....The main
objective of SLR bonds is to generate liquidity whenever needed. This
can be done either through repo market or through outright sale. Gsecs
are well-accepted collateral in a deep and liquid repo market and are
also eligible for availing refinance from RBI. The g-sec secondary
market is also reasonably liquid and can generate cash on T+1 basis. The
repo market in case of corporate bonds is yet to take off and the
secondary market is illiquid and lacks market infrastructure similar to
g-secs. SLR instruments, issued by the RBI through a transparent auction mechanism, are easily accessible to all classes of investors......
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Wednesday, November 28, 2012
Public sector bank chiefs go on-the-fly to control NPAs
Bad loans, or the so-called non-performing assets (NPAs), are rising. And provisioning norms – which mandate the money banks have to be set aside for impaired loans — are tougher.With the going tough, chiefs of public sector banks have decided to take matters into their own hands, literally. Using mobiles, they are now monitoring the ground level situation on bad loans real-time, and directing efforts to maximise recoveries.........
Banking muscle
Bankers’ conferences are a platform to flag new or flog old ideas. Last week’s meet at Pune saw Finance Minister P. Chidambaram using the opportunity to reiterate a pet theme of his – of the need for consolidation among Indian banks. We must create at least 2-3 banks of international size as the Chinese have done, Chidambaram noted, repeating what he had also been espousing in his earlier stints as Finance Minister. In fact, this issue has been flagged ever since financial sector reforms got underway with the opening up of the Indian economy in the early 1990s, receiving real prominence with the second Narsimham Committee on banking sector reforms in 1998. .......
Eyes wide shut
At a banking conference last week, spiritual leader Sri Sri Ravi Shankar was teaching bankers how to meditate. As a starting point, he asked the audience to close their eyes. Many bankers did not do so, despite being asked several times. It was the programme host who provided the explanation at the end of the session: they are bankers, he said, that’s why they’re a little scared to close their eyes.
BS
Bankers get a dressing down for failure to extend education loans
Collector Darez Ahamed on Tuesday lambasted a number of bankers for their failure to extend education loans. “Do not sit on the applications. If you feel that they are not eligible, reject them as it becomes legal and then they can approach the courts if need be,” he told them. Speaking at the third district–level consultative committee meeting of bankers here, he pointed out that as many as 164 applications for education loan have been pending with one particular bank, 114 of them in one particular branch.......
.........Those who took part included A.S.Pillai, AGM,RBI, K.Kothandapani, district manager, NABARD, and K.Sumathi, project director, DRDA.
Till the RBI manages its dollar war chest effectively, its focus on inflation will not yield results
....perhaps the greatest across-the-board negative impact on growth has originated in the severe monetary brakes that the Reserve Bank of India (RBI) has applied. The story of the 13 consecutive interest rate hikes beginning in March 2010 and ending in October 2011 is well known. Less well known is the severe restraint the RBI has applied to monetary growth. Adequate monetary growth provides the grease that oils the forward movement of a growing economy. While too much of it can make the aggregate demand run ahead of real incomes and, thus, fuel inflation, too little of it can arrest, even cripple, the forward movement. Over the decades, the RBI has maintained a relatively steady double-digit annual growth in the monetary base, which determines the availability of credit in the economy........
Now, let the money talk
.......Business correspondents across the country will pan
out with hand-held devices, similar to the card machines you see at
shops, that will work as mobile all-time-money kiosks, for consumers.
The machine will enable both authentication and identification of the
recipient and the local ATM. Aadhaar, which the RBI has notified as
Know-Your-Customer (KYC) data for banks, will help increase the reach
of banking system and financial inclusion by leaps and bounds,
something banks have been struggling with, as it makes little economic
sense to open a branch in a remote village. And that is not all. The
electronic digitised platform created by UID for Aadhaar will also help
insurance companies, mobile operators, consumer companies and even app
providers to reach out and expand their consumer base......
Chains of gold
. A scheme where individual Indians can sell gold for hard currency may help reverse the one-way flow, but this is probably too radical for the mandarins to consider. Creative financial engineering could perhaps find other ways to unlock that store of 25,000 tonnes. RBI Deputy Governor Subir Gokarn recently suggested offering gold-backed bonds or reverse mortgage schemes on household holdings of the metal. Previous experiments with such schemes have not been successful. This was partly due to rigidity in income-tax treatment and also because jewellery had to be melted down. Any new scheme would have to be structured to circumvent such known issues — but, given the trend, the sooner such ideas are implemented, the better.
Curing Indians of gold
.....gold demand will dampen as the economy starts picking up, as investment opportunities open up and as inflation starts to slow to reasonable levels. But there’s a bit of chicken and egg here: till gold demand remains strong, the rupee will remain weak, and that pushes up inflation which then causes another rush for gold. This is where Gokarn’s suggestion—RBI will soon put out a paper on this—comes in. Today, if someone wants to buy gold as a hedge, this increases imports and hence the current account deficit. If, however, consumers get the features of gold without the physical import, things will be quite different........
Gold demat? Why is the RBI suggesting a Ponzi scheme
.....Suggesting dematerialisation is like suggesting a cold shower for high fever. The logic could be that since the body is hot, why not cool it down? Why go through the elaborate exercise of trying to identify the infection that is causing these symptoms? But this is the remedy being proposed for the problem of high gold imports. Gokarn is treating the symptoms and not the root cause. The root cause behind Indians buying gold is currency debasement on account of the Reserve Bank running a very accommodative policy by monetising the fiscal deficits of successive governments. This can’t be addressed by making gold imports difficult or by “dematerialising gold”........
India's investment grade outlook stable: Moody's
......Moody’s said a reversal in the central bank’s monetary policy stance would revive investor sentiment. The Reserve Bank of India has hinted it might cut rates from January. In its last policy review meeting, the central bank had kept the repo rate unchanged at eight per cent, but cut the cash reserve ratio by 25 basis points to 4.5 per cent.......
If liquidity remains tight, RBI to conduct OMOs: H R Khan
The Reserve Bank of India ( RBI) will conduct open market operations (OMOs) to infuse liquidity in the system if the present tightness persists. While speaking on the sidelines of the Ficci-BOAO conference here, Deputy Governor H R Khan said, “Whenever there is need, we will do OMOs.” Adding, when asked if there was a need at present, “At this point of time, I can’t say if there is a need to do OMOs.”........
Microfinance sector showing signs of recovery: Report
......According to the State of the Sector Report 2012, brought out under the aegis of microfinance facilitation organisation Access Development Services, the loan amount disbursed by microfinance institutions, as well as the average loan ticket size, has shown signs of recovery in fiscal 2011-12. But the industry is struggling to recover from the impact of the SKS Microfinance crisis and the imposition of State-level regulation in Andhra Pradesh, which led to a virtual cessation of microfinance activity in what was till then the largest market for microfinance in the country........
My View on "A CASE FOR PAYING INTEREST ON CRR BALANCES"
I agree with the comments of Shri Chandramouliswaran. I thank him for the suggestion that I should contribute to the debate on the payment of interest on CRR balances flowing from the article under reference. I have already argued for not paying interest as the banks are making money through the working of the money multiplier (See “Nothing for banks to gripe about”, Business Line, September 11,2012 and the subsequent article “Government gets it wrong on CRR” of November 7,2012.) The question of paying interest on CRR balances does not arise, as the system is amply rewarded by the power to create money out of thin air. Obviously, in such matters, while the RBI looks at the system, individual banks think in terms of the bottom lines of their balance sheets. That the banks and the system will benefit more from a lower CRR with no interest payment than a higher CRR with interest payment has been pointed out by other experts on the subject. If the interest is to be paid on balances with RBI what will be the role of the reverse repo rate? The first part of the statement that “SLR is primarily aimed at restricting the expansion of bank credit as also to ensure solvency of banks” is not correct. Investments in SLR also contribute to the working of the money multiplier when government spends its balances with the RBI. There is no difference between credit and investment so far as the money multiplier is concerned.
The Market Stabilisation Scheme was introduced to sterilise the inflows of foreign currency mopped up by the RBI by selling rupees through intervention undertaken to stabilise the value of the domestic currency. Who would have bought those bonds without interest payment? Unlike OMO where the banks have a choice to participate or quote their own terms, CRR works across the system like a blunt tool and is more effective than the former. The author argues that an interest rate of 8-9 per cent will make it attractive for banks to park money in the central bank. What will be its impact on the market rate for government securities?
In the USA thanks to the three versions of Quantitative Easing the system is flooded with liquidity. The created money is making a round trip to the Fed. Due either to the reluctance to lend on risk aversion or the lack of demand for credit, banks find the interest of 0.25 per cent on total balances with the Fed more attractive than investment in Treasury Bills. As on September 14, 2012, the yields on one-month, three-month, six-month and one-year Treasury Bills were 0.08, 0.11, 0.13 and 0.18 per cent, respectively (See “Will the Fed’s QE 3 work?”, A. Seshan, Business Standard, September 20,2012). Banks’ total cash reserves with the Fed amounted to $1.55 trillion on September 5, 2012, of which 93.5 per cent was excess. This is what will happen if the suggestion of the article is implemented. It may lead to an acute shortage of liquidity and credit and destabilise the money market.
- A.Seshan
Cash Reserve Ratio “By” the Banking System but is it “For” the Indian Banking System
......For many, CRR was an imposition on the commercial banks operating in the economy for the purpose of controlling credit default and creation was perfectly in accord with the regulation and culture which prevailed in yesteryear of Nineties. If we look into today’s scenario, we find just the opposite. Indian economy along with the global economy is becoming highly globalized, integrated, interrelated, where interest rates are predominantly market-determined and there is also no automatic monetization of budget deficits. The central bank controls the supply of money and can increase or decrease the same by buying and selling bonds through open market operations which is undertaken independently.......
Don't delay new bank rules too long, Asia urges Europe
......"The fact is that the U.S. and euro zone are the most important regions where Basel III should have been implemented," Anand Sinha, Deputy Governor of the Reserve Bank of India, told a Thomson Reuters Pan-Asian regulatory summit in Hong Kong. "It would have been very helpful, even if there is a delay, if the U.S. and euro zone could have indicated a definite timeline, that is not there."......
Inflation in India higher than other BRICS nations: Thomas
New Delhi: Inflation in India is higher as compared to other BRICS countries, Food Minister K V Thomas informed Parliament on Tuesday. "According to the RBI sources, inflation in India is higher as compared to other BRIC nations," he said in a written reply to the Lok Sabha....
Reviving microfinance
....a spate of suicides allegedly triggered by excessive indebtedness in rural Andhra Pradesh had Andhra’s government acting populist by forbidding MFI officials to visit households to recover loans, and by requiring MFIs to register each of the operations with a local authority. This led to massive difficulties in recovering loans, as numerous borrowers took advantage of the law to refuse repayment, in a state which was responsible for almost a third of the industry’s $5.3 billion loans. And it didn’t help when RBI followed suit by recommending a cap on interest-spreads........
Chidu hopeful of early passage of micro finance Bill
....“Once the bill is passed, I hope that it will provide an adequate legislative framework for the entire gamut of micro-finance services,” he said at Microfinance India Summit 2012 here. The Bill seeks to empower the Reserve Bank to regulate the micro finance industry and fix interest rates ceiling on loans to be provided by lenders.....
MFIs should follow respectful method of loan recovery: FM
.....MFIs in some states especially Andhra Pradesh faced problems on account of use of strong arm tactics for recovery of loans. This also resulted in suicide by some borrowers.
Chidambaram also asked MFIs to verify data on borrowers with credit bureau to avoid multiple borrowing or over indebtedness. "I will request the micro finance sector to adapt itself to the expectation of public at large, especially, with regard to their code of conduct," he said.......
RBI changes in FEMA may spell more trouble for UPA
Government may face fresh trouble in Parliament over the recent RBI amendments in FEMA to allow FDI in multi-brand retail, with CPI(M) today saying these have to be voted within a time-frame as laid down in law. The statement by senior CPI(M) leader Sitaram Yechury came on the fourth day of disruption of Parliament over the FDI issue as he blamed UPA government for the impasse saying it was not willing to have a vote on the FDI issue.......
Delhi High Court sets aside order in CRB Capital case
......A Division Bench of the Court comprising Justice B. D. Ahmed and Justice Veena Birbal quashed the order on a bunch of appeals by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and others. The RBI opposed the sanctioning of the scheme approved by more than 50 per cent of the stakeholders of the company at a meeting here, arguing that the Court could not approve it without deciding its petition for winding up the company. It further argued that the scheme was violative of the provisions of laws and against the public policy.......
ED to probe Flipkart, Bharti Walmart for violations of FDI rules
............“The Reserve Bank of India has informed that matters related to Bharti Wal-Mart/Cedar Support Services Ltd and M/s Flipkart Online Services Pvt. Ltd, respectively, have been referred to the Directorate of Enforcement for further investigation,” the government said in a statement on Monday.........
White label ATM
.....While travelling to remote locations, you may have faced problems in terms of availability of ATMs. But that problem may soon get solved. RBI has put conditions on opening white label ATMs in such a way that non-bank entities will have to open the maximum number of ATMs in tier III and tier VI cities, including towns and villages.......
Remittances into Kerala to rise 40% this year
......Recent policy measures by the Reserve Bank of India have also given a fillip to the remittance business. After the interest rates on NSE and NRO accounts were deregulated last year, banks looked to shore up low cost deposits through this route, by increasing rates which were controlled. NRE saving deposits mirror domestic saving rates at 4% while interest on NRE term deposits range from 8.5% to 9% (domestic term deposit rates also range from 8.5% to 9%). "Earlier, such deposits were tied to the LIBOR (London Interbank Offered rate) rates,".......
SBI to set up 600 more cash deposit machines
.....The decision to install more cash deposit machines is also driven by the multiple benefits that are likely to accrue, including commercial establishments using the facilities bringing more new business to the bank. SBI has now 135 such machines in various cities, and the daily cash collection through them is Rs.3 crore.......
DENA, UNITED TO GET NEW HEADS
Ashwani
Kumar, executive director (ED) of Corporation Bank, is on course to
join Dena Bank when Nupur Mitra CMD of the bank retires by December. The
government has issued a notification relating to this and told him to
join Dena Bank by mid December itself. Meanwhile, Bhaskar Sen, CMD of
United Bank of India is also due to retire in December. However, it is
not yet clear as who will succeed him. Earlier, Archana Bhargava, ED of
Canara Bank, was tipped to take over as CMD. However, the buzz is that
she is moving to Bank of Maharashtra as a second ED.
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