RBI in dilemma over rate hike; may take a pause this time

...A majority of economists and brokerages believe that over the past several months, the central bank has focused on controlling inflation, albeit unsuccessfully, and with inflation still above the acceptable levels, the RBI could yet hike rates by 25 bps. However, there are others who feel that....

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Fiscal deficit

This has reference to the feature “Real truths about interest rates” (Business Line, September 15). The writers, by quoting various rules and theories, have researched well the influence of monetary policy, particularly the interest factor, on inflation.  But treating inflation purely as a monetary phenomenon seems to be incorrect, if we are to go by the explanations of non-monetarists on inflation. That has also been the problem with the monetary authority (read Reserve Bank of India) that has been obsessed with increasing policy rates and showcasing to the Indian people that it has been doing its best to control inflation.  It is time for the RBI to have a dialogue with the mandarins of the Finance Ministry on the need to control fiscal deficit. Fiscal deficit has still not been reigned in despite the one-time bonanza (read Telecom auction deposits) received by the Government. Further, the Food Ministry's neglect of supply side has aggravated the inflationary situation.  The persisting inflation in India has already undermined the role of the RBI and it is time for the Government to tackle it through non-monetary instruments. Why don't the writers of the monetary phenomenon of inflation take an integrated view and treat the subject in its totality?

K. V. Rao, Bangalore (BS)

RBI relaxes forex norms for individuals

To further liberalise norms on foreign exchange transactions, the Reserve Bank of India (RBI) on Thursday announced a number of relaxations pertaining to individuals. The central bank raised the limit of the value of securities to be transferred as gift to a non-resident Indian (NRI) to the rupee equivalent of $50,000 per financial year from $25,000 per calendar year earlier. The other changes include allowing individual residents in India to include a non-resident close relative as a joint holder in their resident bank accounts on the ‘former or survivor’ basis. However, such joint holders will not be eligible to operate the account during the lifetime of the Indian resident account holder, said RBI in a notification. NRIs have also been permitted to open accounts with their resident close relative on the ‘former or survivor’ basis where the close relative will be eligible to operate the account as a Power of Attorney holder during the life time of the NRI/PIO account holder. The above norms will be applicable in exchange earners’ foreign currency account, resident foreign currency account, non-resident (external) rupee account, foreign currency (non-resident) account (banks) and savings bank account.

BS

I do not think RBI will go for a CRR cut: Manoj Rane, BNP Paribas

I doubt whether RBI will pause. In fact, I am part of the majority which believes that there will be a 25 basis point hike. Of course there was a phase of uncertainty when people felt.......

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Big Moment: RBI rescues rupee, but for how long?

...The rupee’s fall was so steep the Reserve Bank of India reportedly intervened in the currency markets and sold dollars to stem the currency’s slide. That is something the central bank has not done since the Lehman crisis of 2008.......

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Assets priced in gold see no inflation

The key advantage of gold and silver as money is that these can't be printed like paper currencies. Hence, it's very difficult to erode their value. In case of fiat currencies, the government waves a wand and the printing press begins operations.....
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RBI doubles overseas gift transfer limit

The Reserve Bank of India has doubled the amount a resident in India can transfer to a person resident outside India as gift, to $50,000, a financial year. The gift can be any security, including shares or convertible debentures.  The transferor is, however, required to obtain approval from the RBI for the gift. “The value of security to be transferred together with any security transferred by the transferor, as gift, to any person residing outside India which was not to exceed the rupee equivalent of $25,000 during a calendar year has been enhanced to $50,000 for a financial year,” the RBI said in a notification. In the first quarter of 2011-12, persons resident in India transferred $84.6 million by way of gift to persons resident outside India, against $57.6 million in the corresponding period last year. The amount transferred by persons resident in India to persons resident outside India by way of gift has been steadily rising over the last few years.

HBL

RBI relaxes NRI bank account guidelines

Mumbai: The Reserve Bank of India (RBI) has relaxed foreign exchange regulations to make it possible for Indian residents to hold joint accounts with relatives holding foreign currency accounts. Under revised guidelines, non-resident Indians (NRIs) can open either a non-resident external or a foreign currency non-resident (B) account with their resident close relative on a “former or survivor” basis. The resident close relative shall be eligible to operate the account as a power of attorney holder in accordance with existing instructions during the lifetime of the non-resident relative. At the same time, NRIs have been allowed to include non-resident close relative(s) as a joint holder (s) in their resident bank accounts on ‘former or survivor’ basis. However, such non-resident Indian close relatives shall not be eligible to operate the account during the lifetime of the resident account holder. For the purpose of this regulation close relative would be as the definition of relative in Section 6 of the Companies Act, 1956.  Similarly, changes have been made in the case of exchange earner’s foreign currency account and resident foreign currency accounts (which are held by resident Indians who own foreign exchange). In both cases, joint accounts are allowed with residents who will not be allowed to operate the account during the life time of the account holder. The easing of norms follows suggestions made by a panel to review the facilities for individuals under the Foreign Exchange Management Act, 1999.

TOI

Coop Bank depositors may get CAMEL ride

NAGPUR: Depositors in cooperative banks may now get an opportunity to take a well-informed decision before parking their funds in these institutions. Amidst cases of cooperative banks going bust leaving the depositors in the lurch, Reserve Banks of India is planning to put their ratings in public domain. Termed CAMEL- short for Capital Audit Management Earning and Liquidity- the ratings system was applicable to the commercial banks. Following report of Narsimham Committee, it was adopted for the cooperatives from 2009 onwards. It is now being planned to disclose the CAMEL ratings of the banks to public so that depositors can take an informed decision. This was disclosed during a meeting convened by task force on cooperative urban banks (TAFCUB) held in Nagpur on Friday. Sources said there were plans to make information about the banks' financial status more accessible to the public. This would include making CAMEL ratings or the grades, which is a parallel system to categorize the banks, public. The general view is that grades may continue to be an internal matter but ratings may be made public, said a source. Gradings, which are denoted in numbers 1 to 4, are given on the basis of parameters like capital adequacy, consistency in profits and quantum of non-performing assets. CAMEL ratings on the other hand are denoted in alphabets, said the source. Even auditors have been asked to follow the CAMEL system while auditing the books of accounts. It was also decided to elevate the Shikshak Sahakari Bank to Grade 3. The second biggest cooperative bank of the city has finally come out of red with its networth entering positive zone, which is a major sign of improvement, a member of the TAFCUB said. The move brings the bank out of the danger of facing RBI action in the near future.

TOI

Chinese bank opens in Mumbai

Industrial and Commercial Bank of China (ICBC), the world's largest banks in terms of profit, market capitalisation and customer deposits, on Thursday opened its first branch in Mumbai.........

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Women's bank to extend Rs 1100 cr micro loans

Sri Nidhi, the cooperative bank being launched tomorrow exclusively for women self-help groups (SHGs) and as an alternative to microfinance institutions in Andhra Pradesh, will be extending Rs 1,100 crore micro loans to its members in the first year. This is in addition to Rs 900 crore microcredit budgeted for the current financial year by commercial banks under the SHG-bank linkage programme in the state. Over 1.4 million SHG groups with close to 10 million women members, federated into mandal (MMS) and district samakhyas, are now members of this new bank. Interestingly, these organised women groups had been the primary target of MFIs prior to state government's intervention that brought MFI operations to a standstill resulting in Rs 7,000 crore of unrecovered loans since last year. The launch of the new bank for and by these SHGs under the aegis of the state rural development department is likely to make things more difficult for MFIs as Sri Nidhi will take only 48 hours to grant loan, which will effectively carry just 3 per cent rate of interest. It will also collect deposits from the members. Sri Nidhi has been created with a Rs 300 crore share capital — Rs 100 crore from the state government and Rs 200 crore from the members. The bank is mobilising the remaining funds largely by way of debt from banks and also through deposits, according to Reddy Subrahmanyam, principal secretary, department of rural development. The target of Rs 1,100 crore loan disbursement in the first year itself would mean a minimum of Rs 1 crore to be made available to each of the 1,100 mandal samakyas for sanctioning loans to individual SHGs under their jurisdiction. “We have categorised the existing mandal samakyas into four groups based on their previous performance and the credit limit available to them would be determined accordingly,” Subrahmanyam, the brain behind Sri Nidhi, told Business Standard. Many of these samakhyas are eligible for a credit limit of up to Rs 3 crore, he said. The organisation and the functioning of this bank is also unique. For, all the transactions will be made through regular mobile phones of these women groups. The technology platform used by the bank completely minimises human interface in the sanctioning process. “This is going to be the most efficient organisation functioning in the micro lending space,” he said, adding it would have minimal staff for running its day-to-day operations. While the state government will extend the interest subvention scheme under the existing Pavala Vaddi programme (3 per cent effective interest) to Sri Nidhi loans, the mandal samakhyas (MMS), the lending arms of the bank, is expected to earn income on these transactions from loan charges. 

BS

Monetary policy review: Dissent between government & RBI on further rate hike to curb inflation?

NEW DELHI: The central bank's monetary tightening has harmed growth instead of taming inflation, the country's chief economic advisor has said, sending an unequivocal signal three days before a crucial RBI rate-setting meeting that the government wants no more hikes......

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You can reject the final compensation that the banking ombudsman awards you

You can approach the ombudsman within a year of receiving a reply from the bank. In case your bank doesn’t bother to reply to you at all, you have 13 months to approach the ombudsman from the date of filing the complaint

If you take your complaint to the banking ombudsman and are not happy with the final compensation settlement it decrees on your complaint, you can reject it. If you accept the settlement, the ombudsman will pass an order. Once you accept the order, you and the bank are bound by it.

When do you go to an ombudsman?

If you complain to your bank about any dispute and the bank rejects it or doesn’t respond within a month, or you are not satisfied with its reply, you can take your complaint to the banking ombudsman. You can approach the ombudsman within a year of receiving a reply from the bank. In case your bank doesn’t bother to reply to you at all, you have 13 months to approach the ombudsman from the date of filing the complaint.

What does the ombudsman do?

The ombudsman will give an opportunity to you as well as the bank to present the case. The ombudsman will look into the case and try and bring about a settlement by agreement between you and the bank. If there is no settlement by agreement within a month, the ombudsman may fix an award. The compensation amount varies from case to case. For credit card issues, the maximum awards can go up to Rs. 1 lakh, depending on the case.

What happens if you reject ombudsman’s compensation?

If you are not happy with the compensation amount, you as well as the bank can approach the appellate authority. You will have to approach the authority within 30 days of the date of receipt of the award. You may get another 30 days, but that depends on the appellate authority. The authority can either dismiss or allow the appeal and set an award.

Things to keep in mind

Ombudsman can reject complaint: Don’t assume that the ombudsman will accept your compliant without a thought. The ombudsman can reject the complaint if it thinks there is no loss or damage or inconvenience caused to you.

Supporting documents a must: You must attach all relevant documents with the complaint you send to the ombudsman. For instance, if you are consistently getting your credit card bill after the due date and the bank is charging you a late payment fee, support your compliant with a copy of your credit card statement, the courier delivery receipt and other relevant documents.

Others: In case you have incurred a loss, mention the nature and extent of the loss in the application. You can also mention the kind of relief you are seeking. You must give a declaration that you will comply with the required conditions. 

Find the address for the ombudsman in your area at the Reserve Bank of India’s website, www.rbi.org.in

Mint 

State to have at least 40 new UCBs after changed norms

The Malegam Committee's report published by the Reserve Bank of India on Monday, seems to have opened doors for Gujarat's cooperative credit societies, which had been waiting for long to get a status of cooperative banks. Experts anticipate about 40-50 cooperative credit societies from Gujarat may opt for becoming an urban cooperative bank (UCB) after the newly issued norms recommended by the Committee. The recommendations of the committee, appointed by the RBI on licensing of new UCBs under the chairmanship of Y H Malegam said, 'the existing well managed cooperative credit societies, which would meet financial criteria like profits, capital adequacy and NPAs' proportion should be given priority for granting licenses as UCBs mainly in the unbanked or inadequately banked districts of the country. Experts from the cooperative banking circles in Gujarat informed that the state's credit societies are likely to get a boost from this recommendation. "This will restore confidence in the cooperative banking sector. Of the 5200 credit cooperative societies in Gujarat, over 100 are capable to meet entry point norms set up by the panel for becoming a UCB. But at least 40-50 credit societies are likely to become UCBs after the enforcement of the recommendations," said Ghanshyambhai Amin, chairman, Cooperative Credit Societies' Federation. He further added, "The deposits with credit societies are not insured, while those with UCBs are insured up to Rs 1 lakh. So more credit societies would try to get a status of UCB to improve their trust-worthiness and bring more customers." Gujarat has about 5,200 cooperative credit societies with a total estimated advances of over Rs 700 crore. Gujarat has witnessed one of the worst cooperative banking crisis in the past. Industry insiders maintained that it was mainly after the serious scams unearthed from Madhavpura Mercantile Co-operative Bank (MMCB) that the confidence on the UCBs started shaking. Industry estimates suggest that about ten years back the state had over 350 UCBs operating in different parts of the state, But over 100 UCBs downed their shutters after the MMCB scam. Currently, the state has 249 UCBs, which recorded a total business in excess to Rs 31,000 crore during financial year 2010. The apex body of state's UCBs. Gujarat Urban Co-operative Banks Federation (GUCBF) has welcomed the recommendations. "Some of the districts like the Dangs, Valsad and Surendranagar in Gujarat are either don't have a cooperative society or have inadequate infrastructure of UCBs. Even in the Ahmedabad district, some talukas are still unbanked. The new norms for UCBs would definitely help for the financial inclusion and strengthen cooperative banking sector," said Jyotindra Mehta, chairman, GUCBF. Uttar Pradesh, Bihar and Uttaranchal are some of the state which may see a large number of credit societies becoming UCBs. "UP has only 70 UCBs, while Uttaranchal has five. Even Bihar has poor UCB penetration. The new norms would help increase number of UCBs in these states," said Subhash Gupta, chief executive, National Federation of Urban Cooperative Banks and Credit Societies Ltd (NAFCUB). He further said that Maharashtra, which has a cooperative societies act similar to the UCBs, would see a large number of credit societies becoming UCBs in due course of time.

BS

RBI panel for turning well-run credit societies into UCBs

A panel set up by the Reserve Bank of India has proposed that the existing well managed co-operative credit societies meeting certain financial criteria like profits, capital adequacy and NPA proportion should be given priority for granting licences as urban co-operative banks (UCBs) particularly in unbanked or inadequately banked centres. Acknowledging the importance of urban co-operative banks for financial inclusion, the RBI panel suggested that new entrants should be encouraged to open banks and branches in unbanked or inadequately banked area. UCBs play a useful role and there is need for a greater presence of UCBs in unbanked districts and in centres having population less than 5 lakh, the RBI panel headed by YH Malegam said in the report.  “It is necessary to encourage new entrants to open banks and branches in states and districts which are unbanked or inadequately banked,” it said. It is equally necessary to discourage new entrants from opening branches in districts and population centres which are already adequately banked, it said. As far as capital requirement is concerned, the panel suggested minimum paid up capital of from Rs 50 lakh to Rs 5 crore depending on the area of operation.

IE

Dwindling faith in RBI

This refers to the edit “Tougher choices for RBI” (September 13). The statement “...RBI is not the only agency that is tasked with controlling inflation…” has not come a day too soon but what can be done when the Reserve Bank of India itself does not think so? Ever since inflation has reared its ugly head the Indian economic environment has only worsened, despite frequent interventions by RBI through several policy rate hikes. With all the wisdom at its command, RBI could have at least counselled the mandarins at the finance ministry on the need for fiscal discipline. Since it is not evident that RBI did so, even monetarists who firmly believed in the Bank’s strength to control inflation have been disappointed. They, too, have joined the group that believes that inflation is a non-monetary phenomenon. Supply bottlenecks and fiscal indiscipline (despite the one-time bonanza the Centre got through telecom licence auctions) are at the root of inflation in India. There is a general consensus among all experts (monetary and non-monetary) on this point, but who will bell the cat?

K V Rao, Bangalore (BS)

CISF Man Killed in Road Mishap

A CISF jawan, accompanying currency-laden trucks bound for the RBI office in Chennai, died in a road mishap in the wee hours of Tuesday. The cash from Mysore was being transported in two container lorries to the RBI in Chennai. CISF personnel accompanied the lorries in two cars. When the crew reached near Vellore at around 2.45 am, a car that was behind the lorries lost track of the vehicles due to heavy traffic. When the car reached near Vellore new bus stand, it collided with an unidentified lorry. CISF jawan Amaladoss (50) died on the spot.

IBN Live

Monitor loans to SMEs, states told

At time when growth in loans is showing signs of moderating, the Union government has asked states to closely track the flow of bank credit to micro, small and medium enterprises (MSMEs). In a communication to banks and state governments in the western region, the finance ministry said governments should closely monitor the progress of credit flow to the MSME sector. Finance minister Pranab Mukherjee would review the state-wise flow of bank credit to agriculture, housing and the MSME sector with chief ministers of western states, including Maharashtra and Gujarat, in Mumbai on Saturday. According to Reserve Bank of India (RBI) data, bank credit to the MSME sector rose 33.7 per cent, touching Rs 484,473 crore at the end of March. At Rs 362,291 crore, it had grown 41.4 per cent in 2009-10. The ministry said states should be actively involved in securing more MSME loans under the Credit Guarantee Fund Trust for Micro and Small Enterprises' credit guarantee scheme. They, together with banks, should also devise schemes for cluster/location specific industry groups to ensure greater credit flow, it said. 

BS

Capex fall seen as pvt sector ceases investing

Needless to mention that the RBI has been tightening domestic liquidity since February 2010, resulting in rising loan rates. While a slowdown in spending was to be expected, a decline in investment spends is so far not visible in related indicators.

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REC opposes NBFC norms

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Rural Electrification Corporation (REC), a government-controlled non-banking finance company (NBFC) for the power sector, has opposed the central bank’s new discussion paper on draft guidelines for NBFCs. Seeking that the status quo on NBFC norms be maintained, the lender has asked the ministry of power to intervene on its behalf on the crucial issues of higher capital adequacy ratio for Tier-I capital and on tightening the exposure limit......

Why another rate hike is needed

We believe that Subbarao should go ahead with one more rate hike of 25 basis points this week, and then watch three parameters before making his next move: whether the European sovereign debt crisis worsens, whether a global recession takes pressure off commodity prices and whether corporate margins shrink in the current fiscal year. The domestic growth slowdown right now is still a mild one......

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Another rate hike is required

... The pressure is already building up on RBI to hold its fire on Friday. Finance minister Pranab Mukherjee, his chief economic adviser Kaushik Basu and Planning Commission deputy chairman Montek Singh Ahluwalia have all separately indicated that Subbarao should not increase the policy rate on Friday.....

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High cost of holding forex reserves

...The broad conclusion (reflected even in RBI's reports) suggests that India has accumulated more excess reserves than necessary to avoid any unforeseen financial calamity in the near future. The opportunity cost of reserves holding is high for the Indian central bank, as returns from the foreign currency asset (FCA) deposits are too low, whereas the domestic interest rate is comparatively very high. This poses a couple of relevant questions: what is the adequate level of international reserves for India, and what is the opportunity cost of excess reserves?.....

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FM to review banks’ capacity to meet region-specific needs

Finance Minister Pranab Mukherjee, on September 17, will take stock of the performance of select banks and this exercise will not just be limited to financial indicators.  Re-instituting a practice he initiated during his first stint as finance minister some 25 years ago, Mukherjee will also review the banks’ capacity towards meeting region-specific needs. In the first out of a series of zone-wise meetings to be held this fiscal, the ministry has invited only the banks based in the western zone. This meeting will be attended by the chief ministers and finance ministers of six states and the administrators of two union territories located in the western part of the country.  “The idea is to assess whether region-specific credit needs are being met by the banks in these states and we have invited the states to come up with what they specifically need from the banking sector. The FM had taken a review of the overall banking sector about two months ago but this time round the agenda will be focused more on state-wise issues,” a senior financial ministry official told The Indian Express.

IE

Best Banks gear up to put best foot forward

If there’s one trophy that banks in India would give anything for, it’s an FE Best Banks Award. Over the years, FE Best Banks Awards have recognised the achievements of banks, not simply by the profits they have turned in.  Speaking about the awards, Shikha Sharma, CEO & MD, Axis Bank, whose bank has frequently been on the podium, said: “I would like to congratulate FE...for the ‘Best Banks Awards’ which has grown in reputation and stature.” In a year when new banks are around the corner waiting for an RBI nod, the FE Best Banks awards evening creates even more of a buzz among the informed. It also gives an indication of which ones will be the toughest in their pack that the new banks will have to watch out for. Banks are recognised for the quality of their balance sheets, how fast they have grown, how efficient they have been with their funds and how robust their business model is.  

IE

Rally in sight if RBI takes a breather: PN Vijay

Watch the video.......... 

Real truths about interest rates

...The natural rate of interest is an important benchmark for monetary policy. It helps the central bank to understand the impact of monetary policy on economic activity. For example, if the actual real rate is equal to the natural rate of interest, the monetary policy is more or less neutral. An upward deviation of the real rate of interest from the natural rate tends to have contractionary effect on economic activity and will have downward pressure on inflation. ...

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No black and white answers in economics: Kaushik Basu

NEW DELHI: Terming near double-digit inflation as "uncomfortable", Chief Economic Adviser Kaushik Basu today said there is no black and white answer in economics and RBI will have to balance containing price rise and promoting growth at its review of credit policy on Friday. "There is no black and white answer... RBI will have to balance out these two -- controlling inflation and not dampening growth too much," Base who is Chief Economic Adviser to the finance ministry said. He said inflation is likely to remain elevated till end of the calender year and only start moderating after December.  "I do expect December inflation to be a fairly reasonable decline. But till then it will remain choppy," he said. His comments came after inflation climbed to 13-month high of 9.78 per cent in August, from 9.22 per cent in July, on the back of expensive food and manufactured items.  The Reserve Bank of India (RBI) has already hiked its key-policy rates 11 times since March, 2010 to curb demand side inflation. It is scheduled to announce its mid-quarterly review of credit policy on September 16. Department of Economic Affairs Secretary R Gopalan said the RBI's monetary tightening had had only a limited success. The central bank has to "change from being accommodative to one of aggressively combating inflation", he added.  "The benchmark short-term policy rate was raised in quick succession from March, 2010. While this tightening has been able to anchor inflationary expectation up to a point it has had limited success in lowering inflation rates to acceptable levels," Gopalan said.  This is also the ninth consecutive month when inflation has remained above the 9 per cent mark.  While the sustained inflation is likely to put pressure on the central bank to continue with its tight monetary policy, there is concern on the growth front.  Industrial production fell to a 21-month low of 3.3 per cent in July. Besides, GDP growth also moderated to 7.7 per cent in April-June period, the lowest in six quarters.  India Inc and experts have blamed the high interest rates for increasing the cost of borrowing and said this has put pressure on fresh investments and hindered growth.  Most economists, however, said that as inflation remain at an elevated level the central bank is likely to go for another rate hike at its mid-quarterly review of credit policy on September 16. "No doubt the RBI is in a dilemma but inflation control remain its prime agenda and so we expect it to go for another hike of 25 basis points on September 16," Crisil Chief Economist D K Joshi said.

ET

RBI has had limited success in lowering inflation

The finance ministry today said the Reserve Bank's monetary tightening has had only a limited success in lowering inflation, which is hovering near the doubledigit mark by moving up to 13- month high of 9.78 % in August. " In India, the policy stance has had to change from being accommodative to one of aggressively combating inflation. The benchmark short- term policy rate was raised in quick succession from March, 2010," Department of Economic Affairs Secretary R Gopalan said." While this tightening has been able to anchor inflationary expectation up to a point, it has had limited success in lowering inflation rates to acceptable levels," he added. RBI has raised interest rates 11 times in the last 18 months to tame inflation. In July, it raised the shortterm lending ( repo) rate by 50 basis points to 8 % and the short- term borrowing ( reverse repo) rate by a same margin to 7 % to anchor inflationary expectations. Subsequently, the interest rate under the Marginal Standing Facility, an additional borrowing window, has gone up to 9 % from the earlier level of 8.5 %. There is no doubt that there are supply side constraints within the Indian economy, Gopalan said, adding that the issue of development -- particularly in the area of infrastructure and in poverty alleviation, health and education -- remain critical challenges. 

FPJ

Major Misread: Kaushik Basu, India is not Brazil

...While Basu does acknowledge that other fiscal and monetary measures must also be used, he has to know that fiscal measures from the Indian government cannot be depended on. At most, the government is likely to cut down capital spending (spending on creating viable economic assets) while keeping up revenue spending (spending on salaries and interest payments). That certainly won’t help. Trust the government to always throw the onus of growth on the RBI, while trying to escape from its own responsibility.....

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Centre, RBI to tackle rising inflation: Pranab

...Just a couple of days ahead of the Reserve Bank's monetary policy, Finance Minister Pranab Mukherjee on Wednesday said the government and the RBI together will be able to tackle soaring inflation, which he attributed to global price pressures. “It (inflation) is perilously close to double digit...RBI is also watching the situation like the government and collectively it would be possible for us to tackle the problem,” Mr. Mukherjee told reporters....

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With 9.78% inflation, RBI is boxed in; over to Pranab

...This is why Subbarao should tell the finance ministry boys to take a walk. In recent days, the ministry has been mounting pressure on Subbarao to either pause the rate hikes or even cut them. The ministry’s Chief Economic Advisor, Kaushik Basu – who has repeatedly got his inflation numbers wrong in the past – asked Subbarao to “think out of the box”......

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Inflation ‘perilously’ close to double digits, puts RBI in dilemma

Putting the Reserve Bank of India in a dilemma and adding to the worries of the government caught between a dampening growth rate and spiralling prices, headline inflation has soared to 9.78 per cent in August as against 9.22 per cent during the last month. The RBI which is scheduled to announce its mid-quarter monetary policy review on September 16, is caught in a bind as to whether it should raise interest rates further — that has hurt the growth rate — or adopt a wait-and-watch policy for tackling inflation. In the last 18 months, the RBI has raised rates 11 times. Analysts who were expecting a pause in rate hikes after the index for industrial production (IIP) dipped to 3.3 per cent in July from 9.9 per cent previously are now talking about a 25 basis points hike in the repo rate on Friday. With rising prices of food, fuel and manufactured items fuelling the headline inflation, the wholesale price index (WPI) for the month of August is at a 13-month high since July 2010, when it stood at 9.97 per cent. A worried government said that the headline inflation is “perilously close to double digit”. “The RBI is also watching the situation like the government, and collectively it would be possible for us to tackle the problem,” Finance Minister Pranab Mukherjee said. While Chief Economic Advisor in the finance ministry Kaushik Basu cautioned that “there is no black and white answer... and the RBI will have to balance between controlling inflation and dampening growth.”

IE

August inflation at 13-month high of 9.78 per cent

Inflation soared to its highest level in more than a year at 9.78 per cent. The Reserve Bank of India (RBI) is now grappling with the twin issues of controlling inflation as well as reviving falling industrial growth.  However, RBI’s balancing act between inflation and growth received a further setback this week, with industrial growth in July slipping to 3.3 per cent, a 21-month low.  Bankers expect the RBI to raise interest rates again by 25 basis points in its monetary policy review on Friday.  The Federation of Indian Chambers of Commerce and Industry (FICCI) said that the latest inflation data released by the government hides more than it reveals. Inflation has begun to taper, it said and called for the RBI to pause rate hikes.  Associated Chambers of Commerce and Industry (ASSOCHAM) said that any rate hike by RBI at this juncture will impact growth. 

The Tribune

IHC asks RBI to stop World Cup payment to FIH

...MUMBAI: Alleging breach of contract and an intended violation of the Foreign Exchange Act, the Indian Hockey Confederation (IHC) has requested Reserve Bank of India to stop payment of $500,000 by the 2010 World Hockey Cup organisers to the International Hockey Federation (FIH).IHC, claiming they had signed the original MOU for the World Cup to be held as a joint venture with FIH on November 6, 2007 before the mega event was organised in New Delhi by the Hero Honda World Cup Society, said that releasing the amount would also amount to violation of the provisions of the Foreign Exchange Act 1973......

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RBI not to intervene in forex market: Dy Governor Sinha

New Delhi: Reserve Bank today said that it will not intervene in the foreign exchange market unless the situation is grave, though the Rupee touched 16-month low of 47.59 against the US dollar.  "It is clear policy of RBI that we address volatility and not the level unless it is grave and adverse situation," RBI Deputy Governor Anand Sinha told reporters when asked if the RBI would intervene to check volatility in the currency market. Rupee closed at 47.59/60 to a US dollar today, lowest since May, 2010. As the stock markets fell around the world and capital flows reversed from the emerging markets, including India, rupee lost by more than two per cent against $in the last one week. Agreeing with Sinha, Planning Commission Deputy Chairman Montek Singh Ahluwalia too said that the central bank should intervene in forex market only in extreme circumstances. "The policy that we have followed for long time (is) that rupee should move according to market conditions. We allow Rupee to fluctuate depending on market situation. RBI would only intervene when there is excessive instability," he said. Meanwhile, replying to a query related with entry of corporates in the banking sector, Sinha said the business houses have shown that they have the managerial capacity.  "at the same time we are acutely aware of self-dealing and therefore the draft guideline talks in terms of stringent eligibility criteria and a host of surrounding control to ensure that self-dealing is not allowed or it is checked in time," he said. The RBI recently released draft guidelines for entry of new private banks in the country. However, central bank would issue the final guidelines for granting bank licences to corporates only after Parliament approves the Banking Laws (Amendment) Bill, 2011.

FE

Rural customers must understand products: RBI

To attract the rural masses and meet financial inclusion targets, banks are offering no-frills accounts with in-built features like remittance, micro-credit and micro-insurance. However, the regulator is concerned about the risks that banks may be exposed to, in case customers do not understand the product. Once a no-frills account is opened, customers can receive payments from government schemes like MNREGA directly, make or receive remittances and borrow a sum from the bank without any balance in the account. They are also provided life and general insurance covers. “There should not be a double negative. This means even if I don't want a product, I'm saddled with it. For instance, I need to tell I don't need an insurance policy or I automatically get an insurance policy,” said Deepali Pant Joshi, Chief General Manager, Reserve Bank of India (RBI). “This is what we are uncomfortable with. Because we are dealing with vulnerable and poor clientele, we don't want products to be pushed through to them,” she said, while addressing a seminar on financial inclusion in Mumbai on Tuesday. A senior official with a large Mumbai-based public sector bank said the bank provided an accident cover with the no-frills account. “The bank is taking the initiative and the premium is paid by the bank itself. Each no-frills customer is covered for Rs 50,000. In case there is a claim, the insurance company settles it on verification,” he said. Currently, apart from the zero-balance norm, there are no standard products mandated by the apex bank for financial inclusion. Banks are free to innovate, according to their business strategy. “The range of the products depends on the requirement of the particular area. These are simpler products, but they require financial literacy,” said another Mumbai-based public sector banker. Over the last two years, banks have embarked on the financial inclusion drive to cover under-banked and un-banked villages in India. No-frills, or zero balance, accounts are opened at doorsteps on the submission of basic know-your-customer norms. Banks have appointed business correspondents that enable them to reach out to areas which lack basic technology and infrastructure. On interoperability, Joshi said there was still time. Business correspondents cannot operate for two banks at the point of interaction. This means the agent cannot sell the products of two banks at the same time. “It (the business correspondent model) is a new model. Let it stabilise. Agents should be clear and there should be no confusion at the bottom of the pyramid. Going forward, we may look at it,” said Joshi. She also said banks needed to insure financial literacy while meeting their inclusion targets. “They (customers) must understand the products they are getting, and from the demand side, financial literacy becomes all the more important,” she said.

BS

The "missing" VITALINFO

Due to technical difficulties, VITALINFO could not be updated well before 7.30 a.m. yesterday, i.e. on September 13, 2011.  Thereafter also, only few posts could be uploaded.   I received many phone calls, mails enquiring about this.  I appreciate all of you for the interest shown in VITALINFO.  A "representataive" feedback ---------

Penny pinching: Coins' shortage puts RBI in a fix

NAGPUR: Government mints have been tight-fisted this year as far as supplying coins to the Reserve Bank of India (RBI) is concerned. For the first time in the recent past, mints run by the ministry of finance have supplied just around half of the quantum demanded by the apex bank this year. The RBI, through its various offices in the country, also acts as an agency for supplying coins and currency notes to the public. However, due to a short supply from the mints, RBI's regional offices, including the one at Nagpur, are rationing coin supply. This has left traders unhappy as they have been depending on the RBI counters for coins' supply on an almost daily basis. The unions too had taken up the issue with the management, saying that the rationing has led to inconvenience to the general public. Officials at RBI's central office in Mumbai said the supply has been substantially low. Although not divulging the exact figures on the mismatch between the indented quantity and actual supply, the official, citing the RBI's annual report, said that over 6,000 million pieces of coins are indented each year. However, RBI has got around half of the quantity sought in the current year. In the normal course, the difference is marginal.  The fall in supply is being attributed to reasons like lack of capacity coupled with the aging machinery at the mints which are situated Kolkata, Nashik, Mumbai, New Delhi and Hyderabad. An RBI spokesperson said that the coin distribution at the regional offices have been according to the supplies received from the mints. The RBI office at Nagpur, in the meantime, has limited the supply of coins to 100 pieces per person. This has left the traders as well as their agents complaining that they are not getting enough coins. Coin exchange also provides employment to several persons who earn a living by queuing up at the RBI counters to get loose change on behalf of the traders. In turn, they get around Rs 10-15 per 100 coins, earning around Rs 200 a day. Many of them are housewives. The new rule has cut down their earnings now. The union, on the other hand, has alleged that the RBI here has failed to manage the situation. The president of All India RBI Employees Association's local unit Bidyut Chakraborty said, "The management here is diverting the public to commercial banks from where they are being turned away too. If there is a shortage, the RBI's role becomes much more important as it should ensure that the supply is streamlined." A management representative said that if the RBI starts does not adopt the quota system, it may soon run out of the stock of coins.

TOI

Panel suggests support system for urban co-operative banks

Experts say organisation can insulate mainstream payments and settlement system

A Reserve Bank of India expert committee has recommended the establishment of a separate national umbrella organisation to provide payments and settlement services and other liquidity support, which are normally provided by a central bank, to member urban co-operative banks. Market experts say this move could be aimed at insulating the mainstream payments and settlement system from any fallout due to failure of urban co-operative banks (UCBs). The RBI's committee on licensing of new UCBs has suggested that the umbrella organisation be preferably in the form of a multi-state UCB with membership restricted to and mandatory for urban co-operative banks other than scheduled ones. “There is no need for an umbrella organisation for payments and settlement now as UCBs are becoming robust when it comes to financial strength,” said Mr Satish Marathe, General Secretary, Sahakar Bharati, an umbrella body for promoting co-operatives in various fields. Member urban co-operative banks should be required to maintain their cash reserve ratio (a portion of deposits) in the form deposits with the umbrella organisation. The organisation should invest its funds only in the form of balances with the RBI, deposits with commercial banks or in statutory liquidity ratio (SLR) securities such as government securities.  The committee, headed by Mr Y.H. Malegam, Director, Central Board, RBI, said, the umbrella organisation should offer repo (liquidity injection) and reverse repo (deployment of surplus liquidity) facilities to UCBs in the same manner as RBI offers to commercial banks and at the same rates of interest. In turn, the umbrella organisation should enjoy repos and reverse repo facilities with the apex bank.  Urban co-operative banks can avail of repos facilities only to the extent of their excess SLR holdings. Until the payments and settlements facilities are provided directly to UCBs, the proposed organisation will act as a gateway to provide these services for a fee to the banks. In turn, the organisation will be a member of the payments and settlement system.  Being an urban co-operative bank, the umbrella organisation would have a board of management and will be subject to the regulation, supervision and inspection of the RBI.

HBL

Tarapore berates banks for poor customer service

Noted economist and an ex-Deputy Governor of the Reserve Bank S S Tarapore today criticised the functioning of the country's mainstream banks when it comes to customer service. "It is unfortunate that despite all the efforts made by the government, the RBI, and the banks themselves, the quality of customer service is abominably poor. The perception of the common man is that the quality of banking service is dependent on who you are and who you know," Tarapore said. Addressing the fourth Financial inclusion & digital payment conference organised by the Internet & Mobile and Association of India here, Tarapore said, "incognito visits to bank branches have conclusively shown that the quality of services are sub-standard or even non-existent. "The recent Damodaran committee report on customer service has expressed concern about the rudeness of the bank staff in dealing with customers. One does not expect out-of-the-world quality of service, but it is incumbent on banks to provide quality service, at least equivalent to that provided by other service providers such as airlines, Railways and telecom companies," he said. Stating that banks cannot get away from the fact that the system has an attitudinal problem of hostility towards the common man, Tarapore said this is "all pervasive" in the banking hierarchy from top to bottom. For better customer service, he said, it is necessary to first motivate the top management and this would trickle down to the lower levels. The recent uproar when RBI put out a discussion paper on deregulation of savings bank deposit rates reflects the callous approach to customer service, he said.

IBN Live

Time for RBI to press pause?

All eyes are now on the Reserve Bank of India (RBI) as the mandarins of Mint Road get down to deciding on the next course of action on the monetary policy front on September 16. The jury is clearly out on whether the central bank will raise rates once again, after the aggressive 50 basis point (bps) hike in July, or whether it will finally press the pause button, choosing not to disrupt the growth momentum any more....

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State apex co-op bank unlikely to get elected board soon

...“The bank will have to get a valid license from the RBI and that may not happen even by March next year. There is no question of holding elections for a new board any time soon,” ....

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Saraswat co-op set to turn into private bank

Mumbai: Saraswat Cooperative Bank—the largest lender in the segment—plans to convert itself into a private bank and has sounded off the Reserve Bank of India (RBI) of its intentions. The move is driven by a need to grow its business as there are restrictions on cooperative entities growing their balance sheet.  The 93-year-old Saraswat is the largest and among the better-managed lenders of the 1,750 urban cooperative banks that are doing business in India. The bank has been paying dividends to its shareholders continuously since its inception.  According to sources, the bank has been told by RBI that it cannot continue to grow its balance sheet unfettered as a cooperative. Also, the cooperative structure places restrictions on the size of the loans that the bank can extend to each client even if it has the resources to provide very large loans. Commercial banks, however, face no such restriction and their growth is only restricted by the amount of capital they can raise. Cooperative banks can raise capital only by selling shares to customers. Also because of the cap on dividend their shares are not very attractive to investors as they do not provide the same upside as that of companies that are registered under the Companies Act. The bank’s MD SK Banerji and chairman Eknath Thakur could not be reached for comments. In many ways the bank already provides all the services of a big bank. For instance, the bank’s operations are out of a core banking platform and it is therefore in a position to offer anywhere anytime banking offered by private banks. It also offers Visa cards and internet banking services and has for a long time been offering forex services to its customers. Central banking sources however said that the bank may have to wait until the guidelines for new private banks are finalized before it can expect an approval.

TOI

Reforms: the unfinished agenda

... It is a comforting thought that Rangarajan, who is aptly described as the “philosopher king', would be guiding the reforms in this crucial phase of reaching the benefits of reform to those sections who are desperately in need of them and, having waited so long, are on the verge of losing their patience.......

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Inflation could edge out growth concerns at RBI review

...The latest industrial output reading may have been well below forecasts, but Wednesday's inflation data could well be the deciding factor on whether the RBI chooses to pause, or continue with its monetary tightening. ....

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Where interest rates are headed and why

It’s so tempting to believe that if the Reserve Bank of India’s Governor, D Subbarao, decided to call time on his cycle of raising interest rates on 16 September, everyone’s life would be so much better. At least that’s what a lot of people seem to be thinking...................

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Making NBFCs Bankable!

From a systemic risk perspective, stringent capital regulations coupled with other recommended regulatory measures would help improve the functioning of the NBFC sector in the long-term, but the what needs to be reconsidered is the level of risk that NBFC bring into the financial system vis-à-vis the risk generated by banks and accordingly, implement the prudential and liquidity norms in a phased manner..........

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Redeeming the Indian microfinance industry requires MFIs to put their clients first

Low-income people want appropriate products and quality service and MFIs which focus on meeting client needs in an ethical manner will be the most successful in the long-term ....

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Digital Payment Industry Needs Multiple Models To Push Financial Inclusion

Economist S.S.Tarapore added that the absence of banking technology, reach and coverage, absence of a satisfactory delivery model and absence of a business model were the reasons behind India not achieving financial inclusion…..

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Wanted: ‘Out of the box thinking’ from RBI

New Delhi: The Reserve Bank of India, which reviews monetary policy on Friday, should “think outside the box”, the chief economic advisor to the finance ministry told CNBC TV18 on Tuesday. “We live in a very unusual world where some countries have very, very low interest rates whereas other countries have high interest rates so we must think outside the box in terms of monetary policy and that is what I would stress to the Reserve Bank of India,” Kaushik Basu said. Despite industrial output growth slumping to a near 2-year low in July, inflation data for August to be released on Wednesday is expected to sway the RBI to raise rates this week for a 12th time since March 2010. The wholesale price index in August probably was rose 9.6 percent, a Reuters poll showed, well above the central bank’s comfort zone of 4 to 4.5 percent.

Firstpost

Paying the price

This is with reference to the editorial “Unfair penalty” (Business Line, September 13).  Certainly, floating rates are impacting home-loan borrowers due to frequent changes in interest rates, and have hit their shoestring budgets. Bankers, in order to protect their margins, have almost completely done away with charging of fixed rates and invoking reset clauses, which is difficult to digest. We are aware that banks are enjoying more income by levying high commission on all instruments they deal with, and for issuing statements from time to time. This is nothing but daylight robbery. On top of this, imposing penalties for pre-payment of loans is adding to the customers' misery.  Banks should find out innovative ways to avoid this unpleasant situation. I daresay account-holders are entitled to this privilege?

K. N. V. S. Subrahmanyam (BS)

Analysts divided over RBI move on Friday

Conflicting macroeconomic data on inflation and factory output have made the analysts and economists a divided house on the direction that the Reserve Bank will take on Friday at its mid-quarter policy review........

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RBI justified

“Why we still need a rate hike” (Business Line, September 13) raises some valid points. The RBI's efforts in controlling inflation are commendable. It has been merciless in hiking interest rates and the impact of industrial growth is now becoming evident.  The Government, which has more tools to combat inflation has been in slumber mode. Unless concerted action is taken by the Government on various fronts — preventing logistics delays due to bad roads, rationalising State levies, better supply chain management, and helping farmers improve yields — the RBI has no choice but to raise rates again.

Vivek (BS)

IIP blues

The Reserve Bank of India is in an unenviable position ahead of its monetary policy review meeting scheduled on Friday. It has to take a call on interest rates — whether to raise them further in the face of continuing inflationary pressures or pause temporarily based on the latest disappointing factory output data. To its credit, the central bank has been much more realistic in turning the spotlight on the Indian economy's blind-spots than North Block. In its successive policy reviews, the RBI has not simply focused on inflation's stubborn persistence, but even warned of business mood dips impacting investment and consumption growth declining as interest rate-sensitive sectors face increasingly reluctant buyers. In fact, while New Delhi has tended to exhibit a misplaced optimism about growth prospects with its eyes shut, the RBI was ahead in scaling down its GDP growth forecast for 2011-12 by a full percentage point to below eight per cent.  The latest industrial growth figures for July suggest that the slowdown that many experts and most policymakers thought would be temporary and narrow is, indeed, broad-based. The overall index of industrial production (IIP) registered a year-on-year expansion of only 3.3 per cent, the lowest in 21 months. Manufacturing and mining grew by 2.3 per cent and 2.8 per cent respectively, while the 13.1 per cent increase in electricity was mainly a result of the good monsoon, which has helped boost generation from hydel stations. More disturbing has been the 15.2 per cent dip in production of capital goods, a proxy for investment activity. Even if one discounts for the unreliability of data for this sector — leading to extreme growth volatility — the fact that investment sentiment has been vitiated by recent political developments and concerns over ambiguous laws and tangled procedures among foreign investors cannot be missed. If industrial growth is slowing, there is the possibility of weakening demand on account of high interest rates further dampening it. Persistent increases in its key policy rates over the past 20 months may have somewhat dented non-food ‘core' inflation resulting from excessive demand. But the problem is that while demand in the manufacturing segment may have dipped, general inflation has not. For once the Finance Ministry may be right when its Chief Economic Adviser, Prof Kaushik Basu, says inflation will stay high till December. So the RBI, in a way a victim of its own success, will now have to battle high inflation and the prospect of falling output driven by weakening demand.  For policymakers it would be tempting to pass off the slowdown as partly the outcome of global woes just as earlier they claimed that inflation was also stoked by global commodity prices. But unlike the US and the European Union, India did recover from 2008 with a smart pick-up in 2009. The current slide actually began in the past six months or so. And that has been the result of very successful monetary and very slothful public policies. 

HBL

Unfair penalty

Doing away with the pre-payment penalty may help reduce the distortions arising from new loans being cross-subsidised by existing ones...........

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Customer is king !

The Reserve Bank of India has initiated a series of measures to make banking a customer-friendly experience. While, earlier, it was the M Damodaran Committee that had come out with a report on customer services in banks, now, the Banking Ombudsman Conference has made a host of recommendations to protect the interests of small investors and bank customers........

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Two problems, one strategy for both RBI and the Fed

The Reserve Bank of India and the U.S. Federal Reserve were confronted with two different problems but used the same monetary strategy for solution. Neither succeeded…..

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Basu: RBI has to balance high inflation, slowing growth

The Reserve Bank of India (RBI) will have to balance high inflation and slowing growth, the chief economic adviser to the finance ministry, Kaushik Basu, said on Monday after a sharp drop in industrial output growth. Growth in industrial output in July slumped to its lowest in nearly two years as high interest rates cooled Asia's third largest economy and put pressure on the central bank to pause its monetary tightening despite stubbornly high inflation. Industrial output rose just 3.3 percent in July, dragged down by a huge fall in capital goods production.

Reuters

RBI hawks may prevail ahead of policy review: Economists

The Reserve Bank of India (RBI) is widely seen delivering the last rate increase in its 18-month-long tightening cycle on Friday as inflation pressures continue to remain strong, a Reuters poll of 18 economists showed. Of those polled, 15 expect a 25-basis point increase in the repo rate, one expects a 50 basis point hike, and two expect no change. An increase would be the 12th in the current cycle and would take the repo rate, the central bank’s key lending rate, to 8.25 percent, where most economists see it staying until at least the end of the fiscal year in March. The median expectation for the rate at the end of March has been lowered by 25 basis points from the previous poll conducted in July, largely due to deteriorating global economic conditions. “We are expecting a 25-basis point hike. The RBI has been pretty clear about the fact that given the extent of the inflation pressures, more needs to be done,” said Abheek Barua, chief economist with HDFC Bank. “In this policy review, if they talk about the changing international situation, then they might as well build a case for halting with this rate hike,” he added. The European Central Bank, Bank of England, and Swedish Central Bank among others continued to hold rates steady at reviews last week amid easing inflationary pressures in the euro zone and concerns over weakening growth prospects. The RBI has been one of the most hawkish central banks globally. However, economists said the July industrial output data released on Monday and August inflation data due on Wednesday would be key determinants for the RBI’s actions on Friday. “If the core inflation number is still in the range of 7-7.5 percent, my sense is that the RBI will persist with a interest hike,” said Madan Sabnavis, chief economist at CARE Ratings. “So it’s only in case it comes substantially down, if it comes around 6 percent, will it take a pause. That number will be very critical.” Of the polled economists, 11 said the RBI’s tightening was appropriate, while 5 said less aggressive tightening was needed.  

Firstpost

Unconventional mechanism needed to reduce debt: YV Reddy

Former Reserve Bank of India Governor YV Reddy said the government should adopt unconventional mechanism in both real and financial sectors to reduce debt. “Quality fiscal policy and primary distribution of income are the two major factors the government should focus on,” Reddy said at a seminar here on Friday. He said globally it had been a major concern for the government to maintain the equal distribution level. Over the last two decades, the gap between rich and poor was getting immensely wider and that was creating economic uncertainty. The middle class segment is not much impacted, whereas the upper class is getting richer and the lower strata of society is getting poorer. “To solve this problem, the government should improve the quality of fiscal adjustment,” he added. Household savings have come down in India, whereas corporate savings have gone up. When the micro economic weakens, it makes the structural problem even worse. So, quality fiscal policy is an answer to that, Reddy said. Former United Nations Development Programme (UNDP) director Kemal Dervis said this was a major global problem. Citing the US, he said, “During 1970s-1980s, the top 1 per cent of the upper top US population received 8 per cent of the countries GDP, whereas now it has increased three-fold to 24 per cent.”

BS