The five pillars of RBI's financial sector policies: Raghuram Rajan

Full text of Raghuram Rajan's speech at Bancon 2013 held in Mumbai on Nov 15

.....In the rest of this talk, I want to focus on what we at the Reserve Bank are doing to improve the financial system. We plan to build the Reserve Bank’s developmental measures over the next few quarters on five pillars. These are:...........

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Clean the viewfinder

.......... Important steps have been taken but these need to be institutionalised so that Rajan's legacy is assessed not merely in terms of how well the RBI does under him, but by whether or not he leaves behind a reformed institution..................

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While at BANCON 2013...

........When asked how does he feel about the state of the economy from his 23 rd  floor office at the RBI headquarters. Rajan first corrected the gentleman that his office is on the 18 th  floor and said his office offers the view of the Mumbai Port and he can see the good news through the glass windows. “As I stand on the 18th floor and look outside, I see the port and ships coming in and going out to a greater degree than I saw in September.  That’s telling me exports are picking up", he said................

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Not a Pensioner to Regulate Pensions

.......True, the appointment of the pension regulator is the government’s prerogative, but there has to be transparency on changes midway. Now, the government says it will name a new pension regulator within a month. Rather than appoint yet another serving or retired civil servant to the job, the government would do well to let the insurance regulator, Irda, look after the pension sector for the time being. There is considerable overlap in the long-term asset-building activities both regulators look after.  India needs to overhaul its regulatory apparatus for the financial sector, to bring in holistic, harmonious regulation. The financial sector legislative reforms under the government’s consideration, and the prime minister’s own stated intention to make regulators accountable suggest that such overhaul is imperative........

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Phishers strike jackpot, net Rs3.65L from call centre staffer

.......The fraudsters spoke to the victim pretending to be officials from the Reserve Bank of India and customs and income tax departments. This made him believe that the e-mail was genuine.

According to the police, the victim (name withheld), a resident of Vashi Naka in Chembur, got an email from Honda UK a few months ago. The e-mail said he had won a laptop, two T-shirts and 3,55,000 British pounds (around Rs 3.58 crore)....................

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Beware of fictitious emails claiming to be from RBI

.........There have been increasing instances of emails that pose as correspondence from the Reserve Bank of India (RBI). Fraudsters are using RBI’s corporate logo / name and even the photograph of the Governor of RBI in their emails to convince victims of the authenticity of the messages.........

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Loan recovery becoming difficult for banks due to legal hurdles

....."There are many challenges (in recovering dues) including legal ones. Even after using the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (SARFAESI Act), defaulters are found obtaining stays from any court, including labour courts. We then have to rush to that court and get the stay vacated. This is making recovery (of dues) difficult," said Arundhati Bhattacharya, chairperson and managing director of State Bank of India.............

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Inflation control still RBI's main agenda, says Chakrabarty

Deputy governor of the Reserve Bank of India (RBI) K C Chakrabarty on Friday said inflation control remained the “single agenda” of the bank in the current environment. “Cost of money is high whenever inflation is high. That is why, if you see, our single agenda is to fight inflation. If we can make inflation low, the cost of money will come down,” he said during an interactive session organised by the MCC Chamber of Commerce and Industry here..........

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Companies must not rely too much on debt: Chakrabarty

.....“No project can work with bank finance only. What is the equity that has been raised (recently)? We do not see any new issue,” he said during an interactive session organised here by the MCC Chamber of Commerce and Industry. According to Chakrabarty, over-dependence on debt would lead to high cost of borrowings. Projects with high debt component are “not viable”. “Equity market is almost dead...last four to five years new projects have gone for 100 per cent debt-led finance,” he said.......

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A road map for foreign banks

......The government and the RBI envisage a productive role for foreign banks in India subject to their following certain prescribed norms. It is no coincidence that the RBI has stipulated similar requirements, such as in capital adequacy, for the new private banks that are to be licensed shortly. However, while the imminent entry of new banks, especially those promoted by large corporate houses, has been highly controversial, the expansion of foreign banks’ footprint in the country is likely to be more subdued. After the road map was unveiled,.......

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Postal banks to be set up soon in India

......The Post Bank of India (PBI), as it is likely to be called, is all set to receive a banking licence from the Reserve Bank of India (RBI) within a month or so when it would issue licences to the short-listed applicants. A senior official of the General Post Office here told Khaleej Times that the PBI would provide banking services, including accepting of deposits from the public for lending or investment. In addition to deposit schemes, the PBI will also provide loans to general public and corporates like any regular bank. The first such bank with an ATM will be opened at the computerised Navrangpura post-office in the city.............

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While banking is a big challenge, it will be easier for us: Sanjiv Bajaj

.....In the last few years, especially after the financial crisis, there has been so much tightening in regulation and lending practices that we are not seeing significant amount of innovation in the banking space. If you don’t keep pushing, we will get into a situation in which you will perform according to averages. We do have a significant business that can be transferred into a bank. But for those that start from scratch, my thinking is they will need a differentiated strategy; otherwise, they will only act to drive down prices. The Reserve Bank of India has talked about niche licences; there are opportunities. ......

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RBI should rein in inflation, says BNP Paribas

.........Commenting on RBI (Reserve Bank of India) policy, the research note argues that RBI governor Dr Rajan is showing welcome signs of a hard-line approach to inflation control by prioritising CPI, rather than WPI. With CPI inflation in low teen territory, today’s WPI data, if anything, just cements the case that Dr Rajan will deliver his third repo rate hike in as many as meetings as governor at the December meeting. The research note concludes by saying, “the tacit agenda of the Rajan-led RBI remains to normalise real deposit rates and boost financial saving.” It is important that RBI ensures its monetary policy is sufficiently tight to re-anchor inflation expectations.

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Centre relaxes visa norms for MICE travellers

The Indian government has liberalised visas required for conferences and meetings. ffectively, visas for conferences organised by public institutions, public sector undertakings, central educational institutions, Reserve Bank of India, UN and affiliated organisations can be approved by Indian missions and posts, and do not have to be referred to the Ministry of Home Affairs, Government of India for security clearance, Himanshi Dhawan reported in The Times of India. The move is expected to give a much required boost to MICE Tourism.........

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Will rental bonds work out?

.........It is also reported that, private real estate developers are readying themselves to put up rental income backed bonds for sale. At the same time, another report states that, the Infrastructure Development Finance Corporation ( IDFC) will be selling similar bonds backed by lease rentals from Special Economic Zones and infotech parks developed by them. What are these bonds? Has this idea come up from the Reserve Bank of India’s restrictions on bank finance to the sector like the 80: 20 order? Again, are these bonds mooted on the Singapore pattern?.........

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FM, Rajan on Same Growth Station, but Sing Different Tunes

Finance minister P Chidambaram and Reserve Bank of India governor Raghuram Rajan spoke in one voice on the need to revive economic growth but differed on the efficacy of higher interest rates in tackling inflation. While the minister suggested that monetary policy doesn’t really work as a method of taming prices in the current context, where costlier food is the main cause, the governor said there were few other options available. “You have to focus the laser light on inflation,’’ Rajan told the annual bankers’ conference, Bancon 2013, on Friday. “That’s the only tool we have. That’s the blunt tool. (That’s why) across the world central bankers use it carefully.’’ The central bank’s relentless focus on using interest rates to quell prices had been a sore point between the minister and Rajan’s predecessor Duvvuri Subbarao.......

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New banking licences should not go to ‘clones’: Chidambaram

..........“Most banks are clones to each other. I am inclined to think that there is more cloning than differentiation… It will be sad if licences will go to entities which clone the present banks,” said Mr. Chidambaram, while inaugurating the IBA’s (Indian Banks’ Association) annual banking conference, BANCON, hosted by Bank of India, here. “We need banks which cater to communities, we need banks which cater to people living in tribal areas, we need a different bank to cater to North East, we need banks to cater to the urban poor, we need banks that cater to farmer families and we need banks that cater to women,” he added. RBI Governor Raghuram Rajan had earlier said that the central bank would issue licences to new banks in January next...............

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Nail wilful defaulters, not victims of slowdown, FM tells bankers

............ “This is the period for bankers and customers to work together to keep faith in each other because when we come out of the trough... when upturn begins and when we see growth quarter after quarter that (would be the) time when most banks would be healthy, balance sheets would become healthy,” he said. The finance minister suggested the Reserve Bank of India (RBI) give preference to those applicants for new bank licences who want to set up specialised banks, rather those keen to establish clones of existing lenders........

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Slow decision making hurting economy, says RBI Governor

......“The Reserve Bank of India intends to play its part in making this happen,” he assured. Addressing a gathering of bankers at the annual banking conference Bancon 2013 here, Rajan warned against the rising noise of protection and subsidies for domestic manufacturers in policy corridors. “Our industrial sector is no longer an infant that needs to be molly-coddled,” he added. He said India should not enter into free-trade agreements that give foreign manufacturers undue advantage and that is no reason for the Government to give domestic manufacturers protection. “Our measure of success should be the jobs that are created...,” he said.......

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‘Interest rate is a blunt tool to tackle inflation’

Interest rate is only a blunt tool to tackle inflation and must be used occasionally, though carefully, RBI Governor Raghuram Rajan said “That is the only tool we have — and across the world central bankers recognise it… so they are careful about using it. But it has to be occasionally used,” Rajan said answering a question on why interest rate was being used to address inflation. CPI inflation, measured by the movement in the retail prices of food items, soared to a seven-month high of 10.09 per cent in October. The wholesale price-based inflation too, shot up to an 8-month high of 7 per cent in the same month...............

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Steps soon to deepen G-Secs market: Rajan

....“In the coming weeks, we will roll out more recommendations of the Gandhi Committee report to improve the liquidity and depth of the G-Sec market. We will then turn to the money and corporate debt markets. We will introduce new variants of interest rate futures and products like inflation indexed certificates, and work to improve liquidity in derivative markets,”......

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Rajan gives away little

.....According to Rajan, the RBI will discuss with public sector banks about what needs to be done to improve their stability, efficiency and productivity. The RBI is also planning to release more recommendations of the R. Gandhi committee to improve the liquidity and depth of the government securities market. Subsequently, the central bank will turn to money markets and corporate debt markets, he added.

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Rajan warns against return of licence-permit raj

........According to Rajan, instead of targeting specific industries for governmental attention, which risks bringing back all the baggage of the 'licence-permit raj' the country has left behind, the focus should be on improving the conditions for growth for all.

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Raghuram Rajan warns bankers on 'ever-greening' of bad loans

..."You can put lipstick on a pig but it doesn't become a princess. So dressing up a loan and showing it as restructured and not provisioning for it when it stops paying, is an issue. Anything which postpones a problem than recognising it is to be avoided,"..............

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Volatile living: Bold monetary experiments of Raghuram Rajan's RBI

The bold monetary experiment that the Indian and Chinese central banks engaged in this year might one day be hailed as a success. So far, the result has been unprecedented market volatility and little else. Both central banks targeted interbank rates to control the supply of money, aiming for a more surgical monetary tool than orthodox bank reserves or policy interest rates..........

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No single data point to determine next RBI move: Rajan

.......This is a balancing act, which requires the Reserve Bank to act firmly so that the economy is disinflating, even while allowing the weak economy more time than one would normally allow for it to reach a comfortable level of inflation," he said in a speech..............

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LIC reviews Basel III investments

Life Insurance Corp of India (LIC), the country’s largest insurer, is reviewing its investment in Basel III-compliant bank capital after a series of downgrades in the sector. LIC is by far the biggest investor in the new-style capital securities, buying Rs25bn (US$395m) of the Rs40bn of Tier 2 bonds issued since India began to phase in Basel III rules on April 1..............

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