Monday, September 10, 2012

A child's guide to monetary policy - S.S.Tarapore


In the run-up to the Reserve Bank of India's (RBI) Mid-Quarter Review of Monetary Policy on September 17, 2012 there would be frenzied discussion as to what the RBI ought to do. Much of the jargon would be totally alien to the Common Person but as the policy changes impinge on the Common Person shorn of the jargon what is needed is a Child's Guide to Monetary Policy…….


………If the duty of the RBI is to crush inflation, the need of the hour is a tighter monetary policy. The RBI has provided yeoman service over the years and it cannot be expected to carry as passengers the non- functioning wings of overall policy……..


Details

Change in corporate debt restructuring norms highlights conflicts; PSU banks bear the burden

....The CDR mechanism has come in for sharp criticism from none other than the Reserve Bank of India. In a recent speech, RBI Deputy Governor KC Chakrabarty said: "While clearly there is cause for concern given the pace and quantum of restructuring over the last few years, the concerns are aggravated by the fact that the restructuring is neither being permitted in a transparent and objective manner by banks.... Nor is it being resorted to in a non-discrimatory manner."......

Finance Ministry says no to Iranian bank's plan to open branch in India

......the matter was examined by Reserve Bank of India, and subsequently, based on RBI's report, a decision was taken by the Finance Ministry not to agree to Parsian Bank's application, sources privy to the development said...........

Read - ET

CDS seminar on 'RBI Annual Report 2011-12'


Thiruvananthapuram, Sep 3: A seminar on 'RBI Annual Report 2011-12' was organised by Centre for Development Studies (CDS) here today. The seminar covered RBI's macroeconomic assessment for 2011-12, outlook on growth, inflation and twin deficits for 2012-13, select medium-term structural issues, seminar coordinator Dr PL Beena said here. It also covered technical assessment on select issues relating to real sector, inflation, money, financial markets, government finances and external sector, working and operations of RBI, such as monetary policy operations, regulation, supervision and financial stability, public debt management and financial accounts of Reserve Bank for 2011-12.

Transactions rise, but rural banks face shortage of manpower

.....Another banker said that an urban branch can make Rs 2 crore business from one or two customers. But a rural banker has to mobilise the same amount of business from several people. He wonders why the Government applies the same yardstick for manpower planning when the profile of business is different and number of accounts is more in rural areas.

Bank pulled up for ‘deficient documentation’


‘Deficient documentation’ is all too familiar a context cited by banks to delay or even refuse loans to customers. But the shoe was on the other foot, as the Office of the Banking Ombudsman (OBO) for Kerala, Lakshadweep and Mahe ruled in a recent case referred to it.........

RBI to launch inter-school quiz across India

............The Reserve Bank of India will launch a quiz programme as its new initiative to promote financial literacy at school level across India. “A new initiative in promoting financial literacy among school children, the RBI will launch an All India Inter—School Quiz at school level across the country”, Chief General Manager, RBI, Alpana Killawala, said......

Awareness, training key to financial inclusion


 
For an open and efficient society, it is essential that every member should have access to public services and goods. Banking being in the nature of a public good, it is essential that the services should be available for the entire population without any discrimination. The poor sections of the society expect that the financial system would take care of their money by keeping it safe and secure. Low transaction costs, minimum paper work, easy access to various products and convenient operating time are some of the factors that can make life easier for the poor. According to experts, commerce with the poor is more viable and profitable if there is a possibility and ability to do business with them. In fact, provision of small, affordable products can work wonders to rope in low-income families into the financial sector. Most of these low-income group families are from the agricultural sector, migratory labourers and seasonal and unskilled workers with a fluctuating income. Banks can play a pivotal role in financial inclusion which will not only be a socially progressive step but a lucrative business proposition as well. Most economists and companies are looking at developing rural markets. However, analysts say that even as Indians are great savers with overall domestic savings rate of 31 per cent, there is very little awareness about financial literacy or credit counselling. At this point in time, policymakers need to understand that even as they have financial plans and programs for masses, there is an urgent need to educate citizens about financial planning. We require financial trainers who can educate people on money management.  Experts are of the opinion that it would be a good idea to include financial planning skills in school education. A survey reveals that the global average age of imparting financial literacy to children is 11.3 years. However, India still has a long way to go to introduce financial education in the school curriculum, in the entire nation, not just in select few elite schools. It is a well-known fact that technology will play a decisive role in promoting financial inclusion and financial literacy. Real time information on markets and products can help in investment decision making which can be enabled through secure technology platforms. A financially aware consumer will always be a help in developing products that are relevant and lead to financial innovation. The seed of financial awareness can be sown by right planning, timing and taking into confidence various stakeholders. It is time the policymakers knew that improving banking facilities’ penetration is only one of the pillars of this strategy, the other key component being making the nation financially literate. 

The Pioneer

Final diagnosis

This refers to the article “An MRI on health of the economy” (Business Line, September 7). The manner in which the precarious position of the economy has been explained goes well with the transparency in policy announcement that the RBI has exhibited in recent years. If the powers that be refuse to listen and make drastic changes in fiscal policy to reduce the obesity of the RBI’s balance-sheet, it could lead to the death of the central bank, and there should be no excuse that the diagnosis was delayed. The concern about dwindling reserves (as percentage of asset size) deserves immediate attention. That the transfer of surplus profit to the Government at Rs 16,010 crore, as percentage of gross income, was lower by 10.4 per cent as compared with 2010-11 is no reason for comfort.

- M.G. Warrier, Mumbai (HBL)

Click to read Warrier's blog

Law of Capital Flows

RBI Governor Duvvuri Subbarao seems to be developing a penchant for one-liners. In a presentation at Cornell University, New York, earlier last week, the RBI chief had this to offer as his contribution to macroeconomics: “Subbarao’s Law of Capital Flows: You never get capital flows in the exact quantity and/or at the precise time you want them.” Considering the widening deficit that India is currently facing, Subbarao was likely talking from personal experience.

FE

‘Low formal credit hampers rural housing’

.......The Executive Director of the Reserve Bank of India G Gopalakrishna said that inadequate information about land holdings posed a challenge in rural housing finance, which explains for low institutional lending and consequently demand for informal lending, i.e. from moneylenders............

Focus must be on improving investment climate: RBI Deputy Governor


Maintaining and improving confidence in the India story remains a challenge, according to H.R. Khan, Deputy Governor, Reserve Bank of India. This challenge, however, can be tackled through reduction in the twin deficits — current account deficit and fiscal deficit, improvement in investment climate for both domestic and foreign investors......

Are banks ready for Basel III?


......We need to find a balance between financial stability and the reality that financial services are needed to support the real economy. This will take time and will need constructive cooperation between the banking industry and the regulators, and will also require the regulators globally to work together to ensure a level playing field. Basel III represents a wholly new era in banking regulation where quick and accurate compliance can be achieved. Unlike Basel II, the implementation of Basel III requires monitoring data every step of the way and with the findings set to become public, the implication is that no further regulation will swiftly follow until the new risk paradigm is reached.

CRR has outlived utility

....The CRR mechanism had lost its relevance as a monetary tool in post reforms and post-technology (or ‘core banking solutions’) banking. With latest management information system tools, the RBI is able to get the requisite banking figures more accurately at weekly intervals. Data integrity is almost 100 per cent, unlike in the earlier era. SLR (statutory liquidity ratio) is more than adequate as a monetary tool, and also a resource platform for government borrowings. So, why have an additional instrument in this age of data awareness?.....

Babus in spat


The recent rather public spat between RBI Deputy Governor K.C. Chakrabarty and State Bank of India Chairman Pratip Chaudhuri underlines the turf war that is being waged silently in the higher echelons of the government. While most observers recall that Mr Chaudhuri’s predecessor O.P. Bhatt had also spent his tenure at the SBI waging a war of words with the apex bank over various issues, it may be the first time that the spat has spilled out in public. Some feel that finance ministry babus have been trying to dominate and influence policies that have been proposed by regulators like the RBI and Sebi. And if the current bank regulatory environment is confusing, leading to public rebukes as in this instance, it may have to do with North Block as well.

Banks feeling heat from bad loans

.....The situation looks set to worsen during the current financial year. Most PSBs have seen their gross non-performing assets as a percentage of advances increase by anywhere between 50 and 150 basis points between March quarter and June quarter this year. Based on the RBI’s estimate that 15 per cent of restructured assets may actually slip into bad loans, the NPAs from restructured loans may add another 90 basis points (15 per cent of 5.9 per cent) to the gross NPA of public sector banks. This would take their gross NPAs to more than 4.1 per cent for public sector banks by March 2013......

Read -  Khaleej Times Home


Banks for easing investment norms to step up lending to infra projects

....Banks have suggested that the RBI should allow them to classify investment in infrastructure bonds of three-five years maturity in the ‘held-to-maturity’ (HTM) category of investment classification. If allowed, they will not be required to make any provision should the bonds depreciate in value.......

For a graft-free procurement process

The underlying theme of RBI's guidelines on White Label ATMs is financial inclusion

.....Banks will likely prefer installing own ATMs where there is high customer density. It is still early to comment whether WLAs will change the rules of the banking sector but, nevertheless, the RBI’s intentions are to be lauded.

Read - HBL

Cut in bank deposit rates, a bias against depositors

....In the present scenario, when the depositors are sandwiched between rising prices and limited options for higher earnings from savings, banks themselves would be thwarting their low-cost and stable resource base. This will escalate the savings in physical assets and promote current consumption by households which does not augur well for the country. It may be mentioned that banks are facing a slow growth rate in their aggregate deposits which as on August 10 (y-o-y) grew by 14.3 per cent, much less than 18.5 per cent recorded in the similar period last year (Source: RBI WSS, August 31, 2012). Will the RBI look into this and come to the defence of the middle class bank depositors? 

Chakrabarty Advises Poor Not To Invest in Gold But NOT Ready To Advise PS Banks To Increase Saving Bank Interest Rates

In today's newspaper (7/9/2012), I found three items to be baffling as I was not able to reconcile them.  Three items were : (a) "RBI Advises Against Gold Investment"  (advise is mainly to poor people);  (b) "Gold Prices May Touch Rs35K" (c) An ad by SBI slashing interest rates on fixed deposits.  On first look they may appear to be different news items but a deeper look in reading  of all three items together gives a reflection of bankruptcy of our leaders in giving a direction to the economy and about the goals of RBI and GoI.    Let us analyse these news items.......

When household savings evaporate …

The Economic Outlook, a publication of the Economic Advisory Council of the Prime Minister (PMEAC), headed by C. Rangarajan, and the Reserve Bank of India’s statutory publication, the Annual Report (2011-12), were released in quick succession.............

......More often than not, it is their lenders’ requirements, and the banks’ own asset-liability positions that guide their deposit rates. The fact that inflation has already eroded the return on bank deposits and a further cut would only worsen their depositors’ plight seems to have escaped the attention of banks. That most depositors have really no alternative makes it worse.

For India's new finance minister, there is no time to waste

....A key part of Chidambaram's strategy to work around the political gridlock has been to forge better ties with the Reserve Bank of India (RBI), which frayed under Mukherjee. The two were at odds over which should come first - fiscal reforms or cutting high interest rates. The ministry and the RBI are now working on a coordinated plan that would see Chidambaram take the first step by unveiling some fiscal reforms, possibly in September. That could give the central bank room to ease interest rates......


Who are the culprits? The Fake Currency Notes Scandal



....According to the Reserve Bank of India (RBI), in the last six years, approximately Rs.76 crores of fake notes were seized. The RBI speaks only about the seized money. However, a report from a Parliamentary Committee states that fake notes worth Rs. 1, 69, 000 crores are distributed in the market. But in reality, nobody knows the total number of fake notes which are floating around in the market and being passed off as genuine......

Fake currency threat may not be serious

.......Such scattered reports do not convey an all-India picture. Do we have indications from the Reserve Bank of India (RBI) or the Ministry of Finance that this is a serious threat? Do we have a very high rate of fake currency? Are these efforts being made only by crime syndicates who may or may not have political intentions? The RBI governor in his address on 23 March 2010 said that the "fake notes reported as detected by banks and fake notes found in remittances received by RBI during 2008-09 amounted to 8 per one million notes in circulation". He clarified that this did not include the notes seized by the police. He also said that......

Read.........

Getting dirty money out of banking systems

....A clutch of international banks with operations in India were recently in the news for being involved in anti-money laundering (AML) activities, and helping anti-national elements to engage in terrorism and other illegal activities. The RBI is now scrutinising the systems of some of these banks, which have significant operations in India. KYC Norms, suspicious transaction reports, and cash transaction reports are some of aspects under review, according to the finance ministry.......

Read - HBL

Dy mayor blames official for RBI Square name mess

NAGPUR: Deputy mayor Sandip Jadhav has slammed Rahul Warke, development engineer of Nagpur Municipal Corporation (NMC), for holding back vital information from him on RBI Square renaming......

Read - TOI

Time for hard decisions from New Delhi

.... High borrowing costs have contributed to the sharp slowdown in economic growth, but the Reserve Bank of India (RBI) is in no mood to lower interest rates until the government takes concrete steps to curtail wasteful expenditure.....