THE END OF THE DERIVATIVES DREAM

RBI’s conservative approach to anything called financial innovation is known. But the way its ED VK Sharma blew into pieces the arguments for various instruments and the market is not what the experts make it out to be at Finnoviti 2012. He picked holes in every one of the markets in India. “It would be no exaggeration to say that these hugely negative spreads of IRS to G-Secs are as counter-intuitive, quirky, anomalous, warped and preposterous as a father’s negative age spread to his son’s is!” 

ET

The financial innovations that never were - V.K.Sharma

Keynote Address delivered by V.K. Sharma, Executive Director, Reserve Bank of India, at Finnoviti 2012 organised by Banking Frontiers, Mumbai, India, on November 8, 2012

......A typical, but fallacious, and vacuous, rationalisation offered of this counter-intuitive, warped, wierd and preposterous feature is that while IRS yields are influenced by expected path of future interest rates, those of G-Secs are influenced by their supply!! Nothing could be farther from the truth for this rationalisation turns the very logic and reason on its head. For, as I said, being pure time value of money, G-Secs are influenced by, and immediately price in, inflationary expectations arising from higher fiscal deficit which, in turn, is the cause of additional supply of G-Secs and not the other way round.......

Read - HBL

Can RBI end India’s cronyism?

The central bank should implement the Mahapatra committee proposals speedily without allowing any exceptions

.....the Reserve Bank of India (RBI) should gradually withdraw the cover it provides for politically motivated lending decisions. In other words, it should not dilute its reporting and provisioning standards on loans made, especially to public sector enterprises. Yes, this would show the financial health of the Indian banking sector in poor light. However, allowing sunshine into Indian bank financials is far better than taking a sanguine view of their health based on diluted standards. Moreover, politicians have not used the time afforded by the restructuring to eliminate the underlying causes that give rise to NPAs in the first place.......

Read - Mint

Subir Gokarn's fate hangs in balance as panel meets to shortlist candidates

Reserve Bank of India Deputy Governor Subir Gokarn’s fate hangs in balance as a search committee will meet soon to shortlist the names of candidates who will be interviewed for the post. Gokarn (53), who was appointed in 2009, will complete his three year term on November 23. Sources familiar with the developments said Gokarn would appear for the interview for having a second term..........

Read - BS

A search committee met this week to find a likely successor for the man whose inputs are vital for monetary policy making. The man with the look of Marx has been the face of RBI to explain why interest rate was not raised, or not cut. There are many who want to succeed him, given the rising stature of the central bank under D Subbarao. Many wonder whether an economist from a global bank, who was tipped to take the seat last time, will be the person again when the seat falls vacant on November 23?

ET

Archana Bhargava may Join Bank of Maharashtra as ED

Archana Bhargava, the ED of Canara Bank, is likely to be moved to Bank of Maharashtra as the bank’s second ED, so says the rumour mill. She rose to the rank of GM at PNB before joining Canara Bank as ED in March 2011. According to the banking sector, earlier she was to be promoted to one of the small-sized PSU banks as CMD, but now there appears to be some kind of rethinking. Meanwhile, the government is yet to appoint a CMD at Canara Bank after S Raman retired in September 2012. 

ET

Should RBI control cooperative banks ?

Three selfless cooperators have thrown themselves into analyzing the ills/benefits of RBI control of cooperative banks on the platform of Indiancooperative.com. We think it in the fitness of things to publish it for the benefit of the people in general.........

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The RBI's smoke and mirrors

.........Monetary policy is a blunt tool, and only the RBI can know how it will ensure credit to productive sectors by keeping the repo rate unchanged. It is true that the RBI has to deal with several constraints, some of which are fallout of government inaction. Consequently, monetary policy alone cannot be the lasting solution to India’s inflation. Still, the RBI will achieve better success if it comes across as being less confused about what it is trying to fix: low growth or still-high inflation. In the absence of such clarity, it’ll have little success, as has been the case.

Read - BS

Banking lokpal planning to offer SMS facility

JAISALMER: Efforts have been stepped up to create awareness about the banking lokpal system in the country and results so far have been encouraging as there is a significant increase in the filing of complaints by consumers, said Rajasthan head of banking lokpal.........

Read - TOI

Build robust mechanism to prevent e-banking fraud: RBI

.......The Reserve Bank of India wants banks to build a robust mechanism to prevent incidents of fraud in areas of mobile/Net banking and electronic fund transfer. “With greater infusion of technology in banking, the incident of frauds in Internet banking has witnessed an increase in recent times. Banks need to improve customer awareness to contain incidents of frauds involving customers,” the RBI said in its latest Report on Trend and Progress of Banking in India.....

Read - HBL

Flouting the norm

......... With just about two months before these cheques become invalid, at least one public sector bank, Central Bank of India, continues to flout the RBI directive. As late as October 31, 2012, customers have been issued cheque-books that are not in accordance with the stipulated CTS-2010 standard........

Read - BS

CRR cut won't have much impact on liquidity or interest rates

.....The FM has been asking the RBI to take action, while the RBI has been selective this year in terms of lowering the repo rate (April) and the CRR (February, March, September and October). The RBI evidently sees interest rates and inflation more from a macro view and implicitly looks at real interest rates. But, how do banks react to rate cuts? Are they really sensitive to rate changes or are they just asking for more? ......

Read - ET

Assocham submits infrastructure growth roadmap to FinMin

...... It suggested that banks may be permitted to issue long-term, tax free bonds for the purpose of lending to infrastructure sector at a lower rate of interest. Provisions may also be made by the Reserve Bank of India (RBI) to provide interest subsidies to the banks for their exposure in this sector, it said.........

Read - BS

Playing the victim after getting caught

......In 1992, the enactment of a Special Court (Trial of Offences Relating to Transactions in Securities) Act ensured that some were carefully kept out of the net. ANZ Grindlays Bank, which credited cheques issued by various banks to the account of scam-accused Harshad Mehta, was untouched by the civil and criminal cases of the Special Court. It was permitted to enter into long-winded arbitration proceedings with State Bank of India (SBI) and the National Housing Bank (NHB). The Bank had infamously argued that crediting cheques to brokers’ accounts was ‘an accepted market practice’. One may argue that treating ANZ gently was done in the national interest, since India had just managed to avoid a default on external borrowings. The manoeuvre saved the Reserve Bank of India (RBI) from embarrassment. After all, NHB was a wholly-owned subsidiary and RBI deputy governors graced the SBI’s board.  ......

Read - Moneylife

The core of the inflation debate

.... As monetary policy transmission has a lagged impact on inflation, central banks tend to be forward-looking and factor in the expected changes in core inflation, rather than respond to temporary cost-push pressures. Keeping this in mind, RBI has hinted at a further loosening of monetary policy, perhaps a rate cut in early 2013. Nonetheless, while core inflation could moderate in the coming months, high food and fuel inflation will keep WPI inflation well above RBI’s stated tolerance limit of 4.5-5% for the foreseeable future. This will still make it difficult for RBI to communicate the rationale behind a repo rate cut, as and when it is done......

Read - FE

Cut and thrust

..........The friction, however, is far from over. It now appears that RBI Deputy Governor Subir Gokarn, 53, who strongly backs inflation-control over growth, may not get an extension, though he is well below the retirement age of 62 years. The government has constituted a search panel to replace Gokarn whose term expires on November 23. Also, the finance ministry is likely to dig deep into the RBI's accounts books, as it is the government that tables the central bank's accounts in Parliament. Perhaps, Chidambaram would soon be able to show Subbarao who is the boss............

Read - The Week

Asset liabilities

....The only way to curb formation of NPAs in banks is to discipline the borrowers by strict appraisal standards and close monitoring of loan accounts. They need to be rated based on their conduct of loan accounts. Banks should levy a small fine when their performance deteriorates.....

Read - BS

Electronic transactions rise 53% in first half of fiscal: RBI

Electronic transactions in the country in first nine months were reported at Rs 14,88,353 crore rising 53% over similar period last year according to the data released by the Reserve Bank of India (RBI). Electronic transactions include electronic clearing services (ECS), national electronic funds transfer (NEFT) and card payments (credit and debit).............

Read - BS

Big loopholes in farm credit

The RBI closes some, but many others still exist

....Some loopholes that allowed banks to avoid lending directly to farmers and yet claim to be meeting farm credit targets have recently been plugged by the Reserve Bank of India (RBI) when it altered priority-sector lending norms. Most banks found extending finance to agricultural institutions far more convenient than loaning funds directly to farmers, which entailed a higher recovery risk and transaction cost. Thus, the share of indirect credit in total agricultural credit supplied by commercial banks surged from 11 per cent in the mid-1990s to nearly 30 per cent in 2011......

Read - BS

CBI should not probe biz decisions, public sector banks tell FinMin

Top public sector bank officials have told the Finance Ministry and the Reserve Bank of India that the Central Bureau of Investigation should not call into question the commercial decisions taken by them in good faith. They warned that if the investigating agency starts questioning the commercial decisions taken for growing the loan book, then the decision-making process as well as the officers’ morale will be affected............

Read - HBL

RRBs need to open 1,700 branches this fiscal: RBI report

.....The Government’s plan to recapitalise RRBs is yet to gain momentum in some States. Based on the recommendations of the K.C. Chakrabarty committee to study the current level of capital to risk-weighted assets ratio (CRAR) of RRBs, the Government had announced a recapitalisation programme in 40 of the 82 RRBs to ensure that their CRAR level reaches nine per cent by March 2012......

Read - HBL

RBI to banks: Show action taken on unhedged forex risks

At a time when the risks from unhedged foreign currency exposure of companies has emerged as a big scare for the banking sector, the Reserve Bank of India (RBI) has directed banks to furnish action taken reports on the issue before end-December 2012. The direction on filing the compliance reports stems from the RBI advisory in February under which banks were told that they should “rigorously evaluate the risks” arising out of unhedged foreign currency exposure of the corporates and price them in the credit risk premium while extending fund-based and non fund-based credit facilities..........

Read - Indian Express

Retail inflation up at 9.75 % in Oct

Vindicating Reserve Bank of India Governor D. Subbarao’s stand on not easing interest rates during the monetary policy review last month on account of persistent inflationary pressures, retail inflation moved closer to double digits at 9.75 per cent in October from 9.73 per cent in the previous month. As per the CPI (consumer price index) data released here on Monday, even as the month-on-month rise in the price spiral appears to be minuscule, the fact remains that there is as yet no sign of a cooling-off to suggest a downtrend in inflation in the near-term........

Read - The Hindu

Bleak economic scenario

.....The RBI cannot be expected to surrender its remit to hold inflation within reasonable limits. At 9.75 per cent consumer price inflation is at least four per cent too high for anyone's comfort. Hence the refusal by RBI Governor D Subbarao to reduce the prime lending rate at the time of the latest monetary review a few days ago. Should CPI continue to stay high, it is unlikely the central bank would cut the policy rate even in the fourth quarter. If Chidambaram is keen on rate- reduction, he should first tackle the burgeoning fiscal deficit.

Read - FPJ

More than a lakh ATMs in India; SBI controls 59%

........The NPCI has been an umbrella organization created by the Reserve Bank of India, which acts as an umbrella body to monitor all payments through ATMs, and looking at transactions between banks regarding these machines. For this reason, the National Financial Switch is operational to monitor the connectivity and keep an eye on the registeration of the ATMs. Banks actually have to furnish details of their ATm network wherever there is one................

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Now, Mastercard with LCD screen, built-in keyboard

Mastercard in Singapore has launched a new credit card that has an LCD display and built-in keyboard. The card has touch-sensitive buttons and the ability to create a ‘one-time password’, doing away with the need for a separate device sometimes needed to log in to online banking....

Read - Indian Express

For banks, all that glitters is coins

....“There is definitely some traction in sales vis-à-vis last year despite the rise in price of gold. There is less mark-up due to surging gold rates. However, we do anticipate a growth of about 20 per cent compared with last year,”........

Read - HBL