Coming into his own as a central banker

Ten days after D. Subbarao took over as Reserve Bank of India (RBI) governor in September 2008, US investment bank Lehman Brothers Holdings Inc. collapsed, leading to an unprecedented global credit crunch, something not seen since 1930. Subbarao got a two-year extension as India’s chief money man on Tuesday, roughly a month ahead of the date on which his term comes to an end. And it comes at a time when global markets have been reeling from the impact of an equally unique development—the downgrade of the US’ AAA credit rating, a status the country has enjoyed since 1941. There are uncanny similarities on the domestic front too. When Subbarao took over the assignment, India’s policy rate was 9% and inflation 10.78%. Now, when he begins his second term, the policy rate is 8% and inflation 9.44%. The collapse of Lehman Brothers and the liquidity crunch that followed forced him to cut rates and pump money into the system to prop up a sagging economy. This time around, a reversal of monetary stance may not be imminent, but one cannot rule out a pause in the Indian central bank’s aggressive rate-increasing cycle to ensure that economic growth is not badly hurt.

By extending his term, the Indian government opted for continuity as the world’s second fastest growing major economy grapples with persistently high inflation amid risks to economic growth. Extending the term of a serving RBI governor is not new. Subbarao’s immediate predecessor Y.V. Reddy had a five-year tenure at one go, but his predecessor Bimal Jalan, who served for six years, received an extension, as did C. Rangarajan, who was governor before Jalan for five years. But Subbarao’s extension is interesting because he has been fighting with the finance ministry openly for preserving RBI’s autonomy and has been vocal about the government’s failure in managing the fisc. In 2010, when the government decided to end the turf war between the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority on unit-linked insurance plans through an ordinance and proposed setting up a joint panel to resolve disputes among financial sector regulators, Subbarao was quick to write to finance minister Pranab Mukherjee​, saying that “the appearance of autonomy is as important as the actual autonomy itself” and “the very existence of a joint committee will sow seeds of doubt in public mind about the independence of regulators”. “The ordinance has seeming implications for regulatory autonomy and sows seeds of doubt where none exist. My earnest request to you is to allow the ordinance to lapse,” Subbarao had written. Mukherjee, an astute politician, did not listen to him and went ahead with the plan. By agreeing to his extension, the finance minister has shown the same political acumen as continuity is critical at the current juncture. Quite a few names had been doing the rounds for the coveted post— Raghuram Rajan​, a University of Chicago professor, an economic adviser to the Prime Minister and former chief economist of the International Monetary Fund; Kaushik Basu​, chief economic adviser in the finance ministry; economic affairs secretary R. Gopalan and former RBI deputy governor Rakesh Mohan. Typically, no search committee is formally appointed to identify an RBI governor; the Prime Minister’s Office picks the candidate with inputs from the finance ministry. What has Subbarao’s tenure on Mint Road been like? He has drawn flak from some quarters for his now-famous baby steps and many felt he was behind the curve in fighting inflation till his last policy action in July, when he raised the rate by 50 basis points (bps), surprising the market and shocking many members of the central bank’s technical advisory committee, who were pitching for a pause. One basis point is one-hundredth of a percentage point.  A physics graduate from the Indian Institute of Technology, and a master’s in economics from Ohio State University​, the 61-year-old former finance secretary started at RBI rather tentatively, but in 35 months has become a seasoned central banker through seven rate cuts and 11 hikes—something no governor has done in the Indian central bank’s 76-year history. His confidence was seen in the tone of the last policy when he justified the 50 bps hike, saying it was done to “maintain the credibility of the commitment of monetary policy to controlling inflation” and the objective was to “reinforce the point that in the absence of complementary policy responses on both demand and supply sides, stronger monetary policy actions are required”. At the beginning of his tenure, when he went for deep rate cuts and flooded the system with loads of money to ward off any impact of the global credit crunch, Subbarao held the finance ministry’s hand tightly and worked in close coordination. But as he learnt the tricks of the trade, he showed his true colour as a central banker and the July policy is a testament to that. In his next term, apart from taming inflation and ensuring economic growth, Subbarao also needs to complete quite a few politically sensitive projects, including private entities’ entry into banking and savings bank rate deregulation.  Speaking at a function in Mumbai last week, Subbarao poked fun at himself and his duties as the man in charge of monetary policy. He said he tosses a coin—heads it’s a 25 bps increase, tails it’s 50 bps. And if the coin lands on the edge, he asks the finance minister for advice.  Jokes apart, since RBI is answerable to Parliament, no central bank governor can afford not to consult the finance minister on critical policy decisions. There’s nothing wrong with that as long as the governor sticks to his stance. The July policy demonstrated that Subbarao has graduated from being a finance secretary sent to RBI to take up the governor’s job to being a central banker.

Mint

Subbarao starts another long haul

Duvvuri Subbarao completed a full cycle only last week. And now, he has to prepare for the next long haul. In 2008, within days of taking charge as the Reserve Bank of India’s (RBI) governor, Wall Street investment bank Lehman Brothers collapsed and the world went into a recession—the aftershocks of which were felt in India. In a startling similarity, his re-appointed comes only a few days after the sovereign rating of United States was downgraded by Standard & Poor's, for the first time in financial history and the world stares at another economic slowdown, with India preparing for the after effects. During his first term, Subbarao had to immediately react to the liquidity crunch that domestic banks and companies faced, by cutting cash requirement of banks and interest rates aggressively. This time, though, it is unclear if there would be another credit crunch, which economists think of as a low probability-high impact event, but the governor and his team have already taken fresh guard. It has said the central bank's priority is to maintain adequate liquidity in the rupee and the foreign exchange market to avoid any volatility. The proactive response of RBI, in tandem with the government, is now widely seen as the reason for the country emerging from the 2008 crisis rather unscratched. "Indian banks have emerged out of the crisis as strong as ever. The non-performing assets are low, there is reasonable growth in credit and deposit. Subbarao deserves credit for ensuring this. He has always said RBI would ensure there is adequate liquidity in the system and credit demand would not suffer due to liquidity tightness," said Deepak Parekh, chairman, HDFC. While RBI was aggressive in cutting rates in 2008, the same aggression was not visible in 2010 when inflation reached double digits. As a result, Subbarao's famous 'baby steps', that, is raising interest rates by a moderate magnitude, drew flak from several quarters, as inflation stayed stubbornly high for more than a year now. At the same time, policy commentators also say there were elements in inflation like supply-side constraints, which were beyond the control of the central bank. One of Subbarao's significant achievements was to take RBI beyond market participants and policy makers to the common man, explaining the importance of central bank in everyday life. His outreach programme, covering nooks and corners of the country, and thrust for financial inclusion is set bring more individuals under the ambit of formal finance. It was also during Subbarao tenure that RBI expressed its willingness to offer fresh banking licences to private sector players after nearly six years. More importantly, it was also open to offering licences to industrial houses. However, though the proposal was mooted last year, no major policy announcements have been made.

I always knew it will come because it is appropriate...Continuity is logical and is definitely on the basis of performance. It is particularly valuable at a time of crisis YV REDDY, Former Governor, RBI

The government has taken the right decision. Subbarao has done an excellent job in managing the financial system during the crisis that gripped the whole world C RANGARAJAN, Chairman, PMEAC

I was certainly expecting Subbarao will get an extension. He has protected the Indian financial sector extremely well even when the world was falling apart DEEPAK PAREKHChairman, HDFC

The continuity is welcome, particularly due to economic and global problems. It is an acknowledgement of Subbarao’s handling of difficult situations SS TARAPORE, Former Deputy Governor, RBI

I welcome the re-appointment. It should have been for at least three years. He has been the governor during very difficult years ...He is very competent RAKESH MOHAN Former Deputy Governor, RBI

It will be good, because at this point of time, extension of the RBI governor’s term is needed...We decided we should do it quickly, to ensure that there is no uncertainty PRANAB MUKHERJEE Finance Minister

BS

Subbarao’s ‘Approval Rating’ Soars

PM clears another 2-year term for RBI governor, move seen as a recognition of Subbarao’s policies in times of trouble

The government has approved a fresh two-year term for the governor of the Reserve Bank of India, Duvvuri Subbarao, reflecting the confidence in the way he has handled monetary policies and also signalling continuity at a time of turmoil in global markets. Prime Minister Manmohan Singh, a former RBI governor himself, approved an additional twoyear term for the RBI governor until September 4, 2013, which will make it five years in the job for Subbarao like his predecessors YV Reddy and Bimal Jalan. The extension comes two days before Subbarao, who is about to complete his threeyear term, turns 62 and instantly drew comparisons to September 2008 when he first took over and had to undergo a baptism by fire in handling the fall-out in India of the global financial crisis. This time around as well, he is squaring up to facing new challenges in the form of a collapse in the global stock markets after the downgrade of US debt by rating agency Standard and Poor’s, the looming threat of recession in the West and inflation at home.  Subbarao, a career civil servant who was India’s finance secretary before taking charge at RBI, is viewed as having synchronised policy making in tune with the economic agenda of the government and staying on course in taking steps to cool inflation. When Subbarao took over, he had to cut rates to bolster confidence when growth appeared to be faltering in the second half of 2008. However, over the past 17 months, he had to raise rates eight times to combat high inflation.  Yaga Venugopal Reddy, who was the governor before Subbarao, said on Tuesday that he was delighted that the “right thing has happened”. In an interview to ET over the weekend, Reddy had said his tenure was easier except that there was criticism. “Policy challenges for me were less than what it is for the governor now. Except that I had to face considerable criticism, particularly domestically, and so I had to defend. Problems were not so complex, but attitudes were. But now the problems are more complex.”  Both economists and bankers reacted positively to the news of a fresh term for Subbarao. Ajay Shah, senior fellow at the National Institute for Public Finance and Policy, who has worked with Subbarao, said the central bank had progressed enormously under his watch. “I hope that will continue. He has finally waged a war on inflation. I hope he will see it through to victory. Considering that he is a veteran of the 2008 crisis. His scale and judgment will help RBI shape things in the future,” Shah said. “Continuity is the best perceptive at this point in time, when the global economy is witnessing a crisis. Hence, a fresh term for the governor is a most suitable option. Alternatively (if a new person was appointed) in a crises scenario, the market would have had to figure out how the new governor thinks. Since we know the person, it makes it easier to understand his phyche,” said Kotak Mahindra Bank chief economist Indranil Pan. Ashutosh Khajuria, president-treasury operations, Federal Bank, too echoed this view, saying continuity in policy making would provide relief to markets. Subbarao, until he raised rates by 50 basis points in July, was seen as being behind the curve or a little late in reacting, compared to several other central banks in emerging markets in combating inflation. He was often criticised for not getting inflation projections right, with RBI revising its forecasts made at the beginning of the year. However, bankers and bond market traders revised their opinion only in the last couple of months, after he moved away from his approach of “baby steps” rate actions to a more aggressive interest rate setting policy. The RBI governor has adopted a direct line of communication with market participants, besides following a consultative approach. Subbarao is also not seen as dogmatic. For almost two decades now, the government has been granting five year terms for governors. C Rangarajan, Bimal Jalan and YV Reddy enjoyed five-year terms. With the exception of YV Reddy, both Rangarajan and Jalan were initially given a three-year term, which was later extended by two years. There have been several governors in the past who have had a five-year term, with the longest tenure being that of Sir Benegal Rama Rau, who was at the helm from July 1949 to January 1957 — for seven and a half years.

TOI

Subbarao gets extension: Bankers welcome govt's decision

The government today extended the tenure of RBI governor D Subbarao by two years. CNBC-TV18's Gopika Gopakumar and Latha Venkatesh sum up the market's reaction. The mild-mannered bureaucrat who was lost in unknown unknowns just three years ago is today the market's unanimous choice to continue as governor of RBI for another two years. Minutes after the finance ministry confirmed his extension, CNBC-TV18 polled bankers, economists and bond dealers, and an over whelming 90% said that Subbarao's extension is good for the economy. When asked to rate him in a scale of 1-10, 80% rated him high—ie between 8 and 10, only 20% rated him average between 5 and 7. Even those who rated him average in monetary policy rated him high on transparency, communication and clarity. Bankers said he has brought openness to the central bank. A small minority of bond dealers said he remained behind the curve on inflation till recently. Subbarao appears to have won his extension partly because of want of good alternatives and partly because in a situation of international and domestic uncertainty, it was important for the government to have a man in RBI who knows his job. True, Subbarao himself came into RBI a complete greenhorn and was faced with the Lehman crisis barely 10 days after taking over. But now having learnt on the job, it was only fair that the nation benefit from his experience. From his early diffidence Subbarao has certainly come a long way. In the latest policy he shocked the market with a half a percentage point rate hike. Not only that, he also read the Riot Act to the government for not doing its bit on controlling deficit. Chances are we are going to see a way more proactive and plain speaking governor in the next two years.

Moneycontrol

Watch the video................ 

Economists welcome Subbarao's extension

Chennai, Aug 9 : The two-year extension given to RBI Governor, Dr Subbarao has been widely welcomed by economists.  Reacting to the announcement, Dr Ajit Ranade, Chief Economist, Aditya Birla Group, said, "It is good to know about Dr. Subbarao's extension. Recently three former RBI Governor's had made a public plea and recommendation for continuing him at the helm of RBI”.  He said that he was appointed in early September 2008, and was immediately "baptized by fire" caused by the Lehman bankruptcy and subsequent financial and economic crisis. I think India withstood that turmoil, not least because of RBI's proactive and also creative response to the global turbulence.  Given the current upheavals in global markets due to the downgrade of sovereign U.S. debt by S & P, it would need someone like Dr. Subbarao with a proven track record at the helm, to steer matters here. “Of course one could pick bones about the RBI not having done enough about inflation. But there I think the RBI has a legitimate alibi about having been undone by the fiscal situation. I welcome the extension given to Dr. Subbarao, he said"

Expertise

Ms Shubada Rao, Chief Economist, Yes Bank, said, "It is very important to have someone capable at the helm in these uncertain and volatile times. The continuity through this reappointment spells something positive for the economy. He has demonstrated his expertise and that is reflected in this extension of his tenure." Mr S L Bansal, Executive Director, United Bank of India on Tuesday said that Dr D Subbarao’s extension will ensure continuity. “Dr Subbarao’s extension is a welcome step as there will be no uncertainty now,” he said.

HBL

Central bank rerun

Subbarao became RBI governor just at the beginning of the global financial crisis and therefore faced immense challenges right from the beginning — he handled them well and put together a speedy and appropriate policy response. The earlier, relatively more conservative, regime might have perhaps had a greater resistance to the kind of quick and bold steps that Subbarao was able to make......

Read.............

Introspection time for RBI

The one area where RBI has failed to provide more meaningful insight is the exceptionally strong export data in recent months, despite weaker global environment. It has concluded that these signal still-strong activity in the export sector.....

Read............. 

Ten heads 5 years in office

Banking access to rural poor

One of the more impressive aspects of India's growth story relates to the expansion of the banking infrastructure. Between 1969 and now, the banking network has grown ten-fold — from 8,000 branches to 80,000. The number of rural branches has increased phenomenally, from 1,443 to 32,000. This expansion was triggered by nationalisation, first in 1969 and again in 1980. However, it is a sad reality that, for all the impressive growth, nearly 40 per cent of the households in the country — many of them rural — do not have a bank account. This ‘exclusion' of a vast segment of the population — comprising mostly marginal farmers, agricultural workers, and casual labourers — is perceived as an impediment to ‘inclusive growth.' “Financial apartheid” is how Muhammad Yunus, reputed founder of Bangladesh's Grameen Bank movement, called this exclusion of the poor from the banking network. The term ‘financial inclusion', therefore, means delivering banking services such as savings, credit and insurance facilities to the left-out social strata.

Strategy

This book, by a senior RBI official, looks at the problem in the overall context of the country's economic policy and examines the strategies adopted over decades to tackle it. To start with, Joshi dwells at length on poverty and development theories and the need for providing access to financial services to the low income groups, and goes on to discuss the RBI's post-nationalisation initiatives to extend the banking network in the rural areas.  The central bank placed the commercial banks under regulatory obligation to open rural branches and to sponsor the Regional Rural Banks. Every bank was required to advance 40 per cent of its lending portfolio to certain specified sectors categorised as “priority sectors”; they included agriculture, lending to which must constitute at least 18 per cent. This stipulation enabled farmers to borrow for buying inputs. The RBI's “service area approach” by which the responsibility of meeting the rural credit needs of a specific area was assigned to a particular branch, and the provision of refinance facility by NABARD were among the other significant steps.

Low savings

The Central Government's Integrated Rural Development Programme (IRDP) and Swarna Jayanthi Swarozgar Yojana (SJSY), launched as part of the poverty alleviation endeavour, also brought about considerable attitudinal change among bankers towards lending to low-income households, although these subsidy-linked schemes met with only a partial success. What stood in the way of the poorer sections accessing bank credit was that their level of savings was so low that they were unable to provide collateral security for their borrowings. This barrier was overcome by creating the institution called ‘Self-Help Group' (SHG), an innovation of the 1990s. The banks lent money to the SHG, which in turn gave loans to its members. The SHG idea caught up fast and gained wider acceptability from the banks quickly. The NGOs also played a part in giving a push to the SHG movement by acting as sponsors and inculcating the savings habit in the poor and thus making them more ‘credit worthy'. Remarkably, loans to the SHGs were repaid more promptly than those under the poverty alleviation programmes, although they carried higher interest rates and had no subsidy component.  The success of the SHG movement, particularly in south India, led to the emergence of a large number of microfinance institutions, promoted by NGOs as well as private entrepreneurs. That the proliferation had a negative fallout — what with some of the MFIs resorting to sharp practices that got the borrowers into a debt trap — and the Central Government has had to step in and come up with legislation to regulate the microfinance sector is another story; it's a development this book has not covered.

More imperative

The advent of National Rural Employment Guarantee Scheme, under which wages payable to workers are routed through banks, has rendered ‘inclusive' banking all the more imperative. “No-frills” bank accounts without the requirement of a minimum balance and “Business Correspondents” for carrying out simple banking transactions in villages using ‘smart cards' are the two steps taken more recently towards financial inclusion. As it turns out, however, the thrust of the policy initiatives aimed at financial inclusion has been on the supply side. The demand side has not received adequate attention. For instance, the RBI's effort to spread financial literacy among the rural population and stimulate the demand for banking services is yet to gather momentum. Joshi has elaborately, and somewhat repetitively in patches, dealt with the various policies and programmes initiated for reaching the bank services to the rural parts, but has refrained from analysing them critically. Moreover, since the ‘last mile' is critical for financial inclusion, the value of the book would have been enhanced considerably, if the author had drawn material from field studies rather than rest content with summarising official reports.  

HBL 

RBI alters LAF timing to curb volatility in overnight rates

From August 16, the Reserve Bank of India (RBI) will hold reverse repo auctions between 4.30 and 5 pm on all working days, except Saturdays. The move will help curtail volatility in the overnight money market that emerged after the apex bank discontinued its second Liquidity Adjustment Facility (LAF) in May. The timing for repo auctions remains the same. Presently, repo and reverse repo auctions under the LAF window are conducted between 9.30 am and 10.30 am. In accordance with recommendations made by the Deepak Mohanty panel on LAF operations, the repo and reverse repo window open only once in the day. Banks would then turn to the money market to deploy surplus funds or cover any borrowing needs, which used to result in unusual rise or fall in the rates in overnight call and the collateralised borrowing and lending obligations. “We had requested RBI to conduct LAF auctions in the evening instead of the morning, as banks would have better understanding of their cash position by then,” said a senior treasury official of a large public sector bank. The new timing will allow banks to park the excess funds, if any, with RBI at a reverse repo rate of seven per cent. Deploying excess funds in call would result in rates falling below the LAF corridor. The weighted average interbank call money rate is the operating target of RBI’s monetary policy. “Now the call rate will not trade above the repo rate in the morning and will not fall below the reverse repo rate in the evening,” said a bond dealer with a primary dealership. The repo rate is now eight per cent. Also, the timings for Marginal Standing Facility (MSF) will be changed to 4.30-5 pm from 3.30-4.30 pm presently. Banks can approach the MSF window after exhausting all other sources. According to RBI, banks can borrow up to one per cent of their net demand and time liabilities at a penal rate if the Statutory Liquidity Ratio falls below the mandated 24 per cent. The MSF rate is now nine per cent.

BS

Subbarao to review crop loan disbursement in Maharashtra

Reserve Bank of India (RBI) Governor D Subbarao has convened a meeting tomorrow with a bankers’ committee in Maharashtra to review the disbursement of crop loans by commercial banks, regional rural banks (RRBs) and cooperative banks in the state. For the first time, commercial banks have agreed to increase their share to 45 per cent from 30 per cent in disbursing the loan, while cooperative banks would reduce their share to 49 per cent from 70 per cent. A state government official, who will attend the meeting, told Business Standard on the condition of anonymity, “At a meeting on June 8 attended by Chief Minister Prithviraj Chavan and RBI Deputy Governor K C Chakrabarty, the state-level banking committee had finalised a comprehensive plan for the disbursement of Rs 23,181 crore crop loan for the 2011-12 kharif season as compared to Rs 13,151 crore in 2010-11. It was also decided that the exposure of commercial banks would be increased from the current financial year reducing the share of cooperative banks in the state. Till the last financial year, the commercial banks disbursed a mere 30 per cent against 70 per cent at the all-India level, and therefore it was decided they would disburse 45 per cent of the total Rs 23,181 crore and six per cent by the RRBs.” The official said so far the cooperative banks had achieved 91 per cent of the disbursement target, despite constraints after the board of Maharashtra State Cooperative Bank was superseded. The commercial banks had achieved 43 per cent of the target, he added. “We are receiving reports from all districts where farmers are queuing up at the commercial banks for kharif crop loan. This is really a remarkable change,” the official noted. State Cooperation Minister Harshvardhan Patil said the state government was of the view that the share of commercial banks needed to grow further, especially when the government had proposed an annual disbursement of crop loan to the tune of Rs 40,000 crore from 2016.

BS

RBI signs MoU with Qatar Financial Centre Regulatory Authority

Mumbai: The Reserve Bank has entered into an agreement with the Qatar Financial Centre Regulatory Authority to promote greater co-operation and sharing of supervisory information between the two regulators. A Memorandum of Understanding was signed between the two sides in this regard on August 4, the RBI said in a statement. Commenting on the agreement, RBI Executive Director P Vijaya Bhaskar said that the apex bank is looking forward to enhanced cooperation and information sharing with the QFC Regulatory Authority. "India and Qatar are among the fastest growing economies in the world, and we are seeing greater economic ties and increased investment flows between both countries," "Our cooperation under the MoU will help to make certain that our organisations are appropriately positioned to ensure that financial institutions under our supervision are well regulated and supported," he said.

Zee News

Zero balance in a/c need not worry you anymore

BANGALORE: The high court on Tuesday observed that banks recovering penal charges from customers not maintaining minimum balance in their accounts might have to pay back the amount with penal interest once the RBI comes out with its decision. The court's observation came following a public interest litigation (PIL) filed by T S Muthukrishnan. The petitioner contended that in the name of non-maintenance of minimum balance, banks levy hefty penal charges. The petitioner said it is obvious that only the poor man, who struggles to make "both ends meet", doesn't maintain minimum balance. A division bench presided by Chief Justice J S Khehar, while disposing of the PIL, said: "The final determination will only emerge after objections from the stakeholders. It is apparent from the recommendations in the Damodaran Committee report that the final determination may relate to levy of penal charges. The issue has financial indications.  The banks concerned would be advised not to levy penal charges till Reserve Bank of India (RBI) lays down parameters."  The RBI counsel informed the court that objections have been invited from the customers and the banks concerned and a final decision will be taken after that.  The court observed that since the issue of maintaining minimum balance and penal charges also finds mention in the Damodaran Committee report, the RBI would take a decision. TOI

Vijaya Bank's ‘exporters meet' draws good response

Kochi, Aug. 9:  A number of exporters from different parts of the State have participated in the Exporters Meet organised by Vijaya Bank, which was presided over by Mr Upendra Kamath, Chairman and Managing Director of the bank. Speaking on the occasion, he said, that the meet was conducted with the active cooperation of RBI and Indian Chamber of Commerce and Industry.  He explained that the main aim of the meet was to provide a platform for exporters to interact directly with the bank and with the Regulator so that various problems faced by exporters, vis-à-vis their aspirations/ requirements, could be sorted out on the spot, for mutual benefit of all concerned.  The meet would provide valuable inputs to the bank for drawing up appropriate strategies for doubling its export credit as well as to increase its clientele base, he said adding, that the bank would be conducting such meets in various parts of the country regularly.  Mr C.V.George, General Manager, RBI, highlighted the unprecedented downgrading of the US economy for the first time, and opined that the same could have impact on export scenario.  He highlighted the various policy initiatives taken by the Regulator for the exporters, with special emphasis on timeliness and adequacy of loans and disposal norms to be followed by banks.  Mr P. Pratapachandran, President of the Chamber, touched upon various infrastructure facilities available, particularly on shipping facilities, which would go a long way in improving the export infrastructure of the State. Mr N. Devadas, General Manager, Credit, has spoken about the role of Kochi Region under export credit, and assured the exporters of full cooperation of the bank in meeting their credit requirements. Mr Harindranath Shetty, General Manager, Treasury Management, was also present. During the deliberations/ discussions with the exporters, General Managers and Assistant General Manager from Head Office, Bangalore, have clarified various issues raised by exporters and their problems were sorted out on the spot.  

HBL

RBI Governor coming to Nepal on Friday

HIMALAYAN NEWS SERVICE : KATHMANDU: Reserve Bank of India (RBI) governor Dr D Subbarao is visiting Nepal on Friday in an invitation of central bank governor Dr Yubraj Khatiwada. "They will discuss issues of mutual interest and also issues relating to their part of the world and global issues," according to the RBI sources. During his two-day visit, Subbarao is speaking to bankers in Kathmandu on the first day. "This is basically a courtesy visit by RBI Governor on the invitation of our governor," informed spokesperson for Nepal Rasta Bank (NRB) Bhaskar Mani Gyanwali. "However, we can expect the governors to discuss the issues of common concern but there is no predetermined agenda for talks." However, the central bank can be expected to lobby for the permission to opening of branch of Nepali remittance companies in India to increase the flow of inflow of remittance from India. At present, RBI allows the remittance from India through its Indo-Nepal Remittance Facility that allows Nepali migrants to send up to 50,000 Indian Currency (IC) in a single transaction through its National Electronic Fund Transfer (NEFT) member Indian commercial banks to Nepal SBI Bank's account that then routes the remittance to the receiver through its branches or a designated money transfers. Despite the existence of the formal remittance facility most of remittance is entering in Nepal through non-banking channels like hundis so that millions of rupees go undocumented. Since no Nepali remittance companies operate in India Nepali migrant workers are not aware about the money transfer facilities.  The another issue that might get discussed in the visit is the circulation of Rs 500 and Rs 1000 denomination Indian currency notes in Nepal. RBI does not accept these currencies from Nepal citing the rise of instances of counterfeit currencies from Nepal. The refusal of higher denomination has caused hassles for Indian tourists who carry cash while visiting Nepal. However, accepting the higher denomination currency from Nepal is not within the singular jurisdiction of Indian central bank as the decision has to be taken by the government. RBI is also apprehensive about accepting the higher denomination notes from Nepal due to risk of counterfeits in spite of the persuasion from the Nepal Rastra Bank. Subbarao took over as the 22nd governor of the Reserve Bank of India on September 5, 2008 for a three-year term. Prior to the appointment as RBI Governer, he was the finance secretary in the Ministry of Finance, Government of India.

http://www.thehimalayantimes.com/fullNews.php?headline=RBI+governor+coming+to+Nepal+on+Friday&NewsID=298562

Keep an eye on SMS alerts

Chennai, Aug. 8 : The RBI's crackdown on fraud in Card Not Present (CNP) transactions ‘led to' an increase in the volume of CNP transactions, by giving remote users a greater sense of security, according to Mr. G. Padmanabhan, Executive Director, RBI. But, he feels, RBI's success on this front might have caused fraudsters to shift their focus to Card Present Transactions. In this connection Mr Padmanabhan cites the example of a scam in Hyderabad, where fraudsters posing as merchants offered mobile talk time worth Rs 250 against payment of Rs 50, on condition that only card payments would be accepted. The kiosk machine specially set up for this purpose was configured to prompt for PIN and print a charge slip indicating approval of the transaction by the bank. The Magnetic Stripe Card data and the PIN were captured from unsuspecting customers and later used to make counterfeit cards for withdrawal of cash. The same modus operandi was used at a petrol pump in Ranchi; only this time instead of mobile recharge vouchers, customers were offered car wash liquid and air freshener. The moral of the story is that it is safer to stick to the beaten track, that is, KYC-processed point of sale terminals; avoid shady nooks and corners.

RBI directive

More important, with effect from July 1, 2011, the RBI has instructed banks to send out SMS alerts for all card transactions, irrespective of the channel used; ATM, phone banking, Net banking, whatever. If an unauthorised transaction comes your way, sound the alarm. If you happen to be one of those who keeps the mobile switched off for extended periods of time, you can instead, ‘regularly at irregular intervals', check out the transactions which have taken place in your accounts. Not to look for transactions you have made, but to spot those you haven't. Of course, you still need to ensure that your bank has your mobile number on record, not someone else's. For it is to this number that it will send SMS alerts and one time passwords.

HBL

Past imperfect

Everyone has to deal with an uncertain future but for the Reserve Bank of India even the past is uncertain because data is revised after it is released, according to former governor Y V Reddy. The comment was significant because it comes just days after his successor and incumbent governor D Subbarao’s detailed speech on how revisions in data, like inflation and factory output, have made policy formulation difficult.

BS

Govt report says 4 in every 1,000 notes are fake

The report, which is not in the public domain, also points a finger at Pakistan, saying its government officials are directly involved in the process of making and distributing large numbers of fake notes

New Delhi/ Mumbai: Four in every 1,000 currency notes in circulation in India are fake, amounting to as much as Rs. 3,200 crore in 2010, a confidential government report has found in a first-ever attempt to estimate the quantum of counterfeit notes in the country.  The so-called white paper on the status of fake Indian currency notes, prepared jointly by the Intelligence Bureau, Research and Analysis Wing, Directorate of Revenue Intelligence and the Central Bureau of Investigation, says this seriously affects the “credibility of the rupee as legal tender”. Mint has reviewed a copy of the report that was submitted to the government in June. Fake currency is 0.0004-0.0012% of bank notes in circulation, it cites the Reserve Bank of India (RBI) as saying, which is four in every one million, much lower than the white paper estimate.  

The central bank does not have an estimate of fake currency notes circulating in the country, an RBI spokesman said in an emailed response, adding that the banking regulator is not aware of the existence of any white paper on the subject. Indian bank notes are secure, RBI asserted.  The report, which is not in the public domain, also points a finger at Pakistan, saying its government officials are directly involved in the process of making and distributing large numbers of fake notes. The Pakistan high commission in New Delhi declined to comment on the matter. Fake notes that flowed into India in 2010 from abroad were “in the range of Rs. 1,500-1,700 crore”, the white paper said. Total counterfeit currency in circulation amounted to Rs. 3,200 crore in 2010, it added.  Experts said the amount of fake notes in circulation is a cause for concern.  “From a monetary policy perspective, if growth in fake currency becomes too rampant, then it reduces the control of monetary policy over inflation by making the monetary actions less effective,” said D.K. Joshi, principal economist at rating agency Crisil Ltd. “This can have a destabilizing impact on the overall economy.” The incidence of fake notes in various countries has typically been lower than what the white paper has found in India. In Australia, counterfeit notes detected were around seven pieces per million notes in circulation in 2008-09, and in Canada, it was 76 per million in 2008, according to RBI data. As for the euro, there was roughly about one counterfeit detected for every 14,600 bank notes in circulation in 2008.  “The importance of curbing fake currency is even more important in the current scenario, when RBI is fighting inflation and striving to curb growth in money supply,” said Saurabh Tripathi, a partner at Boston Consulting Group. India’s vulnerability to fake notes was highlighted in the 2011 International Narcotics Control Strategy Report prepared by the US state department. “India also faces an increasing inflow of high-quality counterfeit currency, which is produced primarily in Pakistan… (and) represents a threat to the Indian economy,” the report had said. The paper used for fake notes is made of 100% cotton rag and a security thread is inserted during the manufacturing process that replicates several other sophisticated features, making the currency nearly impossible to detect, the report said. “We are approaching international forums to make counterfeit notes equivalent to terror financing,” a government official in the cabinet secretariat said, requesting anonymity. “We have already approached FATF (Financial Action Task Force) and shared this report with the US and other countries that are helping us to fight acts of terrorism.” FATF is an international organization that combats money laundering and terrorist financing.

Mint

Fake currency trade is unabated in UP

The illegal trade of Fake Indian Currency Notes (FICNs) continues unabated in Uttar Pradesh, especially in districts bordering the Himalayan kingdom of Nepal. Since 2008, over Rs 9.5 crore in illegal tender have been seized in the state and 595 first information reports (FIRs) registered in these cases, which include incidence of fake currency found in automated teller machines (ATMs) of different  banks.

BS

Finance ministry must be in the know of gold transactions, says CIC

Hearing an RTI appeal, chief information commission orders ministry to be the nodal body; Reserve Bank of India and finance ministry to submit affidavits in case of denial of any deals in the yellow metal.

At a time when popular and judicial pressure is building up on the government regarding investigation of scams and financial accountability, the babus have mastered the art of passing the buck and being elusive. The ministry of finance too, has been acting slippery in furnishing information to the public. However, RTI (Right to Information) activists have found a way to make the financial authorities accountable. While hearing an appeal by an RTI activist, the chief information commission (CIC) has ruled that the finance ministry must be the nodal body knowing the details of gold trade in India, and has asked the ministry and the RBI (Reserve Bank of India) to submit affidavits in case they deny the same.  "Commission holds that it is the Ministry of Finance who would be the nodal ministry in respect of the subject matter. Therefore, the ministry of finance, through its secretary is directed to submit (an) affidavit signed by an officer not lower in rank of deputy secretary to give (an) affidavit that information is not held by the ministry or any of its entities. Similarly CPIO, Reserve Bank of India is directed to give a similar affidavit to the commission", the commission ruled on 14th July. The affidavits have to be filed within two weeks of receipt of the judgement.  RTI applicant, Subhash Chandra Agrawal said, "I received the judgement yesterday, and I think it is the same with the ministry. I am expecting the information or the affidavits after fourteen days." Mr Agrawal had filed an RTI (Right to Information) application in May 2010 with the department of revenue, asking for details of gold sales and consumption happening in India, and estimates for unaccounted transactions. However, the CPIO of the department replied that such information is not held by them, following which Mr Agrawal filed the first appeal in September. Dissatisfied once again, Mr Agrawal went for a second appeal before the commission. "The RTI petition filed at the Department of Economic Affairs kept shunting between various public authorities including the RBI, Central Board of Direct Taxes (CBDT), Department of Revenue and Directorate of Enforcement with everybody transferring the petition to each other under Section 6(3) of the RTI Act", said Mr Agrawal.  He said, "India being the largest purchaser of gold, sets the global trend. Unaccounted money is being largely invested in gold and silver. There is every possibility that money deposited in foreign banks now being transferred is responsible for sudden rise in prices of gold and silver."

Moneylife

Economists hopeful of pause in rate rise cycle in September

The Reserve Bank of India (RBI) is likely to take a pause from raising rates in its next policy meet in September, as fears of a global economic slowdown and its cascading effects on the Indian economy intensified after Standard & Poor’s (S&P) downgraded the long-term debt rating of the US last week. On Friday, after the US market hours, S&P reduced its long-term credit rating of the US from AAAto AA+, raising concerns of another economic slowdown. With domestic demand already expected to shrink because of sharp rise in interest rates in the last 12 months, economists said RBI was expected to wait for some time to take stock of the situation before increasing rates further. The mellowing of commodity prices, especially of crude oil, is also expected to provide RBI some breathing space in its battle against inflation. “I do not see any more policy rate hikes by RBI if the oil prices cool off and if there is a double-dip as predicted in the US,” A Prasanna, chief economist of ICICI Securities Primary Dealership, told Business Standard. Besides downgrading of the US’ rating, the persistence of debt crisis in the euro zone has also added to the uncertainties in global economies. “Though the developments in Europe and US increase risks for the economy, easing global commodity prices is big plus. RBI may get room to tweak its policy stance and could take a pause,” said Brinda Jagirdar, head of economic research and general manager of State Bank of India. RBI has increased the policy rates 11 times in the last 16 months to combat inflation, at the cost of growth moderation. In its latest policy review in July, the central bank raised key rates by as much as 50 basis points. RBI Governor D Subbarao has also reiterated that the central bank’s monetary tightening stance will continue till inflation stays high. According to economists, however, softening of global commodity prices will ease the pressure on domestic inflation. “Our policy call that RBI will increase the repo rate by a further 25-50 basis points by March 2012 could be put to test in the event that commodity prices globally come down sharply and risk aversion is significant,” said Indranil Pan, chief economist, Kotal Mahindra Bank. While YES Bank continues to keep its 25-basis point policy rate rise forecast in September, its chief economist, Shubhada Rao, said rate rise action would depend on economic indicators like gross domestic product, industrial output growth and global commodity prices. “Volatility in markets will not be an adequate measure for RBI to change its monetary stance,” she said.

BS

FM to meet regulators to evaluate impact

Centre may have limited options to tackle lower trade and investment inflows following US debt rating downgrade and euro zone crisis. But, finance minister Pranab Mukherjee will shortly meet financial markets regulators to “evaluate the impact of international challenges” and devise medium term strategy to protect “offensive and defensive” Indian interests in foreign assets. Revaluing foreign assets following dollar and gold appreciation, continuation in dollar denominated investments and stock-taking on proposed equity sale of PSU shares in a volatile market are some of the issues that may figure prominently at the meeting between markets regulators and finance minister. RBI Governor D Subbarao, Securities and Exchange Board of India (Sebi) Chairman UK Sinha and Insurance regulator Irda chairman J Harinarayan are part of this high-level coordination committee on financial markets. This committee is now part of financial stability and development council chaired by Mukherjee.

Financial Chronicle

US sneezes, India catches a cold

A research note on Asian markets from Royal Bank of Scotland reads: "In India, the RBI Deputy Governor (Subir) Gokarn said over the weekend that a fall in commodity prices is likely to impact the pace of rate hikes and that the central bank remains concerned about managing liquidity in the economy, signaling a possible pause in the next policy meeting in September." That's respite number one.......

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US crisis may hit but also benefit India, says FICCI

New Delhi : India will be impacted in the short term because of the US sovereign debt crisis, but it will also benefit from the economic turmoil as softening crude prices will bring down inflation, prompting the Reserve Bank of India (RBI) not to hike rates, a leading industry lobby said Monday. 'One positive fallout of the rating downgrade, we feel, could be the Indian market perception that a possible decline in crude prices may signal a pause in RBI rate hikes, buoying investor sentiments,' the Federation of Indian Chambers of Commerce and Industry (FICCI) said in a statement. 'Additionally, the spreads between a US sovereign and Indian sovereign paper of comparable duration may decline, thus acting as an enabler to foreign institutional investors inflows into the country. This may have a sobering impact on the current account deficit, even though this may not be exactly desirable.'  Global stock markets continued to fall Monday after top credit rating agency Standard and Poor's downgraded the US sovereign debt rating last Friday and cautioned of a further downgrade if the fiscal position of the country did not improve. As far as the impact of the crisis on the Indian economy, FICCI said some short-term impact would be seen in terms of market uncertainties. 'An uncertain global environment could, however, depress India's exposure to global markets (exports of goods and services, more than a quarter of India's GDP) and knock off percentage points from India's GDP growth,' the industry lobby said while outlining some of the risks.

Yahoo News

RBI may intervene to stem rupee volatility

NEW DELHI: Reserve Bank of India Governor D Subbarao may have shied away from intervening in the forex market for a majority of his term but, if needed, the central bank is ready to step in to avoid any volatility in the domestic market following the developments in the US and Europe.  "In the immediate future, the Reserve Bank's priority is to ensure that adequate rupee and forex liquidity are maintained in domestic markets to prevent excessive volatility in interest rates and exchange rates," RBI said in a statement on Monday. The statement also sought to comfort the markets by saying that there was no strain on short-term interest rates and liquid reserves to meet the demand for forex even in stress scenarios.  Sources indicated that the decision to be on full alert for a possible intervention was taken on Friday in the wake of the global markets' collapse. The RBI confirmed this. But developments on Monday did not warrant any action as the rupee closed at 44.97 to a dollar, compared to Friday's close of 44.73. In intra-day trade, it had declined to a low of 45.07, Reuters data showed. But trends in the futures market indicate that the rupee will decline to 45.11, while those in the non-deliverable forwards market put the value of the rupee against dollar at 45.25. Though the depreciation may not appear weak, a sharp movement either ways is something that RBI always wants to avoid as it destabilizes business. Besides, a steep depreciation would also stoke further inflationary pressures as imports would get more expensive. RBI typically intervenes by buying or selling dollars through banks, something that it has avoided for over two years now. During the 2008 financial crisis, its intervention had resulted in sucking out rupees from the system as the central bank pumped in dollar, and put further pressure on the funds available in the system.  This time, however, liquidity is not so tight and an intervention, from trends available so far, is unlikely to put much pressure, sources said.  "In anticipation of financial market turbulence related to the US debt ceiling impasse, the Reserve Bank made an assessment of the ability of the forex reserve portfolio to meet potential forex requirements in the event of significant capital outflows. This exercise indicated that there were sufficient liquid reserves to meet the demand for forex even in stress scenarios," RBI said in its statement on Monday.  The idea was to calm market sentiments hit by the downgrade of US sovereign rating from AAA to AA+. "Developments relating to the US economy last week have significantly increased uncertainty about its prevailing condition... As Friday's market behaviour demonstrated, India is not insulated from such developments. It may, however, be noted that in the worst phase of the recent global financial crisis, the economy grew by 6.8%, suggesting high resilience emerging from domestic factors. While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact," it said.  At the same time, it said that RBI would take all possible measures to "respond quickly and appropriately to the evolving situation".

TOI

RBI: Will ensure liquidity

“There has been substantial global risk aversion after the US downgrade. RBI, in on Monday’s statement, said it would respond if global uncertainty worsens, which means RBI is willing to change its stance. Still, it is too early to take a big call....

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India is not insulated from global developments: RBI

...“As Friday's market behaviour demonstrated, India is not insulated from such developments. It may, however, be noted that in the worst phase of the recent global financial crisis, the economy grew by 6.8 per cent, suggesting high resilience emerging from domestic factors,” said the RBI.....

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Continuously assessing impact of US crisis: RBI

"The RBI is closely monitoring all key indicators and will continuously assess the impact of global developments on rupee and forex liquidity and macro-economic stability. We will respond quickly and appropriately to the evolving situation," the central bank said.... 

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Forex Achievements has fabricated registration certificate to fool people warns RBI

The RBI has warned the public against placing money in any such company and advised investors to only deposit money in companies which are legally registered with the RBI and entitled to hold deposits. One should recheck on the RBI website for genuine certificates before falling into any attractive schemes, whose bitter truth is revealed in just a few months after its launch. Investors continue to learn their lessons the hard way!

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Sholay and Subbarao

Ramesh Sippy’s Sholay has even influenced monetary policy making, it seems. Asked how the Reserve Bank of India decides between a 25- and 50-basis point rate increase, Governor D Subbarao joked that they toss a coin. Sometimes, it falls on the edge. And when that happens, he says, he asks Finance Minister Pranab Mukherjee !

BS 

Short circuit

In setting up the secretariat of Financial Stability Development Council (FSDC) office, which will function from North Block, the government found itself short of qualified people to staff it. So it turned to the Reserve Bank of India (RBI) for manpower. Such staff would work in the Council but receive pay cheques from the central bank. RBI had vehemently opposed the creation of FSDC on the ground that it would impinge on its regulatory autonomy, but toed the government line later. This time, however, the central bank politely declined the proposal saying it, too, was short staffed.

BS

Shashi Rajagopalan: A fighter for 2nd freedom - Devaki Jain

Few Indians can claim to be worthy of being called freedom fighters for the second freedom that Gandhi extolled Indians to fight for. Shashi Rajagopalan, who passed away on Friday, was one such. It is to the RBI’s credit that it included her in the central board — she was one of the greatest proponents of self-reliant financial security for the underprivileged. Shashi was a brilliant champion of thrift societies, extended to cooperative societies, led and populated by women. She would not like to be known as having built them, as her key words were always that this was the genius of the women, she was only a hand-holder. The real self-reliant cooperative movement — different from those run by the government—was her passion. These, she and my late husband Lakshmi Jain would argue, are the brick for economic empowerment. Together, they fought against the retrograde cooperatives and legislations that would reduce a people-led selfstrengthening movement into a bureaucracy. They both, one could say, died fighting against the Bill that is now in Parliament, which again tries to snuff out these real cooperatives. Shashi wouldn’t have agreed, but what made her different was what makes for the difference between an activist and a leader — she was brilliant. With her intellect, she empowered the lives and livelihoods she was championing. She was told she had breast cancer, but typically she reasoned that she did not want to take on ‘western medical support’. She was trying out homoeopathy and managed to contain the disease. As it worsened, she decided that she would dry it out by eating less, eating what she needed for just living. And she won. She celebrated her 60th birthday with a good Iyengar feast 12 days ago.

(Devaki Jain is a Padma Bhushan-winning writer who has worked in the field of feminist economics. She is the wife of Gandhian economist late Sri Lakshmi Chand Jain)

TOI