Economic prospects improve

…Daring to smile at challenges ahead .....

The RBI Governor, Dr D. Subbarao and his team

Inflationary pressures in the domestic economy have abated for now

The RBI eased the CRR a little beyond market expectations, cutting it by 50 basis points. The liquidity deficit in the banking system has reached approximately 2 per cent of the net demand and time deposits, to an average of Rs1,27,853 crore for January 2012, compared with Rs 42,000 crore in the first fortnight of October 2011, and Rs 84,000 crore in the first fortnight of December 2011. Though the headline IIP index recovered in November to 5.9 per cent, the GDP growth for the fiscal is expected to moderate. The RBI revised its fiscal year projection downwards from 7.6 per cent to 7.0 per cent. The good news, however, is the downward trend in inflation, which fell to 7.47 per cent for the month of December from 9.11 per cent in November. This is the first time since April '11 that the overall inflation has dipped below 9 per cent. All the major components of primary, food and non-food inflation also showed a marked decline and were 3.07 per cent, 0.74 per cent and 1.48 per cent, respectively for the month of December. Manufactured products inflation, however, was still at 7.41 per cent, declining marginally from 7.70 per cent for the month of November. It seems the inflationary pressures in the domestic economy have abated for now. However, for the long term, the government needs to take policy action to improve agricultural productivity and efficient supply chain of agricultural produce so that sufficient capacity is created and the system is not overburdened. The growing consumption demand will keep exerting increasing pressure on food production and inflation spikes and high inflation periods will become more common. Inflationary pressures in the form of high global crude and commodities prices will continue to remain. The credit and deposit growth rates have moderated and banks will be impacted, facing the effects of a slowing down economy and rising NPAs as well as moderating credit offtake and shrinking margins. These might remain muted for another quarter before the regulatory stance shifts to an expansionary monetary policy. We might still have to wait for a quarter before the monetary policy shifts towards stimulating growth but there are increasing signs that things will improve hereafter. Fiscal tightening is, however, in order.

HBL

Subbarao speaks

RBI Governor D. Subbarao lays out the reasons for RBI's monetary stance, and addresses the issues of bad loans and currency hedging.

Mallya meets RBI Deputy Governor

Faced with a severe financial crunch, Kingfisher Airlines' Chairman, Mr Vijay Mallya, met with Dr K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, in Mumbai on Tuesday, sources told Business Line. Bankers, belonging to the lending consortium, said that the meeting could have taken place to request the RBI for its intervention with regard to the airline's account with the banks. One of them said that the company could be “requesting the Central Bank for a special dispensation with regard to classification of the airline's account into a non-performing asset”. The 13-bank consortium, led by State Bank of India, have an exposure of about Rs 7,000 crore to Kingfisher Airlines, of which about Rs 4,000 crore are in the form of term loans. Kingfisher Airlines' account has turned an NPA for most banks of the lending consortium.  “If the account turns NPA, then the process of corporate debt restructure (CDR) comes to a nought, and banks can start taking action on the securities offered, which could have a huge impact for the airline,” said a top official of another lending bank. He also pointed out that since there is a broad consensus in the Union Government on allowing foreign airlines to pick up to 49 per cent equity in domestic carriers, the company could require certain clearances from the RBI. “The company could use the funds from the foreign equity participation to regularise its accounts, in which case all banks' accounts become standard.” In such a scenario, the company could also be requesting the RBI for further restructuring, considering the current turbulence in the aviation sector. Kingfisher Airlines officials were not available for comment.

HBL

Service price index soon

...... The proposed index will not be comprehensive to start with but will include the most important services like insurance, banking, health, telecommunications and aviation, a source privy to the matter said. A senior department of industrial policy and promotion (DIPP) official told FE that an expert committee under the chairmanship of Sriram Taranikanti, Financial Adviser, Insurance Regulatory and Development Authority (IRDA) has been formed. The committee includes senior officials from DIPP, finance ministry, RBI, academicians from Indian Institutes of Management, etc. ......

Service price index soon

RBI could have done more

....The Governor's press statement has clearly brought out why not much comfort can be drawn from the decline in inflation numbers. The stubbornness of core inflation, suppressed inflation in fuel products and the structural nature of the protein component of food inflation have prevented RBI from lowering policy rates. ......

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RBI interest rate unchanged; Rs 32,000 cr infused into economy

The Reserve Bank of India (RBI) today injected Rs 32,000 crore into the system by lowering the Cash Reserve Ratio (CRR) by half-a-percentage point but kept the short-term lending rate unchanged in view of persisting inflationary concerns. “Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate,” RBI governor Mr D Subbarao said while unveiling the third quarterly monetary policy review............

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CRR cut will have multiplier effect - K. Kanagasabapathy

......It is heartening to note that the present Governor has taken a similar position as his predecessors and in unmistakable terms has highlighted the similar risks prevailing currently. While normally, after policy interest rate is taken to a peak, RBI allows a pause before reducing the rate, this time around such a pause has to be longer than usual and even if the rate is reduced it should be in baby steps at longer intervals.......

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Is CRR a liquidity or a monetary tool?

.... Milton Friedman famously said, “Money is far too serious to be left to central bankers.” If he had his way, monetary policy would be run through a simple rule with limited intervention from central bankers. However, reality is just the opposite, with the world being increasingly reliant on the wisdom of central bankers to help ride the economic cycles..........

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CRR cut is liquidity action with anti-inflation stance: Subir Gokarn

MUMBAI: Reserve Bank of India Deputy Governor Subir Gokarn said the cash reserve ratio (CRR) cut is a liquidity action while maintaining the anti-inflationary stance.  The RBI cut CRR, the share of deposits banks must hold with the central bank, for banks by 50 basis points to 5.50 per cent on Tuesday to ease tight liquidity, signalling a policy shift towards reviving growth after nearly two years of fighting inflation. With core inflation still stubbornly high, the Reserve Bank of India, as expected, left its policy repo rate unchanged at 8.50 per cent for the second consecutive review.

ET 

Contradictions in policy statement - A.Seshan

.................I have argued over the last decade on the need for a new RBI Act, reflecting all the developments in the financial and monetary sectors since 1934, including the amendment of the Preamble to tag on growth to monetary or price stability. Many other central banks, both in the developed and developing worlds, have done this.............

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CRR cut isn't a govt versus RBI case: Bimal Jalan

...... I think that it's not Reserve Bank versus government. That's not the issue. You take a collective view. One is essentially saying that if the fiscal deficit is higher than what can be tolerated in terms of both inflation and financial stability. Then we have a problem and that needs to be tackled. We should take a view not sort of posing it as two opposite camps......

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Should it have been a CRR cut? – S.S.Tarapore

In a reaction to the monetary policy, economist SS Tarapore said, “ the RBI Policy Statement is an excellent document setting out with elan and style, the risks and opportunities. The relaxation of the CRR is a powerful instrument and one wonders whether the initial step of relaxation should have been the CRR. A better option would have been to undertake gradual forex purchases to prevent an appreciation of the rupee and augment the forex reserves; These operations would have also augmented domestic liquidity.

FPJ

Needed: Bold moves, not baby steps

Corporate India was left wanting for more, following the announcement of a 50-basis-point cut in the cash reserve ratio (CRR) by the Reserve Bank of India (RBI) on Tuesday. At a time when headline inflation has been moderating, most were expecting the central bank to take a firmer stance on growth. What they got instead was what some privately describe as mere “tokenism”.......

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'RBI move to restore growth momentum'

Bangalore, Jan 24: The Bangalore Chamber of Industry and Commerce (BCIC) welcomed the Reserve Bank of India’s monetary policy to cut 50 basis points in CRR, which is expected to infuse Rs 32,000 crore into the system easing the tight liquidity situation in the country.  Welcoming the change, Mr H.V. Harish, Vice-President, BCIC, said, "This CRR cut should bring liquidity back into the system and also bring down costs for industry and hopefully restore the growth momentum which has been lost." He also expected the policy to drive down inflation with lower cost of interest. "We also expect industry to look at capital investment again and that should provide a boost to the capex equipment makers and to the investment climate,” he said in a press release.  Mr N. Venkatakrishnan, Chairman of the Banking and Finance Expert Committee of the Chamber, said: “The RBI has taken a timely step to respond to economic realities and help kick-start activities. The monies released into the banking system will help cool interest rates which is pro-industry measure”.

HBL

RBI to meet bankers to discuss NPA, says no concern for now

MUMBAI: The Reserve Bank on Tuesday said there is no concern about the level of non-performing assets (NPAs) in the banking system and it would soon meet 10 large banks to take stock of the situation. "Whatever (NPA) figure is being reported, we don't find anything to worry. We have done a stress test in the Financial Stability Report and we don't have anything to worry about," deputy governor of RBI K C Chakrabarty said. He added, however, that the central bank would soon meet 10 large banks to ascertain the situation. "Just now, we have no concern. But, we are concerned about how the message is going from the media and analysts (to the public). So, we will discuss with the banks about the NPA issue," Chakrabarty said. Referring to sector specific stress points, he said the central bank is not uncomfortable about lending to any particular sector. "We don't have, as of now, any sector specific concerns. If you analyse, the gross NPA which is 2.66 percent now was 2.8 percent in 2007," he said, adding that the NPA numbers reported in sectors like telecom and power distribution companies (Discom) are minimal compared to total portfolio. "In case of power, the reported NPA is Rs 768 crore out of Rs 2,60,000 crore (of portfolio). So, we don't have any concerns. Even the restructured standard asset is not substantial. That (NPA) has happened not only because of credit squeeze, but due to various other factors related to project implementation," he said. The central bank also clarified that it would not intervene in banks' decision to stop lending to power discoms. "Whether banks (will) continue to lend, or stop lending to discoms and on what basis, it is between state government, banks and discoms. We will not intervene in this matter," RBI Governor D Subbarao said. He quoted instances of letters received from state governments asking for intervention to restart lines of credit discontinued by banks. A recent Crisil report said losses of Discoms (power distribution companies) rose 24 per cent to Rs 27,500 crore between 2006-07 and 2009-10, which could rise to about Rs 35,000 crore in 2010-11 as power tariffs were not revised by state governments along with various other issues. Subbarao also said that he is not comfortable with the idea of converting public carrier Air India's debt into SLR (Statutory Liquidity Ratio) bonds. Banks are struggling to recover Rs 19,000 crore from the ailing national carrier and one of the three proposals floated to restructure includes converting the outstanding debt into Government bonds which could be transfered to the banks' SLR portfolio.

TOI

Policy review, but no word on interest

For the first time the common man has nothing to look forward to in the credit policy though the RBI released Rs. 32,000 crore into the banking system through a half per cent cut in the cash reserve ratio (the cash that banks have to keep as a percentage of their deposits with the RBI) in the 3Q Monetary Policy Review announced by the RBI Governor, Dr D. Subbarao, on Tuesday. All other policy rates were kept unchanged. People were expecting a rate cut so that they would get relief in their home loans and EMIs. But on Tuesday no banker was willing to talk about where interest rates would go. Ms Chanda Kochhar, managing director and CEO of ICICI Bank and India’s most powerful private sector banker, said “the lending rates would depend upon the demand for credit”. Mr K.R. Kamath, chairman and managing director of Punjab National bank, said that they would have to wait and watch how liquidity, credit offtake and deposit growth pan out before deciding on interest rates.

Asian Age

Excessive risk aversion a worry

According to the central bank, lenders were exaggerating company-specific issues and using these as excuses to not lend to particular sectors, sources familiar with the development told Business Standard. RBI Deputy Governors KC Chakrabarty and Anand Sinha would meet officials of 10 large banks to examine the issues related to non-performing assets (NPA).

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RBI to come up with hedging policy for banks in 7-10 days

The Reserve Bank of India (RBI) today said that it would come up with guidelines for banks relating to hedging policy in the next seven to 10 days in order to reduce the impact of volatility in currency on banks. "RBI will come up with policy guidelines relating to hedging in next seven to 10 days, which will ask banks to have a board determined policy on their foreign currency exposure," RBI Governor D Subbarao told reporters after the policy announcement. He, however, said the central bank doesn't want to mandate hedging for all kinds of foreign currency exposure as it doesn't want to micro-manage the banks. "If the banks lend corporates in foreign currency, they shouldn't have any unhedged exposure except natural hedge," Deputy Governor of RBI, Anand Sinha said adding that RBI wants to protect the balance sheets of banks due to any volatility from currency movement. Recently, many corporate houses have reported a huge amount of mark to market losses due to rupee depreciation, which has fallen around 16 percent in the last one year. As per reports, the rupee's depreciation of 9.72 percent against dollar in the third quarter of current financial year is likely to increase Indian Inc's mark to market losses by Rs 15,000 crore in this period.

IBN Live

RBI: It’s up to the Budget now

.... Of course, the RBI has justified the CRR cut by saying it’s a measure to infuse liquidity. But here’s what Deputy Governor Subir Gokarn said in a speech in early December 2011, referring to cuts in CRR and SLR, ‘But, in thinking about these instruments, we must keep in mind that they straddle the divide between liquidity and monetary management, which, at the current juncture, we are intent on maintaining.’....

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India Unexpectedly Cuts Reserve Ratio as BRICs Act on Growth

... While India's inflation, stoked by rupee weakness, is the fastest in the group, it eased to a two-year low last month, giving Governor Duvvuri Subbarao more room to inject cash into a slowing economy.......
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Pranab Mukherjee laudsthe balancing measure

.....“[The Reserve Bank's] announcement should help address the money market liquidity, which had tightened in the past two to three months, while balancing the downside risk on growth and deceleration in moderation of inflation”.....

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RBI asks government to free diesel prices

....“Particularly, as the food subsidy bill is expected to rise, it will be prudent to fully deregulate diesel prices to contain both aggregate demand and the trade deficit,” the RBI said in its third quarterly monetary policy review........

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No better time to invest in bank deposits than now

....“It is advisable for depositors to lock their funds in deposits of one-two-year tenures now. Even if deposits of a five-year tenure fetch similar interest rates, banks typically follow a one-two-year investment bucket and it is a better way to reap higher benefits since five years is too long a period to predict interest rate patterns,”.....

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Cloud in golden lining: Few checks, high risks

....The Reserve Bank of India has raised red flags. In a recent working paper calling for tighter norms for NBFCs, it said: “The higher borrowings of NBFCs, especially from the banking system, raise some concerns about their liquidity position. More so, if such reliance happens to increase further... These concerns will be further accentuated in case the banks’ own liquidity position becomes tight at the time of a crisis or even in a crisis-like situation... More than 68 per cent of the consolidated balance sheets (of NBFCs) constitute borrowings.”......

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Banks ignore RBI security norms

With Reserve Bank of India outlining security norms for bank branches in 2009, Monday’s daylight robbery at Perungudi branch of Bank of Baroda on OMR highlights the lackadaisical attitude of bank officials in adhering to procedures.............

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