Subbarao faces tight balancing act on interest rates

...... Subbarao’s predecessor Yaga Venugopal Reddy had an interesting view on the point of RBI listening to the finance ministry’s advice. Reddy would say, in his inimitable double-negative sort of way, that an argument need not be negated just because it came from the ministry. However, Reddy also believed action need not always be taken on a particular day just because there is a policy review, and could always be kept for an exact and appropriate time, and any reaction from the central bank must be purely ‘contextual’. It will be interesting to watch which of Reddy’s arguments Subbarao opts for this time.......

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RBI wants banking services to reach remote villages

Kurnool, Jan. 23:  The Reserve Bank of India wants benefits of banking to reach remote villages in the country.  Accordingly, in Andhra Pradesh, it has set a target to reach 6,640 uncovered villages before March 31, according to Mr A. Sambasiva Rao, Regional Director, RBI. Addressing a meeting in connection with his visit to Financial Literacy and Credit Counselling centre here, Mr Rao said that about 89 per cent of villages were covered so far. While commercial banks were in the forefront in achieving the targets, some regional rural banks and private banks needed to pull up their socks. Explaining that the benefits of economic growth were not being distributed equitably among all sections, he said poverty reduction did not just mean improving the income of the poor but other basic needs of the families like education of the children and health should be met. Mr  Rao urged banks to catch the next generation of citizens, now in junior colleges and introduce them to all banking products and enrol them as account holders. Even remote villages and tribal hamlets should produce doctors, engineers and technocrats on par with urban areas. This would happen only when the banks expanded their operations and liberally funded education activities. Once banks operated in remote villages, they would be able to afford support to farmers, especially those in distress and also the self-help groups. Mr Ramsankar Naik, District Collector, and Mr R.N. Dash, General Manager, RBI, among others, participated in the meeting.

HBL

RBI’s Mahapatra seeks greater surveillance of corporate governance

Reserve Bank of India Executive Director Shri Mahapatra calls for greater vigilance in corporate governance at financial institutions to avoid further crises. Shri Mahapatra, the executive director at the Reserve Bank of India, on January 21 said the recurring corporate governance crises in both the developed and developing economies suggests "eternal vigilance" must be exercised at all times. At the Convocation Ceremony of Chetana's Institute of Management & Research in Mumbai, India, Mahapatra said: "Although our banking sector has emerged largely unscathed from the crisis, there is definitely a need to do some introspection as there have been some issues of corporate governance failure here too. The incidents of banks misselling forex derivatives to clients have been well publicised and are one such example. There is therefore a need on the part of banks and financial institutions to be more responsive to their obligations towards the larger public interest." Mahapatra said a study of the governance failures in various institutions during the crisis helps in understanding that the measures and reforms to address the governance failures in one context may not be as effective in another, and that the timing and focus of reforms should reflect the economic and institutional realities of the country concerned.  
http://www.centralbanking.com/central-banking/speech/2140568/rbi-s-mahapatra-seeks-surveillance-corporate-governance

Remove restrictions on farm trade: Y.V.Reddy

Hyderabad, Jan. 23:  Removal of all restrictions on domestic trade in agricultural produce should be done prior to any debate on allowing foreign investment in the farm sector, according to Dr Y. V. Reddy, former governor, Reserve Bank of India. Delivering the Seventh J. Raghotham Reddy Memorial Lecture on ‘Agriculture: Problems and Opportunities' here on Monday, Dr Reddy said the connectivity between rural produce and rising urban consumer demand for food items could be ensured by freeing restrictions. This move would be better than constant rebalancing of interests of farm producers and consumers through a process of ‘continuous political bargaining', he said. As there were no policy reforms in agriculture since 1991, there was a need to empower the States. “Perhaps, the Government of India should vacate its role in agriculture and rural development, except in regard to international trade and research,” he said. In such a scenario, the States would compete for performance, and adopt innovative measures and diversity in approaches. “Such a decentralised approach has been adopted by China recently to manage its agricultural problems,” Dr Reddy said. Going forward, there might be opportunities to export food items to other countries, if advanced countries find it fiscally unsustainable to subsidise agriculture. “The opportunities will be in far more diversified form than now. They can be exploited only if our farmers and the Government are agile and equip themselves to changing composition of demand,” he said. Dr Raghotham Reddy was former vice-chancellor of Acharya N.G. Ranga Agricultural University, Hyderabad.

HBL

RBI Chennai, Kanpur units shredding more soiled currencies

Chennai, Jan 23 : The Reserve Bank of India branches in Chennai and Kanpur were shredding more number of soiled and torn currency notes than the new ones they pump into Tamil Nadu and Uttar Pradesh respectively. "The RBI office in Chennai and Kanpur are shredding more soiled and torn currency notes than anywhere else in the country. The amount of soiled notes shredded in these two places were more than the number of new currency notes issued every year (for the two states)," RBI sources here said today. The trend in Chennai was due to the increasing number of students, industrialists and medical tourists visiting Tamil Nadu. "If you observe, there are over 400 plus engineering colleges in the state and most of them do not accept money through bank channels for admission fee and tuition fees. Especially, colleges which accept donation, decline to accept money through any bank channel, since the details of such transactions would be on record," the sources said. The hosiery hub of Tirupur too witnessed heavy cash transactions among the traders visiting the town for their business. "Many businessmen from Tirupur, Coimbatore come here and exchange soiled currency notes which they get from across the country," they said. Chennai emerging as a much sought-after health care destination too is cited as another reason for the heavy inflow of currency notes. "You can see many people from Assam, West Bengal and other eastern states coming here for medical treatment and use currency and not cards," they said. Similar was the case with Kanpur as the city and surrounding areas housed hundreds of industries, the sources said. RBI was in the process of conducting awareness campaigns about fake currency in areas around the IT Corridor on the city outskirts where migrants labourers were concentrated in view of the recent busting of counterfeit currency racket in the city and union territory of Puducherry. The National Investigation Agency along with the CBCID of Tamil Nadu and Puducherry nabbed three persons in Chennai and Puducherry last week for circulating fake currencies into the market. Technical experts from RBI Chennai will be conducting a similar campaign and awareness meet in Puducherry tomorrow.

MSN News 

Regulators: Holier than thou

........Less then a month after RBI’s board was reconstituted, it issued another press release on 18 October 2011. It announced the appointment of two more directors on RBI’s central board. YH Malegam was reappointed from 7 October 2011 for four years ‘vice Shri H.P. Ranina’ and another director in place of Lakshmi Chand. No explanations. Why does the government believe that RBI cannot function without Mr Malegam as a director? .............

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RBI plan to protect investors

Bhubaneswar : The Reserve Bank of India (RBI) is planning to send its representatives to the districts to create awareness and help potential investors choose the right organisations to invest. The move comes in the wake of a number of fraud cases across the state. In the recent past, the state has seen seven cases, the Balasore chit fund case being the prime example, where money taken from the public has been invested elsewhere, causing huge loss to people. “The RBI has already asked companies doing investment business with the public’s money in the state to register themselves with the national banker. However, the investor should also be clear about the portfolio of such companies and before putting in money, must check the details and ensure that the company is registered with the RBI. The state government, too, has issued orders to this effect at the administrative level,” said Biplab Chakraborty, General Manager of the RBI, Bhubaneswar. Addressing a students’ meet on banking at the Kushagra Institute of Information and Management Science in Bhubaneswar, Chakraborty said there were two types of companies — those that collect investment for their own growth and those that collect investment for investing it with others. The second one needs the RBI’s permission and the investors should demand that the companies show them a copy of the permission letter payment. “We have already started a campaign on the media to make people aware on this, but now we plan to reach out to people at the grassroots,” he said. Sources said the crime branch had registered cases against seven chit fund companies across the state for cheating people of crores of rupees. In the Balasore case, not only civilians, but also police officials were listed as the victims. The kingpin used the money to make a Bollywood film. Speaking at the meet, Samson Moharana, a teacher at the postgraduate department of commerce, Utkal University, said: “Many companies are registering as limited entities under the Companies Act. Making use of loopholes in the law, some of these companies also include collection of money and related business in their activity list. This is also a glaring violation and the local district administration and the police must act to stop such activities to safeguard the investment. In many places, the people are not able to take advantage of the awareness drives and these companies are targeting gullible people.” The state has lately seen more than 20 cheating cases related to ATMs and most of them belonged to a particular public sector bank. Last week, two customers from Paralakhemundi in Gajapati district complained that unauthorised withdrawals of more than Rs 40,000 were made in Haryana. Moharana also said bankers should be aware of the current development scenario, so that the respective banks do not suffer from non-performing assets (NPA). “The permissible NPA level is around 3 per cent around the world. In India, though NPA is shown within 2.5 per cent, in practice, it remains as high as 10 to 15 per cent in many banks,” he said. Chief General Manager of the National Bank for Agriculture and Rural Development K.K. Gupta said that even today, the banking sector was only considering a small fraction of our population, but the professionals should implement innovative ideas for an inclusive growth.

The Telegraph

RBI: Upside risks to inflation warrants careful calibration

" While the expected gradual softening of inflation could suggest the need for easing monetary policy, medium- term inflation risks warrant careful calibration" ..............

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Need to encourage equity flows, widening CAD a worry: RBI

.... "As expectations of quick and robust resolutions to the European sovereign debt crisis diminish, it is all the more important for India to maintain adequate capacity to withstand further external shocks,"....

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BANKING ON GROWTH

BUSINESS HOTSHOTS AWAIT RBI NOD TO LAUNCH BANKS IN BENGAL

CHANDRA Shekhar Ghosh and Purnendu Chatterjee have a common dream. Both want to float a bank and are now eagerly waiting for Reserve Bank of India (RBI) to release the final guidelines on new bank licences. Ghosh is founder and chairman-cummanaging director of the country's leading microfinance company, Bandhan Financial Services. Chatterjee, in turn, is an NRI businessman and chairman of The Chatterjee Group (TCG). Bandhan has been doing the spadework to apply for a banking licence for quite awhile. It plans to reinforce its board by inducting one or two retired bank chief executives, whose banking experience would help the MFI in its preparation for the banking licence. Bandhan's outstanding loan portfolio crossed 3,000 crore in November, 2011. TCG's plans to also establish a bank comes at a time when the new government has promised all support to existing banks in the state for expanding business and improving credit delivery. Bengal has a glorious banking history. State Bank of India (SBI) started its journey here more than two centuries ago. State-run Allahabad Bank, UCO Bank and United Bank of India are headquartered in Kolkata and are important players in the country's banking sphere. Yet, the state suffers from lack of credit delivery in the absence of private capital. Banks' credit-deposit ratio, an indicator to a bank's efficiency in credit delivery, is 62% here, significantly lower than the national average of 74%. Of the state's 9 crore population, about 70% resides in the rural areas.  The number of accounts per branch in the state has risen to 9,866 in 2009-10 from 5,046 in 1980-81 while the number of accounts per 100 adult people has risen to 77 from 40 during the same period. However, a study conducted by RBI said moneylenders were a dominant source of rural lending with about 66.5% cases being financed by village moneylenders at exorbitantly high rates of interest of around 10-20% a month. It also said nearly 40% of the rural population do not have sufficient income to open a bank account even as banks have improved their reach in rural Bengal.

ET

RBI for balancing between risks to growth and inflation

........ However, RBI stated, inflation and expectations of inflation remain high and upside risks emanate from exchange rate pass-through, revisions in administered prices and higher-than-expected government revenue spending. Consequently, it said that monetary actions will need to strike a balance between risks to growth and inflation..........

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Rate cut today? RBI adds riders after hopes raised

... “While in the short run, moderating inflation will provide some space for monetary policy to address growth concerns, in the absence of structural measures to address a range of supply bottlenecks, this will be, at best, temporary respite,”....

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Economic picture as assessed by RBI

 

Govt adding to inflationary pressure: RBI

Mumbai: The Reserve Bank of India has blamed the government for adding to inflationary pressures by living beyond its means and has urged the centre to push for reforms to achieve a turnaround in 2012-13. The central bank’s warning on government’s financial indiscipline comes ahead of polls in five states. Although the government has failed to meet its revenue targets through taxes and disinvestment of public sector undertakings, expenses have got out of hand forcing the centre to twice increase its borrowing. This will force the central bank to strike a balance between risks to growth and inflation, RBI said. Given the central bank’s reiteration of the pressures on inflation it is widely expected that RBI will not cut rates. However,there is a significant section which feels that governor D Subbarao may go for a cut in the cash reserve ratio to release liquidity. The continuing liquidity crunch is evident from daily bank borrowings from RBI. On Monday, the overnight borrowing by banks touched Rs 1,41,000 crore—much higher than RBI’s comfort level of around Rs 60,000 crore. “Expansionary fiscal policy is likely to impact price stability by affecting aggregate demand. Since the fiscal expansion is largely on revenue account and capital spending remains low, it can adversely affect the supply responses needed to lower long-run inflation,” RBI said in its quarterly report on macroeconomic and monetary developments which is released on the eve of its policy review. In its report, RBI said that economists and other forecasters have lowered growth projections for 2011-12 to 7% from 7.6% three months ago. But forecasts for inflation remain unchanged at 8.8% even as the rupee-dollar exchange rate is expected to end the year at 52, sharply lower than 47 projected earlier. Agreeing with the forecasters, RBI said that growth in 2011-12 is moderating more than was expected earlier. “The business climate has weakened. The slack in investment and net external demand may keep the pace of recovery slow in 2012-13,” it said.  RBI has significantly tightened monetary policy since February 2010 with an effective increase of 525 bps in policy rates and a 100 bps increase in CRR. Experts feels that RBI governor D Subbarao may go for a cut in cash reserve ratio to increase liquidity. On Monday, the overnight borrowing by banks touched Rs 1,41,000 crore—much higher than RBI’s comfort level. “The business climate has weakened. The slack in investment and net external demand may keep the pace of recovery slow in 2012-13,” central bank said in its quarterly report.

TOI

Inflation risks persist, says RBI

Monetary actions will need to balance growth risks and inflation'

The Reserve Bank of India (RBI) on Monday warned that inflation risks persisted while growth outlook and business climate had weakened. “The growth outlook has weakened........Inflation and expectations of inflation remain high. Upside risks emanate from exchange rate pass-through, revisions in administered prices and higher-than-expected government revenue spending,” said RBI on the eve of its third quarter monetary policy review on Tuesday. The RBI left interest rates unchanged in its mid-quarter review in December after raising them 13 times between March 2010 and October 2011. While some market participants argued for a rate cut in its third quarter review, others said the central bank is likely to keep policy rates on hold. “Monetary actions will need to strike a balance between risks to growth and inflation,” said RBI. Growth in 2011-12 is moderating more than was expected earlier. The business climate has weakened. The slack in investment and net external demand may keep the pace of recovery slow in 2012-13. However, the RBI hopes that in the short-run, moderating inflation will provide some space for monetary policy to address growth concerns. “This will be, at best, a temporary respite.” The RBI said that agricultural prospects remained encouraging but moderation was visible in industrial activity and some services. “Industrial slackness has emerged as export and domestic demand has decelerated.” Growth in 2011-12 is likely to moderate to below trend, given the external conditions, dampened investment demand and prevailing high level of inflation. The central bank felt that fiscal reforms, including the Direct Taxes Code (DTC) and the Goods and Services Tax (GST) were needed to contain deficits in 2012-13.  “The Central Government's deficit indicators are under duress due to higher subsidies and lower tax collections. Fiscal slippages during 2011-12 may complicate the task of aggregate demand management,” it added. The apex bank said that current account deficit (CAD) risks had amplified as capital flows moderated. Early indicators suggest that the current account came under increased pressure during the third quarter of current financial year. Notwithstanding rupee depreciation, exports decelerated but import demand remained strong, with inelastic demand for oil and rising gold imports. “Upward risks to CAD have become more pronounced with likely moderation of software earnings,” said RBI, adding, “As capital flows also moderated since August 2011, financing pressure on the CAD translated into exchange rate pressures.” Indian rupee had witnessed a sharp fall against the U.S. dollar in this period.

HBL

RBI pitches for reforms to contain fiscal deficit

..... "Prospectively, improvement in fiscal situation in 2012-13 is not only contingent upon the growth performance but also on the progress in implementation of tax and expenditure reforms," RBI said in a macroeconomic review of the economy ahead of third quarter review of monetary policy......

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Subbarao’s hint: Don’t expect the moon when govt is messing up

.... “While in the short run, moderating inflation will provide some space for monetary policy to address growth concerns, in the absence of structural measures to address supply bottlenecks, this will be, at best, a temporary respite. In addition, the expansionary fiscal stance has emerged as an upside risk to inflation.”...........

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IIM Lucknow Manfest 2012 hosts Mahindra Leadership summit

The Mahindra Leadership summit held during IIM Lucknow’s Manfest 2012 featured some of the biggest names from the Indian corporate diaspora. The summit was attended by Mrs. Anita Arjundas, CEO Real Estate and MD Mahindra Lifespace Developers, Mr. R. B. Barman, former Executive Director RBI, Mr. B. Kartik, Sr, Executive with Mahindra Corporate brand management and the man behind Mahindra Rise as well as Mr. Anand Bhatia, Sr. Executive with Ormax and an alumnus of IIM Lucknow..........

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Growth, euro zone fears weigh on RBI

.............The report did not offer any clear indication on what action RBI would take on Tuesday, but its emphasis on keeping the liquidity deficit “within acceptable limits” as a “policy priority” has led a section of analysts to believe that the central bank could go for a cut in banks’ cash reserve ratio (CRR). CRR refers to the proportion of deposits banks need to keep with the central bank. ............

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Restore priority sector status for bank loans to NBFC’s

Industry body ASSOCHAM today called for restoring priority sector status for bank loans to non-banking finance companies (NBFCs) and said core investment companies (CICs) should be permitted to invest ten per cent of the corpus in any scheme, including mutual funds. The Reserve Bank of India’s move to disallowed banks from classifying loans given to NBFCs as priority sector loans will significantly curtail credit flow and in turn curtail growth, it said. A fine line needs to be drawn between genuine NBFCs involved in asset financing business and those specialising in other high-risk segments, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).  “A substantial part of incremental NBFC lending has flowed to entities like IDFC, PFC, REC, IRFC and IIFCL which are also classified as NBFCs, while the balance has gone to other NBFCs which has perhaps weighed in favour of such a move by the RBI,” said secretary general D.S. Rawat. All asset finance companies in the country have a wider reach and are best placed to lend to unorganised sectors, he said in communication to the Reserve Bank of India. Under existing norms, NBFC-CICs are required to invest at least ten per cent of their investments in money market instruments. However, such CICs which do not have any deposits from the public or loans from banks may be permitted to invest in any scheme of mutual fund, including money market instruments. ASSOCHAM also called for clarity on definition of public funds and sought exemption from registration of their group CIC with the RBI where the group lending as well as borrowing companies have not raised or hold public funds.

India Microfinance

RBI mulls norms for bankers' dealings with loan arrangers

The Reserve Bank of India is believed to be examining the possibility of laying down guidelines for banks when dealing with loan arrangers. This move has to be seen in the context of the Central Bureau of Investigation busting a bribe-for-loans scam in November 2010...............

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Tedious TDS

“Banks pitch for higher tax breaks on bad debt provisioning” (Business Line, January 20) brings up some good ideas. The suggestion of removing TDS at banks, given by the bank chiefs to the Finance Minister during the pre-budget meeting, is a welcome step. If considered, it will bring relief to the lakhs of depositors who had put their hard-earned money in banks for safe returns. Thanks to the changes made to key parameters by the RBI to curb inflation, banks have had to raise the interest rates to maintain their net interest margins. Hence, for the sake of depositors, doing away with TDS can probably keep them happy. Also, in the coming monetary policies to be announced by the RBI, there are indications that some key parameters will be reduced, which will, in turn, affect the interest rate structure of banks. Hence, the Finance Minister should take the suggestion of the bankers and relieve the depositors of the burden of TDS.

- T. N. Rao, Andhra Pradesh (HBL)

Anand Sharma for lowering interest rates

........“We are of the considered view that interest rates for investment for industry should be lowered. We have taken up the issue with the Finance Minister who is receptive and positive, particularly for small and medium enterprises,” ..........

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