................The RBI’s guidance states that a faster-than-currently-anticipated pace of disinflation, adjusted for base effects, will provide the headroom for an easing of the policy stance in future. Hard to say at this point as to what role a stronger currency might play in stabilizing prices ahead. A related question in this regard: What of the growth-inflation tradeoffs vis-à-vis exchange rate movements? How much growth could be impacted via reduced exports? That’s why the balance of outcomes on inflation and growth is worth watching out for.
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.
Thursday, June 5, 2014
The New Triad of Policy Concerns
Monetary Policy, Sovereign Debt and Financial
Stability: The New Trilemma edited by Deepak
Mohanty (New Delhi: Reserve Bank of India, Foundation
Books, Cambridge University Press India), 2014, pp xiv +
370, Rs 995.
........It is not clear from the paper whether the new framework implies the jettisoning of flexible inflation targeting or better fine tuning; or whether, as suggested in the Urjit Patel Committee report commissioned by Rajan in his new capacity as Governor of the Reserve Bank of India (RBI), inflation targeting is more relevant now for developing country central banks where inflation remains an issue even as “there is a consensus gathering internationally that monetary policy should move away from its narrow focus on inflation towards a multiple...............
When a fellow met a distinguished fellow...
The right way forward
.....This can be attributed to not only the banks' concern for growing non-performing assets but also on the muted demand for quality credit. The government now needs to support the Reserve Bank of India (RBI)'s move by presenting a proactive Budget, supporting the inflow of long-term tangible investment into the country.......
Can Rajan, Modi team up to create Greenspan-Clinton moment?
.......Rajan has plenty of firepower to help Modi boost economic growth if, and only if, the government does its part. This unofficial pact between Rajan and Modi is a delicate one, and it could be scrapped at any moment. But if anyone in India has the gravitas to prod Modi to make good on his ambitious election pledges -- to trim debt, rein in the current-account deficit and cut poverty – it’s Rajan, who served as the International Monetary Fund’s chief economist from 2003 to 2006...........
Read - DNA
Rajan 'cognisant' of state financing needs as RBI loosens credit restraints
The Reserve Bank of India (RBI) held interest rates and unveiled a suite of liquidity measures today, in its first policy announcement since new prime minister Narendra Modi swept to power last month.
Raghuram Rajan, the RBI governor, said it was "appropriate" to leave policy on hold and let the "disinflationary effects" of earlier rate cuts work their way through the economy.
Annual CPI inflation increased from 8% in February to 8.6% in April, on account of a "sharp" increase in food prices. The central bank had forecast a gradual decline in inflation over the period but seems unperturbed by the recent spike, which Rajan described as "largely seasonal".
Reserve Bank of India holds key rate at 8% despite spike in food prices; takes steps towards creating a ‘more generalised provision of system liquidity’ The RBI aims to bring inflation down to 8% by January 2015 and Rajan stressed that if the economy stays on its present course "further policy tightening will not be warranted".
He even raised the prospect of "faster than expected" disinflation that, should it occur, would "provide headroom for an easing of the policy stance" – the first time he has alluded to the prospect of reversing some of last year's rate hikes.
The RBI also announced new liquidity measures for the second policy statement in a row, most notably a reduction in the statutory liquidity ratio (SLR), which determines the amount of money banks must invest in government securities before offering credit to the wider economy.
The SLR will drop by 50 basis points to 22.5% of banks' net demand and time liabilities on June 14, which Rajan believes "will give banks more freedom to expand credit to the non-government sector".
"However, the Reserve Bank is also cognisant of the significant ongoing financing needs of the government," Rajan said. "Therefore, the SLR is reduced by [50bp] with any further change dependent on the likely path of fiscal consolidation."
The RBI also decided to limit the amount banks can draw down from its export credit refinance (ECR) facility, by cutting the amount of outstanding export credit that will be eligible from 50% to 32%. To prevent a drain on liquidity, the central bank introduced a new special term repo facility.
These changes follow the advice of the Urjit Patel Committee, which recommended the economy "move away from sector-specific refinance towards a more generalised provision of system liquidity without preferential access to any particular sector or entity".
"This should improve access to liquidity from the Reserve Bank for the system as a whole without the procedural formalities relating to documentary evidence, authorisation and verification associated with the ECR," Rajan said.
Is India nearing its Greenspan-Clinton moment?
.............The Reserve Bank of India (RBI) is independent and Rajan, a respected University of Chicago professor, is no pawn. Nor can he afford to be a monetary pushover, given how India’ 8 percent-plus inflation rate exacerbates the nation’s crushing poverty. But Rajan seems willing to believe Modi’s pledges to bring down inflation — and is willing to reciprocate the generosity. He did so this week by holding the benchmark repurchase rate at 8% and hinting that he’s willing to ease policy if inflation pressures wane..........
Policy rates may remain on a prolonged pause until 2015
.............."We see no scope for rate cuts any time soon and expect policy interest rates to remain on a prolonged pause until 2015. No doubt, inflation will at times undershoot the RBI projections owing to base effects, but they would have to be sustainably below 8% by January 2015 and 6% by January 2016 for the RBI to start easing policy rates, given that the RBIs credibility hinges on meeting these targets," ............
Markets salute SLR cut with new high
.............“RBI, as expected, kept the rates unchanged, providing stability to the market. Significantly, the commentary is dovish. The two measures taken to reduce the SLR and export re-finance are long term in nature and unlikely to have any immediate relevance. The fact that this comes in the backdrop of a recent firm-up in inflation and RBI has conceded to give more weight to non-food-non-fuel inflation, can be viewed favourably,.......
Returning goodwill
.........Rajan’s decision to not aggressively deploy the wide latitude the apex bank enjoys in setting monetary policy, will be welcomed by a new government all set to work the nuts and bolts of a tenuous economy. The decision to hold interest rates will also push the onus onto the Modi government to further contain the fiscal and current account deficits through conservative fiscal spending. Rajan has made it clear that further policy tightening will not be warranted if the economy stays its course. However, this will require..........
Just financial literacy doesn’t work, need accountability
............Today, the world is abuzz with the need for financial literacy. But can financial literacy deliver on its own? Not if it’s used as a filter to let faulty products and wrong advice pass through. There is so much information arbitrage in the financial market that to hang financial well-being on financial literacy is wide off the mark. It would also not be fair to expect investors to know the innards of a complex financial product, be adept at crunching numbers, and remember all the fine print, all in the name of financial literacy...........
Greedy or practical? Why banks don’t want you to use other ATMs more than twice
.............Nation Payment Council of India’s spokesperson, Managing Director and CEO, AP Hota, refused to comment to Firstbiz about the banks proposal to RBI. The truth is, it’s all about interchange money and cost of keeping ATMs operational. As per RBI report, banks with larger ATM network treat interchange fee as an
important stream of revenue since many customers of banks which fewer
ATMs land up using their's. Industry sources say that it’s the PSU banks who want to decrease the
interchange money presently levied, while private sector banks want it
to be raised. This is primarily because private banks have more ATMs and
have public banks' customers using their machines................
Soiled notes make way to ATMs
.............."Ideally, soiled notes should not reach ATMs. However, we do receive frequent complaints from customers and exchange soiled notes that were supposedly dispersed by ATMs. We suspect that the people entrusted with refilling cash in ATMs are running a racket of their own," an officer in a public sector bank said. In extreme cases, those involved in ATM maintenance have been known to replace valid notes with fake ones. Recently, fake currency notes were dispersed by an ATM in a district in Bengal. ............
Private bank puts out fake notes
CHENNAI: Police have found that a private bank in Karapakkam was involved in circulation of fake currency notes after they questioned a woman who tried to deposit counterfeit notes at a bank branch in K K Nagar on Tuesday. Police said when the woman came to deposit 50,000 in a private bank in K K Nagar, branch officials found that 500-rupee notes totalling 27,500 were fake............
Debit card annual fees: Why most customers shouldn't be charged
..........Its a different story that phone banking, which was supposed to help customers on a toll free number, is now offered on a paid line. So, all these services that came up to help customers have helped the banks more than the customers. Of course, no one can deny the many conveniences we enjoy today. The point I want to make is that all that was free, now comes at a cost. Even an SMS sent to customers are subject to charges now. The SMS initiative came as a measure to ensure safe banking and now it costs the customers to ensure that he banks safely. Somehow, it doesn't convince me that my bank account is not safe with the banks with this paid SMS facility...........
Can A Digitized Post Realize India’s Financial Inclusion Dreams?
...............India’s Post has forged partnerships with the country’s leading technology companies to help build a technology platform that would allow post offices to offer online services, and postal workers to use mobile phones to handle many of their operations in the field. This year, it plans to launch a national ATM network, as well as connect all branches of the post office through the common technology platform. .............
India’s own Temasek
.............The banks get outside the purview of the CBI/CAG/CVC and will then be able to take commercial decisions without fear of being hauled up 10 years later for what was just a bad commercial decision. The flip side, of course, is that RBI needs to strengthen its supervision, which has been found wanting on various occasions. Indeed, if the government is keen to professionalise PSUs, the same PJ Nayak format should be extended to all of them. Transfer government shareholdings in them to a Temasek-type fund where the government stake is at 50% and have the fund run by a professional board. Immediately............
Bank Mergers: Finmin Looking at Various Options
...........One proposal suggests Punjab National Bank, Indian Bank and Dena Bank be merged to create a bank with an asset base of more than Rs. 9 lakh crore. Another possible combination is Bank of India, Allahabad Bank, Corporation Bank, Bank of Maharashtra and Punjab & Sind Bank. The finance ministry is examining proposals that include consolidation based on geography, business mix and information technology systems. Both private and public sector investment banking firms have made proposals, a senior finance ministry official told ET.............
Stake sale in bank duo on agenda
..........The finance ministry may consider selling part of its stakes in the State Bank of India and Punjab National Bank in the current financial year. The ministry also wants state-run banks to aggressively sell bad loans to asset reconstruction companies to fall in line with the Basel norms as the North Block has decided to limit its infusion into state-run banks at about Rs 11,000 crore. The government’s current holding in the SBI, the country’s largest lender, is 58.6 per cent. A divestment of 5 per cent will take it down ..........
Indian Banking System third most at risk with online malware: Report
.........Improvements in the banking industry and the trend towards making online payments have caused such fluctuations in the growth of banking malware. Also, the introduction of new techniques by cybercriminals causes these changes. Online banking malware creators updated their portfolios yet again in Q1, 2014 with the addition of new routines to their usual weapons of choice, and hence there was a spike in this quarter. "...........
Finance Ministry mulls nodal agency to take over bad loans
.........There is a proposal to form such an entity, for which public sector banks can jointly put in capital, sources said. “We have asked banks to prepare some modalities for setting up of this company, which could look at the stressed asset issue holistically, including taking over non-performing assets (NPAs) and revival of sick units,” the sources said, adding that the proposal was part of a presentation made to the Finance Minister by the Financial Services Department.
As per the proposal, it could act as an aggregator of NPAs and clear such assets quickly.........
NPA norms stressed, RBI may revamp soon
........ “If you are rushing to do a TEV report, the quality will be poor,” another senior banker at a large public sector bank pointed out. He also highlighted the fact that not all banks have board meetings often enough to be able to discuss the cases. Sources told FE the Indian Banks' Association had already sounded out the RBI requesting the regulator to review the timelines. Typically, borrowers tend to pay up on the 89th day to avoid the NPA tag. With JLFs in action, customers have started paying up on the 59th day, a banker said......
CBI Registers 46 Cases in Saradha Chit Fund Scam
.........The Supreme court had last month handed over the Saradha chit fund scam to CBI and asked the state governments to provide all logistical help to the CBI team probing the matter. CBI has formed a Special Investigating Team (SIT) headed by Joint Director Rajeev Singh to also probe the role of Securities Exchange Board of India (SEBI) and RBI. "Investigation conducted so far puts a question mark on the role of regulatory authorities like SEBI, Registrar of Companies and officials of RBI within whose respective jurisdictions and areas of operation the scam not only took birth but flourished unhindered," an apex court bench headed by Justice T S Thakur had said in its order.........
United AP bills deducted from residuary AP account in goof-up
...............From the midnight of June 1, individual bank accounts from both the States came into effect. However, the bank officials presented the bills on June 2. The officials who noticed the goof-up then wrote to the RBI to correct the mistake............
Plan to cover unbanked GPs in the Odisha by June
............“SLBC jointly with Reserve Bank of India and state finance department will finalise the plan for allotment of GPs to the banks for opening of branches in the GPs”, said an official. Individual banks will be asked to submit an action plan for opening of branches in a time bound period so that all the unbanked GPs will have brick and mortar branches in next three years, added the official........
Women CAs still run into glass ceiling
Way back in 1933, Shirin K Engineer broke the glass ceiling by qualifying as the first woman chartered accountant in India. Yet, decades later this profession continues to be viewed as a male bastion. Of the 2.30 lakh chartered accountants (CAs) in India today , only 21%, or around 49,000, are women. The silver lining there are nearly 3 lakh female CA students constituting nearly 36% of the CA student population. `While women CAs are leaving their mark of excellence professionally , the immense potential that lies embedded is still vastly untapped and needs to be harnessed and strengthened,“............
Dhanlaxmi to take a fresh shot at stake sale
.........The move by the bank follows its failed fund-raising attempt a month ago, after a group of investors from Mumbai snubbed the lender at the last hour. While the initial plan was to raise around Rs 233 crore, the bank could raise only Rs 30 crore from a couple of investors in the process. While Kapil Wadhawan, chairman and MD of Mumbai-based Dewan Housing Finance Corp Ltd, picked up around 3.34%, NRI businessman Ravi Pillai raised his stake to 4.9%.All other investors from Mumbai decided against investing in the bank. The fund-raising was meant to build a buffer with a higher capital adequacy ratio. ............
Canara Bank to turn some 600 branches to 5-star category
.........“We have unveiled a prototype of Shikhar branches. Over the next six months, we will convert and upgrade another 600 branches across the country. We will totally transform our branch network by providing a good customer-friendly ambience, products and services. Now, our branches are rated under one star and we will upgrade them to five stars as per the standards provided by BCG,”..........
ICICI Bank gears up for cash chase
...........The bank added in the filing that the cost of raising funds through private placement might be up to 300 basis points above the benchmark interest rate for issuances in the rupee market and up to 500 basis points above the benchmark rate for the foreign currency market. While the proposal to raise the borrowing limit may only be an enabling resolution, analysts said it could be an indication of how banks were gearing up for a possible recovery of the domestic economy...........
Madhu Kapur takes Yes Bank fight to shareholders
.....................Kapur said the bank notice for the AGM does not refer to the circumstances surrounding the Reserve Bank of India’s (RBI) approval of Kapoor’s appointment as MD and CEO till August 2015. “Rana Kapoor could not have applied to be MD and CEO without my recommendation...secondly, the shareholders have not been informed that though the approval sought in August 2012 was for five years, RBI granted it only for three years. This speaks volumes and the shareholders must know about it. The entire proposal is not transparent and contrary to the Articles and Companies Act 2013.”.............
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