India’s post-crisis macroeconomic challenges - Deepak Mohanty

Speech by Mr Deepak Mohanty, Executive Director of the Reserve Bank of India, 
at the Ruia College, Mumbai, 28 August 2012

....During the post-crisis phase of 2008–12 while growth generally moderated, inflation rose complicating the task of monetary management. The Reserve Bank began exiting from the crisis-driven accommodative monetary policy stance in October 2009, first by phasing out all the unconventional measures and then raising interest rates. Overall, headline WPI inflation increased to an average of 7.6 per cent during 2008–12 largely reflecting near double digit inflation for most months during January 2010 – November 2011 period. WPI inflation has since moderated to around 7.0 per cent but remains above 5.5 per cent observed during the pre-crisis period. Growth moderation, coupled with signs of thawing of WPI inflation since December 2011, prompted the Reserve Bank to cut the repo rate by 50 basis points to 8.0 per cent in April 2012..... 

  

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Out of step

That relations were strained between former Finance Minister Pranab Mukherjee and Reserve Bank of India (RBI) Governor D Subbarao was an open secret. The wide communication gap was evident even as late as two days before Mukherjee stepped down as finance minister to prepare for his Presidential campaign. On Saturday June 23, Mukherjee told reporters in Kolkata that the central bank would take steps to strengthen the rupee. This statement ran as headlines in most dailies, but it turned out to be news for RBI as well. What steps? Who had discussed them with the finance minister? No one among the top brass had a clue. To save face, some half-measures were hastily cobbled together but to little effect. The rupee, which had started strengthening ahead of an RBI announcement, quickly slumped back. 

BS

Coin mela evokes huge response

....The RBI Deputy Governor K.C. Chakrabarty during his recent visit to the city said that it would be incorrect to say there is a shortage of coins in the market. “There has never been any discrepancy in issuing the coins as far as the RBI is concerned,” he said while adding that the actual problem lay in the distribution of the coins....... 

Read - The Shillong Times

Tough task master looses battle against cancer..........

Ms. Anitha Srinivasan, General Manager, DBS, Chandigarh passed away on 28^th August 2012. Ailing with cancer of the bone marrow, she was hospitalised for the last 3 months. 

A post graduate in Commerce (1^st class with distinction) from Osmania University, she had joined RBI as Gr A – DR (Assistant Manager) on July 20, 1987 in Chennai and had worked in Issue Department, DAPM (COB), DNBS UBD RPCD and DBS at different centres i.e. Chennai Hyderabad Mumbai and Chandigarh. She had also attended an Advance Management Programme in Singapore. She was very tough task master,  dedicated and sincere officer but as a person she was very affectionate and full of life and warm hearted. 

May her soul rest in eternal peace.   

- As reported by N.Gopal, CAB / Nitin Tanushri, Chandigarh 

Bank related grievances on the rise in state

....The complaints include fraudulent withdrawals of cash through ATMs without the knowledge of card-holders and by fraudsters, said the Reserve Bank of India. "This has been an all India phenomenon and not exceptional to our state. Most of these complaints are due to non-observance of prescribed safeguards by card-holders," said Banking Ombudsman for Odisha B K Bhoi.......

Read - TOI

Why not have variable CRR rates

.....The future of CRR looks quite exciting and no banker should shy away from contributing her/his intellect to this debate. This should be viewed as an opportunity rather than a problem by the bankers — both central and commercial.   

Read - HBL

..........but we still need CRR

..........There is no merit in the case for abolishing CRR: (a) it is a kind of reserve – however small – that needs to be maintained as a prudential measure for an exigency; and (b) it is needed as a monetary tool for RBI to modulate liquidity in the system. Therefore, the better course for RBI would be to maintain the status quo, but compensate banks to some extent by paying a nominal interest at 50 per cent of its repo rate. 

Read - BS

Sense & sensibility

...........RBI’s earnings are from overnight lending to banks, as well as ways and means advances to governments and commissions. It has another source of earnings in the form of incomes from foreign exchange reserves. That income has shrunk considerably since 2009-10, by over 60 basis points. This year, those spreads could fall further as RBI’s income from foreign currency assets shrink further. So if RBI were to scrap CRR or pay interest on them, spreads would shrink. It is from this income that RBI pays its dividends to the government. But is there merit in the central bank’s stance? RBI is a statutory institution and should worry less about the dividends it pays and pay more attention to the state of the economy. The central bank cannot deny responsibility for the present stagflation and rising unemployment in the country. 

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RBI's uncalled-for criticism

....Though it may not be realistic to expect RBI to give up one of its tools of monetary policy, there is no reason why the practice of paying interest on the reserves kept with the regulator can’t be revived......

Read - BS

Rajan takes charge as CEA on an 'auspicious' day

..........It is widely believed that Rajan comes with strong credentials and is the right man for the job, when the economy is going through a tough phase. However, since the country will go for polls in 2014, Rajan will have limited scope to turn around the economy in this government’s regime................ 

Read - BS

Importance of being Raghuram Rajan, economist in chief

....Even more important than being CEA is where Rajan could be headed next. The story goes that in 2008 when the search was on for a governor of India’s Reserve Bank of India (RBI) to replace YV Reddy, Manmohan Singh, a former guv himself, received a pressing recommendation from Montek. That man was Rajan. Manmohan was impressed, but he thought against someone who hasn’t worked in India. So, he let authorized an offer for Deputy Governor, a position Rajan politely passed over. .....

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Ministry wants banks to follow uniform loan approval criteria

.....The finance ministry has been trying to remove bottlenecks facing various infrastructure projects, including problems related to clearances and funding. Loans to the infrastructure sector dropped 16% in the first quarter of the current fiscal, according to Reserve Bank of India data......

Read - Mint

RBI wants CM Mamata Banerjee's push for banking in West Bengal

.....Since last year, it's become a norm in the banking circle to invite chief ministers to state level meetings. Bankers said it helped in clearing hurdles banks faced in different states. While chief ministers of other states like Andhra Pradesh and Maharashtra have been attending such meetings, West Bengal's Banerjee is yet to attended a single state-level SLBC meeting since she assumed power in May 2011......

Read - ET

BJP appeals to RBI to bring cooperative banks under RTI ambit

BJP has urged the Reserve Bank of India to bring the state cooperative banks under the purview of the Right to Information (RTI) Act......

Read - ET

Mobile banking set to become user-friendly

.....According to A.P. Hota, Managing Director and Chief Executive Officer, NPCI, the service code based mobile banking will further the cause of financial inclusion. The Corporation is working to get all banks to roll out this facility for their customers. Further, efforts are on to get all mobile service providers to activate the service code for their customers, said Hota......

Read - HBL

RBI doubles contingency reserve, surplus transfer to Centre falls

.....“The balance under CR is maintained to meet any unforeseen contingency or diminution in the value of RBI’s assets. We are not guided by its utilisation or otherwise,” said RBI in an e-mailed response.........

Read - Indian Express

RBI, government not on same page over monetary policy: Report

.....The parliamentary standing committee on finance, which went into the reasons for high inflation and slow down of the Indian economy in the last couple of years will be submitting a report to the Lok Sabha on Thursday, saying as much. The committee, headed by former finance minister Yashwant Sinha, which sat through lengthy depositions from both RBI governor D Subbarao and officials from the ministry of finance concluded their 27 page long report with this finding.......

Read - ET

RBI offsetting fiscal slackness: Subbarao

New York: Highlighting the need for fiscal consolidation, Reserve Bank of India (RBI) Governor D Subbarao has said the central bank's tight monetary stance is directed towards offsetting fiscal slackness.......

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Favouring foreigners in finance

..... Unable to implement “good” reforms such as reducing subsidies, implementing the goods and services tax , and establishing rules on land acquisition, keen to redress its reputation of being harsh on foreign investors, and desperate to restore its pro-reform credentials, this government and the RBI have been opening the economy to foreign financial flows.......

Read - BS

Structural inflation is a problem of India’s success story: Subbarao

Inflation continues to remain high and needs to be brought down to " more acceptable" levels of 5% or less, Subbarao said here, while noting that the challenge was to calibrate interest rates to control inflation and support economic growth at the same time. The Reserve Bank is scheduled to review its monetary policy on September 17. RBI raised policy rate 13 times or 3.75% between March 2010 and October 2011 in its bid to bring down inflation.........

Details

RBI should cut rate by 100 basis point soon for growth: K V Kamath, Chairman, ICICI Bank

 K V Kamath, one of India's most prominent bankers, wants the RBI cut rut its main policy rate by 100 basis points and boost consumption. By holding the repo rate at 8%, inflation is not being contained and growth is being harmed.......

Read - ET

Don't stunt real estate growth: K P Singh to RBI

Realty giant DLF's Chairman K P Singh has said that RBI's monetary policy should not stunt the growth of real estate sector and uninterrupted access to affordable finance is vital for this business.............

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'Tight monetary stance to offset fiscal slackness'

...Talking about the challenge in the path of fiscal consolidation, the RBI Governor said there are political economy issues including democratic compulsions and pressures of federalism. Besides, “politicians in democracies have high discount rates,” he added. The RBI chief said 6 per cent growth is not enough to bridge the income gap. “India is a supply constrained economy...India growth story is still credible because the drivers of growth are intact,” ...... 

Read - BS

MF interest rates: PMEAC talks tough

After the Reserve Bank of India (RBI) tightened the noose on India’s micro-finance institutions (MFIs), it is now the turn of the Prime Minister’s Economic Advisory Council (PMEAC), which on Wednesday said that MFIs must work within a stringent regulatory mechanism............. 

Read - Deccan Herald

Microfinance institutions must be responsible lenders: Rangarajan

....“Microfinance institutions which were becoming an effective alternative to money lenders can recapture that position only if they modify their business models and become responsible lenders,”..........

Read - The Hindu

Don't blame slowdown of Indian economy on RBI

.....Everybody understands that a combination of domestic and global factors is responsible for the slowdown. The disagreement is about the relative importance of these. The RBI report attempts to quantify the impact of each of these.......

Read - ET

Indians are saving less, government can do much to boost it

Two things are apparent from the Reserve Bank of India's recently-released annual report. Numbers there show that household savings fell sharply from 25.4% of GDP in 2009-10 to 22.8% of GDP the following year. The entire drop was due to a fall in financial savings, because households recorded a slight increase in physical assets.........

Read - ET

Seek more time to repay corporate loans: SBI

......“In the current scenario, with the rules RBI has proposed, it is difficult to increase the tenure after the loan is sanctioned. It would increase the burden on the bank. So, we are telling our customers to negotiate for more time. If one is able to repay ahead of the schedule, it is fine — there would be no penalty for pre-payment,”.............

Read - BS

Libor, Libor everywhere, no benchmark to follow

......The lack of a benchmark for loan pricing (or in other relevant areas) has stemmed from a variety of reasons. Firstly, there has been, justifiably, no specific regulatory effort to create one. The Reserve Bank of India’s (RBI’s) efforts have been directed towards individual banks creating their own benchmark, currently the base rate. I have written enough about how these benchmarks have been rendered ineffective: sector-specific complexities and government interference on loan/deposit pricing have muddied the waters. Until the base rates themselves are reliable, it is pointless to work towards a unified benchmark......

Read - Mint