........The government should give ‘ closed door’ guidance to the RBI to use all its instruments, without constraints, to ensure that the Consumer Price Index ( CPI) inflation comes down from 10 per cent to 5 per cent by early 2014. Again, the RBI needs to be assured that it need not expend its forex reserves in defence of a particular exchange rate. Furthermore, it should not shore up the rupee on the pretext that it is controlling volatility. It needs to be recognised that a massive outflow of capital from the EMEs is inevitable in the next 9- 12 months and India should conserve its forex reserves. What is important is that the topmost policy decision- takers should silence their guns attacking RBI policies. When the RBI took measures on July 15, 2013, the government immediately said that this did not portend monetary tightening!................
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.
Monday, July 29, 2013
From where did poverty go? - Dr.Subir Gokarn
.......Before getting into the numbers, I want to address two misconceptions that have made their appearance in the public debate. First, many people seem to believe that the reason why the poverty rate is what is because the bar - the poverty line - has been set so low. Of course, the level of the poverty line is subjective and a country can decide for itself where to set it. Different lines would obviously generate different poverty rates. However, in measuring the change in poverty over time,...........
Poor in US, rich in India
The media is accused of creating a controversy out of nothing by asking tough questions to policymakers and then quoting them selectively. A similar attempt was made with RBI Deputy Governor KC Chakrabarty. Asked whether the new poverty line was fair when inflation was running high, Chakrabarty cleverly dodged the question saying it was a relative measure. “Someone can be poor in the US but rich in India,” he said knowing full well that few journalists would understand the concept of purchasing power parity and its relevance in poverty measurement.
Usha Sangwan to Become LIC’s First Woman MD
Usha
Sangwan, the 54-year old insurer, will be the first woman managing
director at the Life Insurance Corporation of India in its near six
decades of existence. She may well be a trendsetter at LIC, like Kishori
Udeshi at the RBI, who started a glorious tradition of women rising to
higher positions that for decades have been male bastions. The
government is set to name Sangwan as the fourth managing director at the
country’s largest financial institution. She is currently executive
director, communications............
Read - ET
'Banks have deployed 1.95 lakh biz correspondents till Mar 13'
.........."The BC model allows banks to do cash in-cash out transactions at a location much closer to the rural population, thus addressing the last mile problem. "As on March 31 2013, banks have reported deploying 1,95,380 BCs which covered 2,21,341 villages," Reserve Bank Executive Director Deepali Pant Joshi said recently in a seminar.................
4 reasons why Governor Subbarao must be given an extension
........It's clear that an experienced hand at RBI is need of the hour as India is passing through tumultuous times on the economic front. Perhaps, Governor Subbarao's extension would be the right decision to make.
Read.......
Meaningless comparison among the RBI Governors since 1990 - Dr.T.V.Gopalakrishnan
The comparison among Governors’ is meaningless as the performance is linked to the political climate and support in the Governance system, sound economic policies and conducive external sector environment. All these are found missing during the last five years when Dr Subbarao took over in the year 2008.The present RBI Governor's period is something unique in the history of RBI...................
RELIEF ON FAKE NOTES
..........The government of India is in the process of introducing one billion pieces of the Rs 10 polymer notes on a trial basis. If the trial process is smooth sailing, then the government will introduce plastic or polymer notes in higher denominations. It has been found that the fake polymer notes could be easily detected. The visible difference would be the thickness of the notes. There would be crude embossing in the clear window. Even the sound on flicking the note would be different. Will this plastic currency be able to fight the menace of counterfeit notes? For an appropriate answer to this question, we have to wait at least for.............
The Gay Abandon - PACS
NABARD pays tribute to its founder Chairman in a novel fashion. It
issued directives to SCBs and through them to the DCCBs on the 22nd
July to let the PACS remain in the rural cooperative credit structure only as
their Business Correspondents. Those that are not, can function as PACS, only
if they have own resources.NABARD decided to abandon the recommendations of all
the Expert Committees at one go: the recent RBI Expert committee of which the
present Chairman, NABARD ironically is the Chairman, Vaidyanathan Committee and
its predecessor Vyas Committee.
The main contents of the latest circular instruction of NABARD
circulated by NAFSCOB once and for all gave a go-by to the age old untiring
repetition of ‘Cooperative have failed but must succeed.’.
The SCBs/DCCBs have been instructed now:
1. To transfer assets and liabilities of PACS to DCCBs/SCBs
2. The assets of PACS arising out of all lending operations will
stand transferred to the books of DCCBs /SCBs along with the related
liabilities.
3. All deposits collected by the PACS would also be transferred
to the DCCBs/SCBs.
4. PACS will not accept deposits on its account and will not do
lending operation of any kind on its behalf henceforth under the arrangement.
5. However, they will carry out the services both in respect of
lending operations and collection of deposits on behalf of DCCBs on pre-decided
commission or fee basis.
6. PACS would, however, do other businesses as an independent
entity out of its own fund and earn income.
7. The share capital mobilised by the PACS from its members by
way of share linked capital of the loans provided will now stand transferred to
the books of DCCBs/SCBs and form part of share capital of DCCBs.
8. The borrowing members and the depositors will have to become
the members of DCCBs/SCBs.
9. DCCBs/SCBs will make arrangements to ensure transfer of
relevant securities /documents executed in the name of PACS on its name.
10. Necessary arrangements be entered into between the PACS and
DCCBs/SCBs to ensure implementation of the above directives.
These do not form part of the recommendations of the RBI Expert
Committee.
NABARD’s ostensible intention to separate the core from non-core
business of PACS has been pushed with these instructions without equipping the
system to handle them.
Second, it has failed to implement business development plans in
PACS for three decades of its supervision and now it wants to drive them to a
corner.
Third, it tolerated indiscipline in accounting standards and
State audits of the PACS, DCCBs and even SCBs to a large degree until
Vaidyanathan Committee designed the relief package conditioned by the
introduction of proper accounting, audit, professional management and
technology as also appropriate legal amendments to the State Cooperative laws. Under
its supervision, none of the DCCBs have the history of closing the books of
accounts at the end of the year on the 31st March.
Even after the relief package has been handed down NABARD has
not been able to monitor these changes systematically and systemically
resulting in misuse and even abuse of the relief package.
The compromises led the RBI to re-examine the structural
weaknesses of the Short Term Rural Cooperative Credit Structure (RCCS) through
the constitution of an Expert Committee just an year back under the
Chairmanship of Dr Prakash Bakshi and he is also the Chairman of NABARD, a
point to be noted.
The Expert Committee was unequivocal in its recommendation that
PACS are the foundation of the RCCS and but for them credit to small and
marginal farmers would have been a severe casualty as the commercial banks and
the reformed RRBs are interested in commercially viable medium and large
farmers and not the economically weak and socially desirable clientele, the
small and marginal farmers. This would mean that PACS as lending institutions
for agriculture have a distinct place and needs to be preserved.
In Cooperatives of all hues, credit access is available only for
members while deposits can be placed at the depositors’ own risk. Members while
taking credit also contribute to the share capital in certain agreed
proportion. States are conveniently barred from providing capital to the RCCS
beyond 25% and have been granted autonomy.
In the meantime, following the recommendations of the first
Financial Stability Report (Dr Rakesh Mohan), the DCCBs have all been licensed
under liberal capital adequacy norms by April 2013, just a year off the
scheduled date and have been brought into mainstream banking, with some of them
adopting even core banking solutions.
Deposits can be secured by the PACS but without the Deposit
Insurance Credit Guarantee Corporation of India cover. Therefore, even for
doing non-core business capital cannot be accessed by them. Once the DCCBs
seize all the assets of PACS, the later would not have any collateral to raise
the resources from other lending institutions.
The latest instruction that the Societies shall do their
non-core business only with their own capital and their core lending business
for farm and non-farm activities can be done only for and on behalf of the
DCCBs/SCBs cuts at the root of PACS on one hand, and negates the financial
inclusion agenda of the government on the other.
In the absence of PACS, the DCCBs/SCBs have to go in for
restructuring. The States have to amend
their regulations to permit the DCCBs to do direct lending to farmers by taking
them as members and shareholders simultaneously. Elections to the Boards of
DCCBs have to be held from this larger constituency and representative General
Body has to be defined in the Amended Cooperative Acts.
Depositors cannot be members as of now.
PACS today serve at best as political platform thanks to the
willful neglect of NABARD for decades to bring about financial discipline and to
protect equity among them. The States and Centre are too busy at the moment
carving out strategies for 2014 General Elections. Legal remedies also seem to
be at distance with the annulment of 97th Constitution Amendment Act
2011 except for Article 19 Section 4 (C) that only gives the fundamental right
for formation of cooperative society and the definition of such society.
Therefore, NABARD chose this time with gay abandon to dump the PACS into economic
garbage.
- Yerram Raju
*The Author is Member, RBI Expert Committee on STCCS.
NABARD circular on PACS rings alarm bells in Gujarat co-operative sector
.......An expert committee on the short-term CCS, set up by Reserve Bank of India under NABARD Chairman Prakash Bakshi, had proposed that PACS may function as business correspondents (BC's) of CCBs among other recommendations. The NABARD's circular comes in line of the apex bank's advice to it on the issue. As per the committee report, with commercial banks stepping up their agri-financing from 2001 onwards, and especially from 2003-04 onwards when 'doubling the agricultural credit' campaign started, commercial banks today provide almost three-fourths of the total agricultural credit in the country with RRBs providing another 10 per cent or so..........
Murphy's law at work in India
Murphy's law states: "Anything that can go wrong will go wrong". This seems especially true in the context of Indian economy and Indian equity markets in the past year. Last year this time, India was grappling with an imminent sovereign downgrade, with an uncontrolled fiscal deficit, policy paralysis of the highest order with no economic reforms for eight long years and a weakening rupee............
Who wants to run a bank
.....If collecting deposits and loaning it to the credit-worthy has become a tricky endeavour, the regulators have not been making bankers’ lives easier either. In recent times, the Reserve Bank of India has co-opted the banking system as its unwilling partner in fixing everything that is wrong with the Indian economy. Faced with the problem of a depreciating rupee, it jumped to the conclusion that it is bank money which is fuelling all that currency speculation. It promptly moved to squeeze every drop of excess liquidity from the banks. No matter if the sudden increase in overnight rates has sharply escalated the banks’ costs or aggravated the bad loan problem.....
Bankers urge RBI to be cautious in granting new licences
NEW DELHI: India Inc has doubts about new bank licences being issued during the tenure of this government, with Reserve Bank of India Governor D Subbarao's term expiring in September and Deputy Governor Anand Sinha, who handles the licensing process, due to retire in February 2014. Two top bankers leading separate industry chambers have also urged RBI to exercise extremely high due diligence before short listing possible contenders from the 26 entities that have applied for a licence and ensure that the banking business is the main bread-earner for the entities involved and not one of their many business interests..............
Sivaganga, Jangipur, Sivaganga….. where will banks rush in next?
What’s the best way to achieve financial inclusion in the country? Give new bank licences? Not quite! After all, new private sector banks have a poor track record of delivering on financial inclusion. So what is the answer? Elementary, my dear Watson! Rotate the finance portfolio among cabinet ministers! Consider! During the time Pranab Mukherjee was Finance Minister, there was a mad scramble among banks, both state-owned as well as private sector ones, to open branches in the minister’s constituency Jangipur and its vicinity. This despite the fact that Jangipur, a fairly backward area whose population is dependent on wages from bidi-rolling, can barely offer enough business for two or three bank branches. Yet even private sector banks like ICICI Bank and HDFC Bank, that are otherwise loath to open branches in rural unbanked centres, made a beeline for Jangipur..............
Time for India Inc to go on a diet
The monetary tightening by the Reserve Bank of India and spike in the short-term interest rate have closed many options for India's most indebted companies. As credit gets scarce and expensive, many companies will be left with no option but to go on a diet to survive the current economic slowdown............
Banks roll back interest rate cut ahead of RBI monetary policy review
........What is significant is that this trend has begun ahead of the policy review by RBI Governor D. Subbarao on July 30 and at least one bank Chairman (State Bank of India CMD Pratip Chaudhuri) has openly expressed the view that it is better to hike interest rates rather than smother liquidity with a view to shore up the Indian rupee............
A Little Certainty, Governor Subbarao
............
Nobody expects the RBI to cut policy rates: keeping current rates may be
the best way forward. The outlook is very clouded, but one thing is
clear: the RBI can legitimately hope that the current exchange rate
stabilises. But if the market drives the rupee down, don’t fight it —
that’s wrong, and unsustainable.
Read - ET
‘Dear money policy is not a great recipe for growth’
..........The RBI is trying to curb the steep fall in rupee by mopping up excess liquidity. The intent is to reduce the excess liquidity which banks seem to be using for taking speculative position in the exchange markets. However, a prolonged money tightening policy will hurt both banks and the industry. If these measures continue for more than three months, then banks will be forced to raise lending rates due to higher cost of funds. This will in turn lead to more stress in asset quality for the entire sector. Also, banks will witness significant treasury losses in the September quarter, on their marked-to-market portfolio of SLR (statutory liquidity ratio) investments.......................
Monetary policy: more than usual dilemma
.............But for observers, this might be the correct time to start looking at the whole of the monetary policy statement, not just to the section on monetary measures for understanding the extremely complex environment in which policy choices have to be made.
Too many risks, too small rewards call for caution
.........“At present RBI is supporting the rupee, but the measures to control rupee volatility have been negative for the market as the risks are very high,” Mathews said. “As risks have gone up, market participants are concentrating only on some of the large-cap stocks that are fundamentally sound,” Mathew said. “I am a bit cautious in taking risks and we are trading very cautiously, so much that all trades are ending on the same day,”.........
RBI has debased the rupee; no hope in next Guv too
It’s not that we necessarily need a foreigner, but just that nationality should not be a criterion for choosing Subbarao’s successor
............. After all, in all these years where the RBI has been continually debasing the rupee, they have expressed their support for a easy money policy either explicitly or through their silence. What we really need at the RBI is far-reaching reforms that in effect end the monopoly of the RBI in the issuance of money. We need alternate and private monies to circulate and let the RBI compete against the barbaric relics with its PhD economists and let the markets decide the winners. Let us provide a choice to consumers about the currencies they want to save in – this would force the hand of the RBI to behave more responsibly in the future and not just bow down to the wishes of their political masters.................
A rock and a hard place
........... While the ostensible purpose of these measures, stabilising the rupee, seems to have been achieved at least for now, there may be an adverse impact of these actions on the growth-inflation balance, on which monetary policy has been focused until now. In this regard, the latest readings on core inflation and industrial production do make the case for monetary stimulus...............
RBI's bitter medicine
The intent of this analysis is to decipher the rationale behind RBI’s recent regulation to stem the rupee volatility and to establish whether these measures could potentially open up a few positives (beyond a support for the rupee) for us in the near term. I believe that the benefits of steps taken by RBI will be visible in some time and that RBI could perhaps tweak some regulations to achieve its goal, at the same time balance expectation of the stakeholders............
In rupee-growth dilemma, RBI may go for status quo on rates
............“It will be a tightrope walk for the central bank. Growth was required to be supported, but the recent exchange-rate volatility has compelled it to tighten liquidity. Holding on to the liquidity control is essential at this point to keep the exchange rate under control. So, there is very little scope for RBI to take an action (for supporting growth),”................
Rupee will be the focus of RBI's monetary policy on July 30 instead of growth and inflation
MUMBAI: For the first time since the 1997 East Asian crisis, the Reserve Bank governor's prognosis for the Indian rupee will take centre stage at the quarterly monetary policy on July 30, instead of interest rates. In what could be the last quarterly monetary policy unveiled by Duvvuri Subbarao, the bureaucrat-economist will explain his recent actions that have left most investors flummoxed..............
Decking up the rupee
.............The RBI should, in its upcoming policy review on Tuesday, make it clear that the current monetary measures are only temporary and do not amount to a reversal of its gradual easing stance until recently. This is a time when the Indian economy can neither afford a further growth slowdown nor a slackening of fiscal and external stabilisation efforts.
Importing gold is impossible now
.....Owing to the RBI notice, the Ahmedabad bullion market witnessed zero deals among traders and retailers. “When we go to bank to buy gold, they show us the RBI notice which says that we have to keep 20 per cent of that aside for export. We are not exporters. We do not even have any export orders. So, not a single bullion trader or jeweller in Ahmedabad bought gold on Tuesday. This would lead to gold entering the country via illegal means,” said Zaveribhai Zaveri, president of the Gujarat chapter of All India Gems and Jewellery Trade Federation. ...........
Of gold bars and coins
................Due to this increase in CAD, the Government suspended the sale of gold bars and coins, a move that is likely to continue till the deficit is reduced to a significant extent. Small and large jewellers, and major jewellery retail chains have been requested to stop sales and taking orders of coins and gold bars. Besides this, the RBI too has put restrictions on banks on imports of gold. Import duty was hiked to 8 per cent...............
IRDA bancassurance norms may be delayed
The Insurance Regulatory and Development Authority (IRDA) guidelines for tie-ups of insurance companies with banks for distribution of products may be delayed as the feedback to the regulator reflects divergent views from various stakeholders, said industry experts. Some insurance companies that do not have tie-ups with banks have recommended to the Life Insurance Council that a bank should be allowed to strike deals with five insurance companies, at a limit of 25 per cent an insurer. However...................
All bank branches to have one ATM before March 2014: Chidambaram
Sivaganga: Public sector banks have been asked set up ATMs in all branches by March 2014 to enable customers in rural pockets to do banking round-the-clock, finance minister P. Chidambaram has said. Inaugurating the 5999th branch of Punjab National Bank (PNB) at nearby Tirupattur, he said orders had been issued to all nationalised banks in this regard and their CMDs had been asked to implement the same in the current financial year...............
‘Use Kannada in banking activities’
......... “It is the desire of our government to encourage the use of Kannada in day-to-day banking activities.” It was also necessary to ensure that employment opportunities were expanded for persons knowing Kannada........
M S University clears way for Rs 2.50L recovery from deputy registrar
VADODARA: M S University's (MAS) syndicate members have cleared way for recovering Rs 2.50lakh that the university's deputy registrar M MBeedkar had drawn as remuneration from the Reserve Bank of India's (RBI) Endowment Unit at the university. Over and above his own salary,Beedkar, earlier in-charge registrar, had drawn Rs10,000 per month from the unit that was lying defunct for years................
Gujjars file petition against two banks, allege discrimination
A petition was filed before National Commission for Schedule Tribes and Reserve Bank of India against two banks operating from Jammu and Kashmir accusing them of ignoring candidates of Gujjar and Bakerwal communities for the post of Relationship Executives..............
Aadhaar or Cards? A Costly Debate
Will
banks have to spend a fortune to give customers the choice of either
putting their finger prints or swiping plastic cards to withdraw money
from ATMs and pay for purchases? Not really, says the Unique
Identification Authority of India (UIDAI), the agency that issues the
12-digit Aadhaar numbers and is pushing for biometric authentication for
credit card and ATM transactions. But bankers disagree.................
Consumerism floats on credit cards
.........."Due to the larger global economy impact, there was a phase where issuers were exercising more caution on expansion plans but this has changed in the recent times. In the last 18 months, consumerism is back and there has been an increase in spends across some of key categories such as EMI transactions, utility payments, mobile bill payments, apparel and travel segments," ............
No credit to cards
Even as the Reserve Bank of India promotes the use of cards instead of cash, this correspondent learned the hard way how difficult it is to transact business using a debit card. A showroom in Dombivli suburban Mumbai demanded a service charge of two per cent for a washing machine that cost Rs 15,000 on an ICICI Bank debit card. The shop owner was candid: “We have an HDFC Bank point of sale machine and they deduct two per cent from our account even without us knowing. Only after we get the statement we come to know about the charges.” He refused to accept even a cheque. . Life will become simpler if banks start taking the RBI seriously.
HBL
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