RBI, the favourite whipping boy : S S Tarapore

........Thirty years ago, the RBI undertook an unprecedented monetary tightening. For the first time, there was a Calling Attention Motion in the Rajya Sabha, in January-March 1982, on monetary policy, and the Opposition unleashed a savage attack on the RBI and, in particular, the then Governor, Dr I. G.Patel. The Finance Minister undertook a brilliant defence of the RBI and its Governor and also made it clear that anything the Opposition wished to say should be directed to the government and not the RBI Governor. It is imperative that today's policymakers and others participating in the debate read the Rajya Sabha proceedings. The then Finance Minister was none other than Mr Pranab Mukherjee..........

.......What would be the appropriate monetary policy response on June 18. Given the current inflation rate and the wide CAD and further likely depreciation of the rupee and the hesitation of investors to move funds to India, the ideal policy would be to raise policy interest rates and increase the cash reserve ratio. Given the diktat from North Block to ease monetary policy, the RBI would be performing its duty if it engages in a battle of attrition as Dr Chakrabarty has competently done. At the least, the RBI should strongly resist any policy easing on June 18. The RBI Governor, Dr Subbarao's task is not enviable and the RBI needs public support and understanding so that it is not made the favourite whipping boy of the government.

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Pranab-da is busy; it’s back to Subbarao to steer the economy

......India’s political leadership is currently preoccupied with the jockeying over the Presidential elections and politics has once again taken centrestage ahead of economics. Even as confusion reigns over who will go to Raisina Hill – the finance minister, Pranab Mukherjee being a key contender – Subbarao and his colleagues at Mint Road would have other things on their mind. .....

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and he went to Hari Dwar............

Shri.P.A.Kumarji died of a stroke on June 11,2012. He had gone to Haridwar with a group on a religious tour to Badrinath. He was 65 years old. Kumarji was a Grade C Officer in Ahmedabad Office and had opted for voluntary retirement. He is survived by his wife and two sons. May his soul rest in peace.

 

As reported by P.P.Ramachandran. (via e-mail)

HC admits NBFC's plea against RBI

.................In the Writ Petition, AICL also has challenged the legality and validity of the circulars of RBI dated September 28, 2006, May 24, 2007 and January 2, 2009 as the circulars are ultra vires the provisions of the Reserve Bank of India Act. Reserve Bank of India under Section 45-L has powers to issue directions but shall have due regard to the condition in which and the objects for which the institution has been established, its statutory responsibilities, if any, and the effect of the business of such financial institution is likely to have on the trends in the money and capital markets.

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RBI broadens scope of prepaid payment instruments

.....The central bank has asked issuers of the instruments to ensure that under no circumstances is more than one active instrument issued to the same holder by the same issuer. The scope of the prepaid payment instruments has been broadened after a review of the way the issuance and acceptance market has developed, the RBI said........

Read - HBL

Credit societies to act as BCs for farm credit in Maharashtra

.....The decision was taken at the state-level banking committee meeting here today which was attended by representatives from the RBI, top officials of nationalised banks and the chief minister himself. A total of Rs 750 crore has been disbursed to four lakh farmers in the affected districts while Rs 500 crore more is yet to be disbursed, the press note said. At the meeting, Chavan asked the Maharashtra State Co-operative Bank to take lead in facilitating flow of these funds by helping the nationalised banks and RRBs, the statement said.......

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Public sector banks must not be burdened with social costs

......As far as the finance ministry is concerned, India, it would appear, is back to the days of bank nationalisation in 1969! The clock has virtually been turned back on the post-reform period after implementation of the Narasimham Committee Report, when banks came to be seen as commercial entities rather than as vehicles of government's social agenda.....................

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RBI move on remittance to help strengthen rupee

....K. P. Padmakumar, Executive Director of Muthoot Finance Limited, and former chairman of Federal Bank, told The Hindu that the RBI move was a positive measure for the non-resident Keralites. “It is bound to boost the remittances and contribute to the improvement of the value of rupee. The measure will enhance dollar inflow as the transaction involves dollar purchase by the banks or the designated dealer involved in the deal,” he said. “Ever since the value of the rupee started declining, rupee remittance has become an attractive proposition. The RBI has been under pressure to raise the remittance limit,” he said.......

Read - The Hindu

Record NRI deposits not enough to stem rupee fall

 Non-resident Indians' bank deposits have risen to record highs in April as they sought to benefit from higher interest rates here, more than double the yields offered in developed countries. However, being just a drop in the ocean, it couldn't do much to shore up the rupee's value.............

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The rupee's good news : Jamal Mecklai

I received a congratulatory email a couple of weeks ago from someone who reads my columns and with whom I occasionally correspond. He reminded me that in an article published in January, I had forecast that the rupee would range between 47 and 57 against the dollar this year, and that, with the year nearly half done, my forecast was still holding. His big question was: will this range hold for the rest of the year?...........

Read - BS

Fresh setbacks set the stage for RBI action

.....While many economists said that the current high inflationary scenario did not warrant a rate cut by RBI, they maintain that the absence of credible fiscal and policy measures could still force the hand of the central bank. Finance minister Pranab Mukherjee said he is confident that the range of inflation will be 6.5-7.5% throughout the year. “I hope if (the) monsoon is quite good, then it would be possible that this type of pressures would be sorted out,” he added.....

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Pundits prune RBI rate cut forecasts

.....“We believe an independent central bank should not signal policy easing immediately as risks to inflation are strong. Core inflation (non-food manufactured products) is unlikely to come off significantly in the near-term and slower growth is essential to keep a lid on inflationary expectations in the economy given the loose fiscal stance,”.....

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Inflation can't be curbed without sacrificing growth: RBI Governor

........."You cannot control inflation without sacrificing some growth. After all, you have to contain demand. When you contain demand, growth comes down. So there is no way of bringing down inflation without sacrificing some growth," ..........

Read - Hindustan Times

Cut in policy rate likely, CRR may not change

......The Reserve Bank of India (RBI) is expected to cut the policy rate by 25-50 basis points in its mid-quarter monetary policy review on Monday, a poll of 25 respondents conducted by Business Standard showed. However, views were fairly divided on whether the central bank would opt for a reduction in banks’ cash reserve ratio (CRR) as well. Almost 90 per cent of those polled — economists and market participants from banks, brokerages and primary dealers — expect RBI to draw comfort from stable core inflation and give preference to supporting growth........

Read - BS

Rate cuts won't help

Apropos “Monetary policy isn’t a popularity contest” (June 13), rate cuts alone are not a remedy for slowing growth. Growth is a function of an effective and a proactive policy mix — monetary as well as fiscal. It is erroneous to hold high interest rates responsible for the slowing growth rate. In the absence of investments and productivity-led fiscal initiatives by the Centre, monetary manoeuvres of the Reserve Bank of India (RBI) will remain ineffective. We need to boost investor sentiments and focus on productivity growth.

- Venkatesh N Hubli (BS)

RBI: ready to support India’s economy?

.........If New Delhi could only turn its attention away from national elections in 2014 – and, in the short term, from the all-absorbing matter of this month’s election for the ceremonial position of president – the RBI might be able to hold a consistent line. But that, clearly, would be asking too much.

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Inflation woes not over yet

.....The current mess in the Indian economy—especially the toxic combination of slowing growth and persistent inflation—has its roots in bad economic management by the government in New Delhi. Fiscal profligacy, combined with a complete lack of commitment to economic reforms, has brought the economy down to its knees with global shocks adding to the pain. It will take more than a hasty rate cut by RBI to correct matters. There will be a long slog ahead, and while the Indian central bank could be asked to take a risk in case of a total economic collapse, the time is not right now. Despite the pressure, governor D. Subbarao should hold fire on Monday.........

Read - MINT

Rise in Indian inflation fails to quell rate cut view

....A Reuters poll after the GDP figures predicted the RBI will cut its repo rate by 25 bps to 7.75 percent on Monday to support growth. “There is no room left for any fiscal stimulus, so to trigger growth, the RBI has to lower policy rates,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai. Still, India’s central bankers face tough choices with inflation at relatively high levels.

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Indian economy is in stagflation: Moody's

....."Yet with the inflation numbers now being driven by supply-side factors, and with the currency being pushed downwards...and India's weaker growth prospects, we think that the RBI could cut rates without it putting too much upward pressure on inflation," said Moody's Analytics. However, it said the Reserve Bank of India (RBI) cannot be "too aggressive" while inflation remains a problem.......

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What is core – inflation or expectation? Ask RBI

Inflation numbers for May are out, and as expected it is higher. A disappointed market declined, fearing the Reserve Bank of India may hold its policy rate when it reviews its monetary policy on 18 June. Select economists are not in favour of a rate cut, but the markets and industry honchos desperately seek one. So what will be the RBI’s consideration while taking a decision on the rate?.......... 

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Financial stability panel takes up Eurozone contingency plan

.....The sub-committee meeting, chaired by Reserve Bank of India (RBI) Governor D. Subbarao, also discussed concerns on slowing growth, persistent inflationary pressures, growing twin deficits and negative market perceptions, said a statement issued by the RBI after the meeting. RBI Deputy Governor K.C. Chakrabarthy told reporters that a contingency plan on Eurozone was being worked. "A separate committee is working on that," he said......................

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We are doing our best: RBI

....Mr. Chakrabarty said the apex bank had taken whatever measures were necessary and possible within its purview. “The RBI is doing whatever best that can be done. All are doing their jobs and the rupee is stable now,” he said. Mr. Chakrabarty was addressing reporters on the sidelines of a meeting of the Financial Stability Development Council (FSDC), convened to review the development in global economy, with specific focus on the eurozone and the U.S., and their consequences for India. The RBI Deputy Governor said, in reply to a query that the RBI had taken necessary measures to stabilise the currency. RBI Governor D. Subbarao, IRDA Chairman J. Harinarayan, SEBI Chairman U. K. Sinha, PFRDA Chairman Yogesh Agrawal in addition to RBI Deputy Governors Subir Gokarn, Anand Sinha and Executive Director V. S. Das were among those attended the meeting.......

Read - The Hindu

FSDC forms working group to look into issues related to financial institutions

The Sub-Committee of the Financial Stability Development Council or FSDC has decided to form a working group to examine issues involved in framing a proposal for a comprehensive resolution regime in the country for all types of financial institutions. The decision was taken at an FSDC meeting, chaired by Reserve Bank of India Governor D Subbarao...............

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Maharashtra CM Prithviraj Chavan requests banks to help DCCBs

.....CM Chavan said that RBI should categorize the loans given by Commercial Banks to PACS as direct finance to agriculture instead of present practice of treating them as indirect finance. CM Chavan said that in 7 districts of Maharashtra the RBI has imposed certain restrictions on the District Central Co-operative Banks over accepting deposits. This is creating problems in these districts as these DCCBs are not able to fulfill their crop lending targets. He said that since such type of advance is treated as indirect finance to agriculture, commercial banks are not in a position to get interest subvention and also not in a position to lend at 7% to PACS. Mr.Chavan appealed to RBI for speedy disposal of this issue would go a long way in increasing finance to farmers in these districts. .........

Read - ET

Farmers to get loans from commercial banks directly

RURAL FOCUS

Farmers who are yet to receive funds from cooperative banks can now expect them to come from commercial banks There are plans to help regional rural banks use the infrastructure of primary agriculture cooperative societies that would disburse crop loans from commercial banks District central cooperative banks would function as business correspondents of the Maharashtra State Cooperative Bank to ensure availability of crop loans from commercial banks Commercial banks called for review of the recovery of stamp duty on loan for amounts exceeding ~ 1 lakh granted for agriculture-allied activities

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Sea change in commodity futures market

.......On the user side, a lot more is to be done. A policy push requiring big size actual users who could hedge price on futures market to mandatorily hedge at least a part on Indian markets. The Reserve Bank of India (RBI) may permit banks which actively lend for post-harvest funding requirements against commodity collaterals to directly hedge for price risk on commodity markets. These regulatory initiatives will enable the NCFMs to help ‘commercialisation’ of Indian agriculture, and in creating efficient linkages between agricultural marketing, lending and price risk management. Law makers, instead of doubting the usefulness of these markets, should empower the regulator to ensure that these markets to discharge their expected economic function by passing the amendment bill to the FCR Act.

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Hotels' apex body asks government to remove infrastructure riders

............."Infrastructure status to hospitality industry under the RBI's infrastructure lending list would mean bank loan repayment periods will be extended to 10 -15 years and the interest rate would settle around 3-4% which would translate into lower input costs. If the interest burdens are reduced, tariffs may come down by 2-3%," .......................

Read - TOI

Banks offer cheaper second loans to existing borrowers

...."Customers with a good track record and a long relationship with the bank are offered a preferential rate of interest," said an HDFC spokesperson. The Reserve Bank of India (RBI) has asked banks to be cautious as a higher-than-expected hike in interest rates could have an adverse impact on the asset quality of banks. However, 80% of borrowers in India have a good credit history, according to records available with the Credit Information Bureau (India) Ltd (CIBIL) - the agency that tracks the credit history of borrowers and assesses their credit worthiness.......

Read - Hindustan Times