to promote funding in the infrastructure sector. They include enhancement of exposure norms, introduction of Credit Default Swaps (CDS) and liberalisation of the policy with regard to external commercial borrowings. He added, however, that some more steps are necessary to increase fund flow to the sector -- making infrastructure projects commercially viable, greater participation of state governments, improving efficiency of corporate bond markets and enhancing sovereign credit rating ceiling. Khan said simplification of procedures by enabling single window clearance would also encourage funds in the sector. He said, "Funding is the major problem for infrastructure financing and there are other issues which aggravate the problems of raising funds. These include legal disputes regarding land acquisition, delay in getting other clearances (leading to time and cost overruns) and linkages (coal, power, water) among others. "It is felt that in respect of mega-projects, beyond certain cut-off point, single window clearance approach could cut down the implementation period."

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Infra project appraisal needs focused attention, says RBI Deputy Governor

....Infrastructure projects involve huge financing requirements, most of which are met by banks and other financial institutions directly and indirectly. Thus, it is very important to make the project commercially viable to ensure regular servicing of the loan.........

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HITGUJ on VITALINFO

 

Investors need to lower return on capital expectations: RBI

Hyderabad: Indian bourses have started to display positive signs, but investors need to scale down expectations of return on their capital to avoid creating imbalances in the system that will result in financial instability, RBI Deputy Governor K C Chakrabarty said on Monday. "People who are trying to invest in India, who are investors, they have to scale back their expected return on capital otherwise there will be imbalance and it will create more problems," Chakrabarty told reporters on the sidelines of a function at the Jawaharlal Nehru Institute of Banking and Finance here. "... Every day the Sensex cannot give a 30 percent return on equity. There has to be a relationship between debt and equity. But when the overall debt comes down, return on equity has to also come down," he said. Replying to a query on the liquidity position in the country, the RBI deputy chief said the central bank is happy with the situation. The apex bank has increased key policy rates 13 times since March, 2010, to tame high inflation. However, it took a pause on the hawkish monetary stance at its policy review last month as inflation started cooling down. Chakrabarty refused to answer requires related to inflation and rupee depreciation against the US dollar, saying these will be answered at the RBI's forthcoming monetary policy review on January 24. The Reserve Bank of India official said there are two fundamental imbalances all over the world that need to be resolved to avoid financial instability. Explaining the imbalances in the financial system, he said one is the cost of capital and the second is that in any economy, the rich must save and the poor must borrow. "The second issue is that in any society which has to develop, which has to prosper, it is the rich (that) must save and the poor must borrow. Today, the world-over, economies are such that the rich borrow and poor save. If the rich borrow, it becomes inefficiency. If the poor borrow, it becomes efficient and more productive," he said. According to him, India does not contribute to any such imbalance.

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RBI happy with liquidity situation, says Chakrabarty

Hyderabad, Jan. 16: In what could be an indication to the policy stance of the Reserve Bank of India to be announced next week, the Deputy Governor, Dr K.C. Chakrabarty, said the apex bank is happy with the prevailing liquidity situation. He was responding to queries of newspersons after delivering a lecture at the Jawaharlal Nehru Institute for Development Banking here on Monday. Dr Chakrabarty, however, parried all other questions relating to inflation and policy-related issues by saying they would be answered in the policy review scheduled for January 24. After hiking key policy rates consecutively for 13 times since March 2010, the RBI had softened its stance last month and took a pause from hiking policy rates as inflation started decreasing. On the global economic scenario, Mr Chakrabarty said the cost of capital and the savings of the rich to facilitate borrowings by the poor should be properly handled for financial stability. Earlier, while delivering a talk on ‘Crisis Management in Interconnected Markets', he said there were important lessons to be learnt from each crisis, adding: “We can but be alert and flexible to evolving risks.” In India, an early intervention system based on monitoring of capital adequacy, non-performing assets and return on assets had existed for a long time, he added.

HBL

Return on capital may slide, says RBI

..... “When the rich borrow, the money is utilised for consumption and speculative purpose,”.........

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Importance of getting product design right to begin with

..... National Stock Exchange of India Ltd’s (NSE) decision to appoint Shyamala Gopinath on its board as an independent director has created the proverbial storm in a teacup. Gopinath retired as the Deputy Governor of RBI in June, and the allegation appears to be that a regulatory watchdog is now joining the ranks of a regulated entity......

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Why the rupee’s ride may only get rougher from now on

..... With the European crisis far from over, the RBI will have to retain ammunition for the first half of the year or more till foreign investors regain their risk-appetite and start investing in India. We also have to give our exporters enough time to rejig their operations to take advantage of the currency’s depreciation. In view of all this, it would be foolhardy to believe that the worst is over for the rupee. The macro numbers don’t support that view.

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Look at mfg goods inflation before reducing rates: PMEAC to RBI

New Delhi: Sounding a note of caution, the Prime Minister's economic advisory panel on Monday said RBI should take into account inflation of manufactured goods, which has shown only marginal decline, while deciding to lower policy rates at its monetary review next week. "The Reserve Bank, while framing its monetary policy, will have to take into account not only the decline in food inflation and the headline inflation, but also factor in the manufactured inflation," Chairman of the Prime Minister's Economic Advisory Council, C Rangarajan said. His comments came after headline inflation, as measured by Wholesale Price Index (WPI), fell to a two-year low of 7.47 percent in December, from 9.11 percent in the previous month. Rangarajan said more steps are required to further moderate the inflation. "The decline in headline inflation is mainly on account of the fall in food inflation. However, the decline is very small ... Further steps will be required (to control inflation)," he said, without giving more details. As per the official data, prices of food items rose at a lower rate of 0.74 percent in December, compared to 8.54 percent expansion in the previous month. However, inflationary pressure continued in manufactured items, which which have a weight of around 65 percent in the WPI basket. Prices of manufactured products, went up by 7.41 percent year-on-year in December, as against 7.70 percent in the previous month. Earlier in the day, Finance Minister Pranab Mukherjee also said that inflation of manufactured goods continued to be a matter of concern but hoped that overall inflation would come down to 6-7 percent by March end. "The manufactured inflation and inflation in the power group of items have also declined though only marginally, therefore, continued to be a cause of concern," Mukherjee said. RBI is scheduled to announce its third quarterly economic policy review on January 24. Barring December 2011, headline inflation had been above the 8 percent mark since January 2010, while it was above 9 percent since December of the same year. The apex bank has already hiked key policy rates 13 times since March, 2010, to tame inflation. However, it went for a pause in rate hikes in November and hinted at loosening the tight monetary policy in future if inflation moderates. India Inc has said the string of rate hikes, which have raised the cost of borrowing, has acted as a dampener to fresh investment and hindered growth. 

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Lower inflation to give RBI leeway for relaxing tight policy: Montek

New Delhi: Declining inflation will provide more flexibility to the Reserve Bank to ease tight monetary stance for stimulating economic growth, said Planning Commission Deputy Chairman Montek Singh Ahluwalia. "..people were earlier saying inflation was a big problem and was the reason for tightening of monetary policy. Now (with easing of inflation) RBI will have more flexibility for stimulating Gross Domestic Product (GDP) growth," Ahluwalia told reporters here. Headline inflation fell to a two-year low of 7.47 percent in December 2011 on cheaper food items, a factor which may prompt RBI to cut policy rates in the upcoming review on January 24. Inflation, as measured by Wholesale Price Index (WPI), had stood at 9.11 per cent in November. It was 9.45 percent in the December 2010. The inflation has been above the 8 percent mark since January 2010, while it has remained above 9 percent since December of the same year. The apex bank has hiked key policy rates 13 times since March, 2010, to tame inflation. RBI has, however, paused rate hikes since November and has hinted that it may start easing its tight monetary policy if inflation falls. It had projected inflation to fall to 7 percent by March this year. India Inc has said the string of rate hikes, which have raised the cost of borrowing, have acted as a dampener to fresh investment and hindered growth.  The economic growth in July-September period of 2011-12 stood at 6.9 percent, the lowest in over two years. Ahluwalia said there was some pressure on inflation but it would further come down by March. 

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Infuse liquidity via open mkt ops, not CRR cut: Rangarajan

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The RBI should not wait; it must cut CRR and rates now

As inflation shows signs of easing, the Reserve Bank of India will have to have a very strong reason to tread cautiously on rate cuts. The economy is still slowing, and if the RBI does not act quickly the danger of a free fall is not ruled out.............

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Stubborn core inflation may defer rate cut

.... “Excessive usage of OMOs to infuse liquidity into the system can be construed as monetisation of the deficit. We feel RBI should go for a judicious mix of a CRR cut and OMOs. We expect a cut of 50 basis points in the CRR in the January policy review,”.....

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stagflation risks again

..... In India, too, the central bank is unlikely to engage in any significant and early monetary policy easing, given ever-present inflation risks from global factors and unproductive and wasteful government spending locally. Expectations that economic growth would hold above 7% this year and next in India are more likely to be disappointed than met. Much rejoicing over recent buoyant data is too premature.......

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Inflation : Who said what.........

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With 7.47% inflation, Subbarao shouldn’t miss the bus on rate cuts

........ If the RBI waits for a more sustained drop in inflation, it might never be able to cut rates. This is probably as good as it gets on the inflation front — and the RBI shouldn’t lose this opportunity............

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IDBI Bank launches India's first online Retail G-Sec Portal

.....RBI during various policy pronouncements has been emphasizing the need for banks to take necessary steps for providing the infrastructure for retail investors to make investments in Government bonds....

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Banks stop giving term loans to poor women-members of self-help groups

....The circular has also asked the National Bank for Agriculture and Rural Development (Nabard) to convey the new guidelines on stopping term loans to SHGs to all bank branches immediately.......

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