BS
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Saturday, November 5, 2011
RBI for increasing FII cap in govt bonds
Deregulation implications
This refers to “RBI's most interesting move” (Business Line, November 4). At a time when indecision is the order of the day, the RBI has announced deregulation of Savings Bank interest rates, after making very clear what direction the rates on Savings Bank balances should take post-deregulation. This is another case where Dr Subbarao's move towards more transparent communication is evident. Till perhaps a decade ago, there was a clear public-private sector divide in the financial sector. Public sector banks got certain ‘monopoly' in the case of government and public sector undertakings' accounts, which, in a way, compensated for the losses incurred in rural business, which essentially involved an unmanageably large number of small and un-remunerative accounts. Private sector banks had a choice to select clientele, and were even provided safety routes such as investment in Rural Infrastructure Development Fund against shortfall in meeting priority sector targets. The competition is chasing its logical end of ‘level playing field', and in the near future, the public-private sector distinction will reduce further. On all fronts, the new private sector banks had an advantage, namely, technology, freedom to manage HR issues on market-related terms, and choice of business. Private sector banks are rightly trying to compete and are likely to taste success sooner than later. The Government and the RBI should see this as a healthy sign and modulate their policies to encourage growth. In the financial sector, supervision of credit and a robust recovery mechanism are pre-requisites for ensuring the health of institutions across public and private sectors.
M. G. Warrier Mumbai (HBL)
Strengthening boards vital for good corporate governance in banks
.......More recently, while reviewing the policy of granting fresh bank licences to corporations, the RBI Governor, Dr D. Subbarao, raised concerns of “possible self-dealing” by promoter groups in private banks. He also cautioned bank boards regarding excessive risk taking. In April 2011, the RBI levied a penalty on 19 banks, including India's largest bank — State Bank of India — for violations on sale of derivatives. It also imposed a Rs 25 lakh fine on Citibank for frauds related to portfolio/wealth management by one of its managers at the Gurgaon branch.............
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SBI officers to proceed with 2-day strike, as talks fail
Customers of the State Bank of India may have to face a lack of branch services for five days beginning Sunday, as talks between the management and officers’ union on employee demands failed. Officers of SBI’s associate banks may join the strike, over pay and some related issues. G A Nadaf, general secretary, The All India State Bank Officers Federation (AISBOF), “Even reconciliation efforts by the Central Labour Commissioner were not fruitful. Officers will go ahead with a strike on November 8 and 9.” AISBOF has given a call for a strike on Tuesday and Wednesday. Banks are shut on Monday due to Id ul Zuha and on Thursday for Guru Nanak Jayanti. Pratip Chaudhuri, the chairman of SBI, said the regional labour commissioner (Mumbai) has directed the officers union not to proceed with a strike and instead attend a conciliation meeting. If the union pursues the strike call, the bank would look at other legal options. He said the management was making efforts to extend skeleton services at branches/offices. Officers at SBI’s five associate Banks may join the two-day strike. C Raj Kumar, president of SBI Associate Bank Officers Association, said: “Our main issue is about discrimination in treatment to associate banks in extending benefits.” He said the Central Labour Commissioner had convened a meeting of union and management representatives tomorrow in Thiruvananthapuram to find a solution.
BS
RBI penalises two Gujarat Coop banks
The Reserve Bank of India (RBI) has penalised two Gujarat-based cooperative banks for violation of instructions on know your customers (KYC) norms and customer identification norms. Vadodara-based Baroda City Cooperative Bank is slammed with a monetary penalty of Rs 1 lakh for violation of customer identification norms. "RBI has imposed a monetary penalty of Rs 1 lakh on the Baroda City Cooperative Bank... For non-adherence to Know Your Customers (KYC) norms and incorrect compliance certificate furnished for the earlier inspection report," the apex bank said in a statement. RBI also imposed a monetary penalty of Rs 5 lakh on Shreenath Co-operative Bank Ltd, Ahmedabad for violation of instructions on know your customers (KYC) norms and anti money laundering (AML) guidelines.
BS
Inflamed by inflation!
According to RBI Deputy Governor Subir Gokarn, "Rising affluence has also led to an increase in demand for proteins and nutrition." ...................
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RBI, backdoor financier? – A.Seshan
How the central bank acts as an agent of the government and why this matters
The Reserve Bank of India (RBI) has once again expressed its anguish over the state of central finances in its latest monetary policy review. This is a repetition of the view in an earlier review that monetary policy cannot bear the burden of fiscal deficits. The proposed additional borrowing by the Centre of Rs 53,000 crore has already sent the securities market into jitters. RBI refers to the consequent crowding out of the private sector from the market. Yields on central bonds are rising. State governments are hit even worse than the Centre because, generally, their securities carry a few basis points more as yields than the central ones on the grounds that they are more risky than the latter. The truth is that the Centre has the backing of RBI to honour its financial obligations, which states do not have. This is one aspect of the absence of level playing in our federal polity that has escaped the attention of political scientists and fiscal experts.
For a long time, the Centre had unlimited access to the spigot of money creation by RBI. Its excess borrowings from the central bank were automatically transformed into treasury bills owned by the latter. This arrangement was supposed to be terminated after an agreement between RBI and the Centre under which the Ways and Means Advances System (WAMA) was devised with penalties and other provisions for overdrafts. It was only cosmetic since at the end of the year, the penalties were returned to the government by RBI as part of the transfer of the available surplus of income over expenditure. In the consolidated balance sheet of the government and the central bank interest payments and penalties are just transfers of entries with no material significance for the government, which is not affected adversely. Then came the Fiscal Responsibility and Budget Management Act that was supposed to put an end to RBI buying securities in the primary market. Thus, the monetisation of public debt was sought to be eliminated, except for Open Market Operations (OMO) that had a monetary objective. But the financial wizards found a way out when they discovered that the central bank could buy back old securities in the secondary market, thus, releasing funds that would facilitate the purchase by banks of new securities in the primary market ensuring their success. Does this not, then, amount to RBI financing the government by the back door? I have called it Debt Management Operations (DMO), the objective of which is fiscal, while OMO has a monetary objective of tightening or loosening money supply. Of course, financial sophists would argue that DMO is also OMO because it relieves the market of the stringency of funds! The point is that RBI should stop the practice of DMO. If, as a result, yields and interest rates go up, then so be it. The blame will then be on the government, not on RBI. After all, the aim of a tightening regime is to raise the yields and rates.
Coming back to federal-state relations, state governments do not enjoy the Centre’s privileges, except for their own WAMA. Right from the beginning, RBI never bought any treasury bill or long-term security of states on grounds of controlling the money supply. The states do not have the advantage of RBI engaging in buybacks of their securities to help banks subscribe to new flotations. This asymmetrical position has resulted in yields of state loans going up substantially in the recent period. Although the Finance Commissions have done their bit to increase the transfer of resources from the Centre to states, some thought needs to be given to the asymmetry in the relationship between RBI and the Centre, on the one hand, and that between the former and states on the other. I am not saying states should have the same privileges in RBI as the Centre does. On the other hand, I would urge the central bank to consider placing its policy approach to debt transactions with the Centre on a par with those with the states. But then, this is more easily said than done, given RBI’s lack of autonomy. As Sir Ivor Jennings said in a memorable lecture at the University of Madras shortly after the inauguration of the Republic, the Indian Constitution is federal in structure but unitary in spirit. One reason given for the proposed separation of public debt office from RBI is that there is a conflict of interest in the present arrangement under which RBI acts as an agent of the government and its duty is to ensure the best terms for its client in raising loans as against its responsibility to formulate its interest rate policy in accordance with its monetary objective. Now the question is: Will RBI stop its DMO once it is divested of its function to manage public debt?
The author is an economic consultant and was officer-in-charge in the department of economic analysis and policy at the Reserve Bank of India (BS)
RBI Adviser: Further Rate Increases Unlikely
NEW DELHI -- India's unprecedented monetary tightening since early last year has run its full course as any further rate increases will have little impact on cooling inflation and may instead hurt economic growth, a senior adviser to the central bank said. "I thought it [rate increases] should have ended last time [July policy] itself, but they [central bank] pushed it forward," Sudipto Mundle, a member of the Reserve Bank of India's technical advisory committee on monetary policy, said late Thursday. The panel is headed by the RBI governor and includes some RBI board members, Deputy Governors and external experts. Mr. Mundle said an overwhelming majority of members favored the central bank to hold its policy rate steady at the October meeting. "There was just one member who favored a 25 basis-point increase while five wanted no change," he said. The RBI, however, raised the rate by 0.25 percentage point, its 13th increase since March 2010. Still, the RBI's quickest-ever pace of tightening hasn't tamed intolerably high inflation, which has remained above 9% for 10 months to September. Mr. Mundle said inflation was being driven by high global commodity prices and local supply issues, and raising the policy rate will be ineffective in controlling price pressures. "You can't say I have got a cold and, therefore, I would bandage my foot. You have to match the medicine to the disease." Mr. Mundle said the RBI's cautious "baby steps" approach hasn't been very effective and the central bank should have rather raised rates in much more chunkier moves, which would have helped "shock" the market and break inflationary expectations. He was referring to the RBI's practice of raising the policy rate by 0.25 percentage point at each go--the central bank stuck to this practice 11 times of its 13 increases. Mr. Mundle said inflation will ease in the January-March quarter as global commodity prices will begin to cool by then, helped by a favorable base. However, it will still overshoot the RBI's March-end projection of 7%, possibly ending the fiscal year at as high as 8%. The recent weakness in the rupee will exacerbate inflationary pressures. The rupee has fallen about 10% against the U.S. dollar since April. While the RBI's aggressive tightening has had little impact on inflation, growth has slipped considerably due to higher borrowing costs that have crimped economic activity. Mr. Mundle expects the economy to grow 7.0%-7.5% this fiscal year, below the RBI's 7.6% forecast.
WSJ
EEPC India announces India's largest engineering International show
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Virtues of zero interest rate - P. V. INDIRESAN
The RBI's rate hikes are not working, while inflation continues to hurt the poor. The poor can be provided cheap food and health services, if the businesses doing so are rewarded with interest-free credit.
There is a story about Robert Bruce, the Thirteenth century king of Scotland. Having been defeated six times by the English, he was hiding in a cave when he saw a spider try and try again to spin a web until at last it succeeded. Inspired by it, he fought again and again until he succeeded. The policymakers of the RBI are following that example: they have raised the bank rate for the thirteenth time in the past nineteen months. Robert Bruce would not have succeeded if he had stuck to the same old tactic. Hence, it is not certain that the RBI will succeed this time either — even though they have reportedly said that this is the last time. I hope it is not like the way circuses used to advertise – last week, the very last week, the very final week, and so on. I hope that the RBI realises that its method is not working and tries something else — notwithstanding what the experts may advise.
ANOTHER BUSINESS MODEL
Incidentally, the RBI has expressed particular concern about the way food inflation hurts the poor. That inflation is indeed serious. For instance, in Delhi, the price of vegetables in the bazaar is three to four times the wholesale price. It is a pity that merely moving these perishable goods a few kilometres should increase their price so drastically. If the RBI is serious, it should ask the government to fund at low, or even zero interest, refrigerators for vegetables in consumer shops and also silos for grain. Let them proliferate so much that competition sets the prices right. In my opinion, better storage, low cost entry and free competition will help the poor better than higher and higher interest rates.
If poverty alleviation is the concern, can businesses help? According to the late Prof C. K. Prahalad, who postulated the concept of the ‘bottom of the pyramid', poverty alleviation may be achieved simply by reducing the cost of services and thus make them affordable to the poor. Businesses have liked the idea: They realise that thereby they can improve their profits and, at the same time, earn the reputation of helping the poor. Usually, Prof Prahalad's idea is used to sell more to the poor but not to buy anything from them. The question is whether business would not profit more if it buys something from the villages in exchange for what is sold to them. Incidentally, Prof Prahalad commends a type of Public-Private Partnership (PPP) as practised, for instance, by Arvind Eye hospitals. Those hospitals serve both the rich and the poor. The rich pay full costs and the poor only the much lower marginal costs. The very poor may even get the services free. As Arvind Eye Hospital is a private enterprise, why should others not do the same? Essentially, our society needs a system by which the poor can get education, healthcare, housing and municipal services like water, sanitation and roads of acceptable quality at affordable prices. That is what Arvind Eye Hospitals does – by inducing the rich to subsidise the treatment of the poor.
CREDIT AS REWARD
On the other hand, there is a well-accepted theory that the primary aim of any business should be maximising return on investment for the shareholders. It is also accepted that poverty alleviation is the responsibility of the government and not that of business houses. So, when businesses help the poor they should have a PPP – support from the government on behalf of the public. Usually, governments do so by providing (very expensive) land free or at a low cost. That is a pre-operative subsidy. It does not work when the hospitals and schools take the land virtually free but keep their beds and seats empty rather than serve the poor. The only thing the poor can sell is their labour. Will not businesses profit more if the quality of their labour increases? At present, the businesses expect the government to do so by providing education and healthcare to the poor. Unfortunately, the Indian government is not doing as much as it should — look at the way infants are dying in Bengal. How will businesses profit more – by selling to untrained, uneducated and unhealthy poor, or by utilising their talents after making the poor better skilled and more healthy? I suggest that the government should help when businesses observe the statistical 80-20 rule: The richer half of the population spends 80 per cent and the poorer half only 20 per cent. Then, the government may offer a post-operative incentive — interest free loans when they let the same number of the poor as the rich (with acceptable reduction in quality, for instance, general wards Vs special wards) and make them pay only 20 per cent of the total cost. Then, indifferent performance may be checked by reducing interest subsidy in proportion to the shortfall in the number of the poor served. Will not businesses ultimately make more profits by promoting self-supporting schools and hospitals? Will their profits not increase if they have better trained and healthier staff, as against allowing the state to continue with its inefficiency in this area? Should not the government help such ventures by offering them loans not at high interest rates, but zero interest rate? The government will benefit because businesses can offer the services more efficiently and it is easy to check what percentage of the clients are from the certified poor. Will that not promote those at the bottom of the pyramid?
(The author is a former Director, IIT Madras.) HBL
Allow stock broking companies to operate banks: ASSOCHAM
BANGALORE: ASSOCHAM today said stock broking companies should be allowed to operate banks as they are under the supervision of Securities and Exchange Board of India (SEBI). "Since the stock broking companies have deep penetration into various geographies ..., they can achieve the objective of financial inclusion, which is one of the key objectives of new banking licensing guidelines issued by RBI," ASSOCHAM said in a statement here today. As various financial service companies have exposure to broking business, it would be logical to keep a benchmark of ten per cent of revenues or assets on prospective basis, it said. "In fact, some existing banks have subsidiaries involved in broking business and this will create an uneven playing field for the new banks," ASSOCHAM Secretary General D S Rawat said. But it would not be feasible to make it mandatory for a new bank to get listed within two years of licensing "this period may be extended to five years," he said. The minimum paid-up capital requirement of Rs 500 crore should be raised to Rs 1,000 crore within five years of starting the new bank. "This will help ensure that only serious and resourceful entities are eligible to apply," it said. The stipulation of non-operative holding company holding minimum 40 per cent of paid-up capital for five years will ensure promoter's economic interest during the start-up period. "The reduction to 20 per cent in ten years and 15 per cent in twelve years will serve the cause of necessary diversification," ASSOCHAM said. It appreciated cap of 49 per cent for foreign shareholding in the new bank during first five years, but asked for clarity on the status of limit for foreign institutional investors so that they can plan long-term investment decisions. ASSOCHAM also said the guideline to open 25 per cent of branches in un-banked areas should be gradual and progressive, which would give time for new players to get their feet right and stabilise financial viability. "Maybe 10 per cent in first year, 15 per cent in second, 20 per cent in third and 25 per cent in fourth," the chamber said. ASSOCHAM called for relaxations in statutory liquidity ratio and cash reserve ratio to encourage financial inclusion. "Nearly 60 per cent of Indians do no have a bank account," it said.
ET
RBI directs Dhanlaxmi Bank to adhere to its action plan
...As a further measure, sources say RBI has put one of its general managers on the board of duty of Dhanlaxmi Bank so that every major action taken by the bank and whether it is adhering to the guidelines of RBI or not can be monitored almost on a continuous basis. ....
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Friday, November 4, 2011
RBI's most interesting move – S.S.Tarapore
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The deregulation of savings bank deposit rates overshadowed the announcement on rate hike. There are enough checks and balances to ensure that banks will not go berserk |
The saga of regulation of interest rates in India and its subsequent deregulation is a fascinating story spread over nearly 50 years. In the 1960s, there was a major deposit rate war among commercial banks and, during the internecine battle, banks pleaded with the Reserve Bank of India (RBI) to regulate deposit rates. The RBI was first inveigled into regulating select deposit maturities and, subsequently, the banks wanted all term deposit rates to be regulated by the RBI. Simultaneously, lending rates were progressively regulated. In the 1980s, a tentative attempt was made to deregulate short-term deposit rates subject to a ceiling. This experiment failed as banks were so used to regulation that they all jumped off the cliff and the experiment had to be abandoned. During the general deregulation of interest rates in the 1990s, the savings bank rate remained the last bastion of interest rate regulation. For the past 30 years, every Governor contemplated deregulating the savings bank rate, but backed off from taking the plunge. The RBI Governor, Dr D. Subbarao will go down in history for being the one to ultimately deregulate the savings bank rate. Kudos to the RBI for leading from the front. One fervently hopes that the RBI will do a bit of hand-holding to ensure that banks do not go berserk. If the deregulation succeeds, Dr Subbarao will receive the blessings of millions of savings bank depositors.
Equitable returns
While deregulating the savings bank deposit rate, the RBI has added a somewhat intriguing proviso. For deposits up to Rs 1 lakh, a bank would have to provide a uniform rate, irrespective of the amount, while for larger deposits banks have been allowed to fix different rates for different amounts. Such a prescription does not appear desirable. Some banks already have sweeping accounts, multiple option accounts and, in some banks, term deposits of any maturity can be withdrawn without any penalty. In this context, it would have been preferable if each bank was permitted to offer a single savings bank rate, irrespective of the amount. The basic objective of this reform is to ensure that small depositors earn an equitable rate of return. The bulk of savings bank accounts are by small holders and their balances are invariably stable. Furthermore, in the context of financial inclusion, small depositors need to be encouraged. There is an erroneous view that the deregulation will raise the cost of funds to banks and, thereby, impinge on their net interest margin (NIM). This conclusion is faulty as it is based on comparative statics. In a dynamic context, banks may, in fact, see an improvement in their NIM. If a bank has an unusually low proportion of savings bank deposits and a very high proportion of high-cost term deposit maturities, it can benefit by offering higher rates on savings bank deposits. It should be incumbent on banks to so fix their rates that they attain reasonable NIM.
‘Yes' strategy
One of the banks with a very low proportion of savings bank deposits — YES Bank — has fired the first salvo by raising the savings bank rate from 4 per cent to 6 per cent for all savings bank depositors. This is a right strategy for YES Bank. Anticipating the deregulation, the State Bank of India, well before October 25, sharply raised the shorter-end of term deposits up to 90 days to 7.5 per cent. What the SBI does on the savings bank deposit rate in the next few days will be a pace-setter for other banks The RBI should, as part of its moral suasion, caution banks not to jeopardise the NIM in the process of determining their own savings bank deposit rates. As part of transparency, the RBI should insist on a uniform quarterly rest by all banks so that depositors can easily assess the rates offered by different banks. The savings bank depositors are the most loyal in the firmament and there is no danger of any major exodus out of individual banks because of small variations among banks.
Migration of deposits
Of course, if a number of banks offer high savings bank deposit rates and several offer very low rates, there is the possibility of migration of deposits. But, equally, banks which offer unusually high savings bank deposit rates will be inflicted with significant erosion of their NIM. Thus, there are enough checks and balances in the system and the deregulation of the savings bank deposit rate is most likely to be a great success.The deregulation of the savings bank deposit rates was long overdue and it is to the credit of Governor Subbarao that he has taken this bold measure.
Tail-piece: The savings bank deposit deregulation has overshadowed all other measures, including the repo rate increase by 0.25 per cent. One fervently hopes that the RBI does not have to rue its explicit guidance that future increases in policy rates in the ensuing period are unlikely.
HBL
EU crisis because of fiscal mismanagement, says Y.V. Reddy
Hyderabad : The European Union crisis is wrongly being called a sovereign debt crisis as the current situation in the EU is a result of fiscal mismanagement, said Dr Y.V. Reddy, former Governor of the Reserve Bank of India, at the inaugural of the 4th International Conference on India: Emerging Economic Power – Quest for EU and World Economic Order at the University of Hyderabad on Wednesday. The Indian economy is vulnerable to shocks like oil price rise, food security and fiscal imbalances, he said. With all these issues, India does not contribute to the global imbalance. Asian countries like China and those in the Far East are not vulnerable to fiscal shocks but are highly dependent on exports, he said. The country's economic growth will depend on investments, and investments in turn will depend on our savings, he said in his keynote address on ‘Indian Economy and World Economy at turn of 21st century'. India is likely to be a big entity in the world economy, he said. He cautioned that the road ahead for the global economy is bumpy. Technology is moving towards globalisation but people are not moving as fast as technology. The three-day conference is being organised by the Centre for Contemporary India Research and Studies and the Institute of International Relations, University of Warsaw, Poland, in collaboration with University of Hyderabad. More than 15 foreign delegates from European countries are participating in this conference which will see discussion on topics like ‘India Domestic Economic Reform: Dynamics and Challenges', ‘India and Asia Economy', ‘India and EU Economic Cooperation', ‘India and New Economic Challenges', etc.
HBL
Bancon 2011 to frame strategies to meet growing challenges
Chennai: Bancon 2011 will serve as a platform for the Indian banking sector to frame strategies to face the challenge of competition and exploit the opportunities for growth over the next decade, according to Mr M. Narendra, Chairman and Managing Director, Indian Overseas Bank. Addressing a curtain raiser press conference on the eve of the inauguration of the annual event of the Indian Banks' Association, he said opportunities are opening up in the domestic and foreign markets for the Indian banks. This presents an opportunity to build on the progress that the sector has seen over the last decade. The sector will also be ‘truly opened to competition' as traditional players expand and non- traditional players enter the banking sector. The three-day event is framed on the theme ‘Competing in the defining decade for Indian banking'. IOB is hosting Bancon this year as it coincides with its own Platinum Jubilee celebrations.
The conference is to be inaugurated on Friday by Mr Namo Narain Meena, Minister of State for Finance. Dr K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, will deliver a special address on ‘Gearing up for competitive impulse in Indian banking'. Nearly 70 leading personalities from banking, financial services and corporate sector will address the participants, Mr Narendra said. The events on the second day are to begin with an address by Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, on ‘Competing in the defining decade for Indian banking — Outlook and imperatives for banking 2020'. IOB will make significant announcements including strengthening its banking network. This will relate to opening of 75 ATMs and 50 new branches mostly in rural and semi-urban areas. This will add to its more than 2,250-strong branch network, Mr Narendra said. Another special address by H. R. Khan, Deputy Governor, RBI, will be held at Hotel Le Royal Meridien on the same day.
HBL
Banks told to employ fit guards
Pune: The Deccan Gymkhana police have directed all banks to install CCTV cameras on their premises and outside all ATM centres. Besides, bank security officers were asked to employ physically fit security guards and to ensure that they have received adequate training in handling firearms. The police also have asked the banks to install security alerts and to keep a record of ATM users by maintaining a register at every centre. The Reserve Bank of India recently issued directives instructing banks and police to coordinate and ensure safety of bank customers besides tackling banking-related frauds. The Deccan Gymkhana police convened a meeting of managers of banks that fall in its jurisdiction. Total, 36 bank managers attended the meeting.
TOI
Short-term fixed deposits see a change in fortunes
Higher returns, more liquidity draw individual investors to savings accounts. Less than a week after the Reserve Bank of India announced the deregulation of the savings rate, the banking industry is seeing rapid changes in strategy..............
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Setting an example
After the announcement of liberalised interest regime for savings by the RBI, the general public is curious regarding SBI's move. It has around Rs 361,000 crore as savings deposit, which has always given it a base for low-cost funds. In case this bank increases the saving interest rate across the board by 0.75 per cent, it may reduce its profits by around Rs 2,700 crore. When its profits are projected to be in the vicinity of Rs 10,000 crore during the current financial year, will it not be a risk worth taking? Will it not be in the logic of things to play in the market with resultant profits of Rs 7,300 crore (assuming correct projections) and set an example? The time has now come for the banks to sacrifice some profits and do out-of-the-box thinking.
- Anand (HBL)
Shortage of change after hike in toll rates led to massive jams on DND flyway yesterday; things aren't likely to change today
It won't be smooth-going on the eight-lane Delhi Noida Direct (DND) flyway in the days to come. This was evident on Wednesday morning. It took many around 45 minutes to cross a kilometre-long queue of cars during office hours. The reason is hike in toll prices - increased from Rs 10 to Rs 11 for two-wheelers and Rs 20 to Rs 22 for cars. NTBCL has already written to Reserve Bank of India (RBI) and the State Bank of India (SBI) asking for a large consignment of coins to match its new requirements. It has made arrangements with "private agents" for the initial weeks.
Mid Day
Ignore loss of faith in co-op banks: CIC
...the decision of the full bench cited by the RBI does not become a "binding precedent" because it has not recorded any comment which shows that it consciously agreed that Section 8 of the RTI Act was applicable in such matters....
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Commercial realty to come under new RBI disclosure norms
Mumbai: The Reserve Bank Thursday asked banks to bring in a disclosure clause under which commercial real estate players will also have to mention in their advertisements the name of the bank to which a property has been mortgaged. "On a review, it has been decided that the provisions contained therein (relating to disclosures) will be applicable to commercial real estate also," the central bank said today. Earlier, the central bank has made it mandatory for banks to inculcate the provisions relating to disclosure of a mortgage property in advertisements for 'private builders' at the time of inviting public to buy flats or a property. Currently, a builder or a developer or a company has to disclose in their advertisements like pamphlets or brochures the name of the bank to which the property is mortgaged. With this notification, commercial realty will also come under the ambit of such disclosures.
Zee News
RBI wants IIFCL to focus on direct lending
RBI conveyed its view to the government while approving the registration of IIFCL as a non-banking financial company, effectively bringing the lender under its regulation....
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A place under the sun for microfinance
Former Reserve Bank of India (RBI) Governor Y.V. Reddy recently wrote a tough piece on microfinance in the Economic and Political Weekly (EPW). Given his stature, these views will be read carefully in policy circles, especially given the proposed Microfinance Institutions (Development and Regulation) Bill. His essay, therefore, deserves a detailed analysis......
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Govt likely to introduce Micro-Finance Bill in Winter Session
NEW DELHI: The government is likely to introduce a Bill that seeks to make it mandatory for all micro-finance institutions to be registered with the Reserve Bank of India and entrusts the task of regulating the sector to the central bank in the Winter Session of Parliament. The Finance Ministry is in discussion with all concerned stakeholders for fine-tuning the draft Micro Financial Sector (Development and Regulation) Bill, 2011, official sources said. The ministry hopes to table the Bill in the upcoming Winter Session of Parliament, sources said. The draft Micro Financial Sector (Development and Regulation) Bill, 2011, was circulated for public comments in July this year. In an earlier Bill, it was proposed that the National Bank for Agriculture and Rural Development (NABARD) would be the regulator of the sector. The government had introduced the Micro Financial Sector Bill in the Lok Sabha in March, 2007. However, the Bill lapsed when the term of the 14th Lok Sabha expired in 2009. The latest draft Bill proposes to make it mandatory for micro-finance institutions to be registered with the Reserve Bank and have minimum net-owned funds of Rs 5 lakh. In addition, a Micro Finance Development Council will be set up to advise the government on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the sector and micro-finance institutions with a view to promote financial inclusion. The council will comprise members not below the rank of Executive Director from NABARD, National Housing Bank, RBI and SIDBI. In addition, joint secretaries from the Ministry of Finance and the Ministry of Rural Development will also be its members. The draft Bill also proposes that any micro-finance institution which is not a company registered under the Companies Act, 1956, and which becomes a systemically important micro-finance institution shall convert its institution into a company registered under the Companies Act, 1956, with or without a licence, under Section 25 of the Act. This should happen within six months from the date of the balance sheet that shows the MFI has become a systematically important micro-finance institution in terms of the rules prescribed by the central government, the draft Bill said. The RBI may pass an order directing a micro-finance institution to cease and desist from carrying out micro-finance activities if it is found acting in manner prejudicial to the interest of its clients or depositors. The Reserve Bank will cancel the certificate of registration granted to a micro-finance institution if it fails to comply with the directives or condition, the draft Bill states.
ET
'The post of chief statistician could become bureaucratised'
........I am afraid RBI has overreacted. I hate to say this but it sounds as though RBI has lost its institutional memory. It has been the experience not just in India but in other countries also that when you do a base change in any index, there is lot of volatility in the first couple of years because new firms are submitting data. They are not used to it. Often, they are not used to the definitions and data, therefore, doesn’t really conform to what you...........
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Thursday, November 3, 2011
Financial Outreach Programme organized by RBI
Gangtok : The Reserve Bank of India (RBI) organized a day long Financial Outreach Programme at Darap, West Sikkim on 31st October, which was graced by Executive Director RBI G. Gopalkrishna as the chief guest and Area MLA P.L.Subba as the guest of honor. Under RBI Financial Inclusion Plan, SBI distributed biometric cards to 260 account holders. SISCO, Gyalshing, Branch also distributed Kisan Credit Cards to 26 progressive farmers of the area. Addressing the gathering, the chief guest said that the banks are supportive agencies to keep the people economically safe. Therefore, he urged the people to develop banking habits so that they could establish themselves. Further, he also assured to reach bank facilities to all the villages of Sikkim by 2013. MLA, Yangthang P.L.Subba in his speech, expressed his gratitude and appreciation towards RBI for the support. He urged the public to make best use of the facilities provided at the doorstep by the banks. He also informed that the government is making all the payments through bank account payee cheque. Therefore; he urged the gathering to open an account individually. DC West Santa Pradhan citing examples of various fraud agencies which had come up in Sikkim and misused the money of the public reminded not to get carried away by the false promises made by such agencies. Further, he reminded that Byazee-Maasikatta, Dadani Bandaki, Thaili practices in the villages are banned by the state government and warned that such practices are offence. General Manager RBI E.E. Karthak, General Manager M.S.Soy, G.M NABARD, PC Choudhary, AGM SISCO Pema Chenzum also spoke on the occasion. The day also witnessed quiz competition among the local schools.
isikkim.com
Currency notes from 19th century to be displayed
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| One of the rare currency notes on display |
Pune: Currency notes from the early 19th century from around 15 countries will be displayed at an exhibition organised by The Numismatic Society of Maharashtra, Pune, from November 5 to 7. The three-day exhibition will be held at the cultural hall in the Chatuhshrungi temple premises on Senapati Bapat Road, between 10 and 6 pm. In focus will be currency notes from countries such as India, Greece, Zimbabwe, Germany, Iran, Iraq and Indonesia, among others. The exhibition, for the first time in its 14th edition, will feature currency notes. It will be attended by 35 numismatists, seasoned and new, from across the country. “The exhibition aims to provide information on the currency notes of countries that have suffered inflation, the process of printing such notes, the development of currency notes, and comparison of different currency notes, safety measures to avoid counterfeiting,” said Devdutta Angal, secretary of The Numismatic Society of Maharashtra, Pune, at a press conference on Wednesday. A 100 trillion dollar note from Zimbabwe, a very rare Rs 100 note from 1868 and a Rs 10 note dating back to 1916 India, Russian notes from the Czarist era and a 50 million mark note from Germany, are some of the several exotic specials to look out for at the exhibition. “Special emphasis will be on the currency notes printed in Germany during the two World Wars. It’s interesting to notice the characteristic features of these notes during periods when the country suffered very high inflation,” said Society member, Narendra Angal.
TOI
CAB - Pensioners' Paradise - PPR's eyeview
Pensioners' Meet at CAB
I arrived in Pune on October 27th to spend fabulous time with my 25 months old granddaughter Veda and it was indeed pure joy and fun.Then I felt that I should meet some good RBI friends settled in Pune. So I rang up Shri.Prithiani and expressed a desire to meet him and Shri.R.S.Patil. "Can you arrange this?", I asked him. "Yes", chirped Prithiani and added, "Come on November 1 at 11 a.m to CAB Auditorium. You will meet many of your friends".
So I bent my steps, from Aundh to the College and Lo and Behold ! There were over 200 retirees present in the capacious auditorium. I met friends I had not seen for decades. "Eminence Grises" included Sarvashri P.B.Kulkarni, A.V.Sardesai, B.A.Patil, Newlay, P.Aravind and so many. Pune is the Home and Heaven of over 250 retirees from RBI and I have a booklet that gives all particulars about all the retirees -- including blood group. The CAB had made excellent arrangements for a get-together. In fact they have done themselves proud. November, as all of you know is the month when retirees have to submit their Life Certificate. CAB made it very easy to submit these certificates by making their staff available for this. No Hassles for this Certificate.
What is more laudable is that they had arranged a Camp for Diabetology and Retinopathy. A panel of doctors from the Chellaram Hospital checked those wanted to get checked and offered guidance. This was followed by a Lec-Dem by a doctor. There was an interactive session between the doctor and retirees.
The Principal. Ms. Kamala Rajan welcomed the doctors and asked a number of questions on eye problems. The Vice Principal Shri R.L.Sharma proposed a vote of thanks. The doctors and the technicians were given appropriate gifts. The College had arranged for Tea in the beginning and Lunch at the end of the session.
I do wish other Centres emulate CAB and arrange for similar get-together of retirees and renewing of broken friendship and exchanging of notes.
P.P.Ramachandran (via e-mail)
CIC summons RBI information officer
Panipat: Following denial of information sought by a local RTI activist regarding top 100 bank loan defaulters from the Reserve Bank of India, the Central Information Commission has summoned the public information officer of the apex bank. Activist P P Kapoor had demanded information from RBI about top 100 persons and industrialists of the country who had not repaid huge loans taken from nationalised banks, in August last year. In their reply, RBI stated that though the information was available, it could not be divulged as RBI was holding it in judicial capacity''. Following this, Kapoor filed an appeal with the first appellate authority which was rejected. Kapoor then approached the Central Information Commission which has asked the public information officer of RBI to appear before it on November 8 with all relevant documents.
HT
RBI asks banks to secure approval from cos issuing derivatives
Mumbai: The Reserve Bank Wednesday asked banks to seek approval from company boards before selling derivative products to them. "Before offering any derivative product to clients, banks should obtain board resolution from the corporate which explicitly mentions the limit assigned by the corporate to the bank," the Reserve Bank said in a notification modifying the 'Comprehensive Guidelines of Derivatives'. The direction assumes significance in the light of allegations from certain quarters of mis-selling of derivative products by banks resulting losses to investors during the 2008-09 global economic crisis. The board resolution has to mention the names and designation of officials of the company authorised to undertake particular derivative transactions on behalf of the company and specify the names of the people to whom transactions should be reported by the bank. Banks sell derivatives to help companies to hedge risks against fluctuations in foreign exchange value and interest rates, and earn a fee. Banks have also been directed to ensure that there is mention of the names and designation of persons authorised to sign the International Swaps and Derivatives Association (ISDA) and similar agreements and also of specific products that can be transacted by the designated officials. "It should be ensured that the Board resolution submitted by the company is signed by a person other than the persons authorised to undertake the transactions," the notification said. RBI had in April this year imposed a fine of Rs 1.95 crore on 19 banks, including leading lenders like SBI, HDFC Bank, ICICI Bank and Citibank, for violating regulations concerning derivatives. The lenders had been charged with failure to carry out due diligence with regard to suitability of products and sold derivative products to companies not having risk management policies. They also failed to verify the adequacy of eligible limits before selling derivatives.
Zee News
Reveal bank inspection reports: CIC to RBI
In what could open banks for public scrutiny, the Central Information Commission has asked the country’s banking regulator Reserve Bank of India (RBI) to disclose information regarding inspections of banks under the transparency law --- Right To Information. Information Commissioner Shailesh Gandhi rejected the RBI’s claim that if the information regarding banks was disclosed it could lead to reduction of faith in banks and it could affect economic interest of the states. “The idea that citizens are not mature enough to understand and will panic is repugnant to democracy,” Gandhi said, in his order and added that in over 60 years the citizens have handled their democratic rights in a mature fashion and have punished leaders who have shown tendencies of trampling their rights. Gandhi also took his own commission to task, which had earlier given a blanket exemption to RBI to decide the information it could disclose on the ground that it was an expert body to understand implications of the information for the banking sector. “If the position of the full bench (of the CIC) is to be accepted…then all public authorities could be best judge of what information could be disclosed. In such an event the information commission would have no role to play,” Gandhi said, while hearing an appeal of Jayantilal N Mistry of Gujarat against RBI. The commission cannot abdicate its responsibilities under the RTI Act to RBI on the ground that latter was an expert body, Gandhi said. He also ruled that CIC’s full bench had no powers to review the decision of former information commissioner M M Ansari, who had asked RBI to provide complete information relating to performance of banking sector. Holding RBI guilty of not reading the full bench decision completely, Gandhi said it had clearly stated that a larger public interest was likely to be served by disclosure of such information and RBI should be proactive in this. “It is unfortunate that the RBI has not taken any steps to proactively disclosure this information in the last five year,” he said, while asking RBI to disclose information to the applicant by end of November. Gandhi was also amused at the RBI’s contention that disclosing information regarding inspection report of a particular bank could jeopardize economic interests of India. “Declaring the audit, inspection and investigation reports of all cooperative banks which have gone into liquidation cannot do any further harm to such banks,” he said.
HT
Savings bank rates up, but fees may rise
The Reserve Bank of India’s (RBI’s) move to deregulate interest on savings deposits, which will enable customers to earn more on savings, is also likely to increase banking transaction cost. The move will also make the free issuance of cheque books and debit and credit cards may be the thing of the past. The RBI in its second quarter monetary policy review last week de-regulated savings bank rates, which was fixed at 4%. Banks are expected to hike transaction charges to recover the additional cost incurred due to freeing up of interest rates on saving deposits in order to protect their profit margins. “There is definitely an upward bias on (transaction) charges,” said Aditya Puri, MD and CEO, HDFC Bank. Banks are also likely to charge small withdrawals from saving accounts and hike the amount required to keep as a quarterly balance in the account. “Banks may increase transaction charges or cut down the free service offered by banks to customers,” said Rajiv Mehta, banking analyst, India Infoline.Yes Bank, Kotak Mahindra Bank and IndusInd bank recently announced up to 2 percentage points hike in saving deposit rates. As savings accounts constitute around 22% of the total bank deposits, it provides a source of low-cost fund to banks. “Competition will force other banks to hike interest on saving deposits which will adversely impact their profit margins,” he said. Most big banks have said that they will watch the market and then take call on deposit rates.
HT
Tackling inflation: What should the government do?
As you rightly asked this question whether RBI’s efforts are having an impact or not, my answer is no. And I quote another economist, Ila Patnaik, who has always been demanding that RBI, in all fairness, should first conduct a study to atleast know what it has been doing has an impact on controlling inflation and then it should take steps........
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Finmin wants bank branches in small villages by Sept ’12
A month-and-a-half after banking secretary D.K. Mittal issued a directive saying that by 31 March there should be at least one bank branch in each village with a population of 5,000 or more people in West Bengal’s three districts, the finance ministry issued a note (on 21 October), expanding the mandate for the whole country.
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HSBC buy of RBS India retail ops in RBI trouble
....Sources in RBI said the central bank has asked both HSBC and RBS about the need for the deal, and is looking at aspects such as transferability of branch licences.......
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RBI rejects nomination of Bhasin as Arcil CEO
The Reserve Bank of India (RBI) has rejected the nomination of former State Bank of India (SBI) chief general manager B.S. Bhasin as the next managing director and chief executive officer (CEO) of the Asset Reconstruction Company (India) Ltd (Arcil), according to two persons familiar with the development.....
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Wednesday, November 2, 2011
Obstacle Course
The Reserve Bank of India Governor Duvvuri Subbarao has promised to refrain from raising interest rates, but with a caveat — only if inflationary pressures ease. Investors gave a thumbs up, probably missing the string. Gayatri Nayak analyses the obstacles faced by the man at Mint Street. Will he be able to fulfill his promise, or go back on his word as he did the last time?
The Governor has one tool to contain inflation — interest rate. But the factors affecting it are many. What has been the biggest boon to rural India — the National Rural Employment Guarantee Act (NREGA) — since the loan melas of the 1980s, is probably one of the trickiest issues in emerging inflation dynamics. Slowdown notwithstanding, most companies will tell you that the strongest demand is coming from rural India, be it in consumption of soaps, or motorcycles — they are surging, thanks to the momentum provided by NREGA. While it is good that the poor have money in their hands, the lack of commensurate jump in supplies is hurting. The demand has pushed up raw material prices that are squeezing profit margins, which the entrepreneur is unwilling to accept after living with 20-30% profit margins. More than anything else, it is the suppressed inflation that could stop the governor in his tracks. Prices of diesel, power, coal and fertilisers are all distorted due to subsidies. Once market rates are charged for these products, then few could guess what the inflation numbers could be. “Expect policy rates to stay at current levels for an extended period of time and do not rule out further rate hikes,” said HSBC India economist Leif Eskesen. The government, which practices welfare economics, has raised the minimum support price for farm products, further fuelling food prices that trigger inflation. Even if the government does not raise prices, food prices won’t cool, thanks to NREGA-driven rising wages and the demand for them. Although, investments have slowed, the demand for loans is not slowing as much as it should have. It is still close to 20%, well above the comfort level. Developments elsewhere are also loaded against the Governor, with no signs of global commodities prices easing, despite the revival of the debate on double-dip recession.As Subbarao said: “There is only so much uncertainty that we can take into account. If there is some development that has gone beyond our calculation, it will have an impact on our projection.”
Contrasting Loans & Factory Output
Factory output is slowing and even companies such as Larsen & Toubro have cut their order book estimates. But what is intriguing is that loans are surging. Cumulative growth in factory output this fiscal has slowed to 5.6%, against 8.7%, in the same period last year. But loans are growing at close to 20% year-on-year, throwing a paradox at policy makers. Many industrial indicators, which the governor calls analytically bewildering, are showing slowdown, but not the loans. Funds from non-banking sources are also accelerating. So, what do policy makers do? Central bank’s survey on order books, inventories and capacity utilisation shows a decline in new orders during the first quarter of FY12. Even though agriculture and the service sector are expected to do well, industry could take a hit. The October purchase manager’s index, or PMI, which is used to track the growth of factory output is higher at 52.0, against 50.4 in September, indicating some improvement in order books. But the construction sector, which is an indicator of capital formation in the economy has slowed down, though real estate prices are holding up. Contrary to the widely-held belief by many in the corporate sector, studies conducted by the central bank shows that higher interest rates over the past one and a half years have not had a significant adverse impact on the corporate sector performance. This means that the central bank will have to think hard on policy to boost investments.
Global Dilemma: To Do, or Not to Do
Damned if you do. Damned if you don’t. Western central banks are going to hold their rates low for a long time. That’s good, since if the western economies perk up, then demand for Indian products will go up. But the problem with the financial sector is that they take the cheap money and gamble it in the commodities market, pushing up prices of wheat, rice and corn. This, in turn, causes a dilemma to Indian policy makers. The sovereign debt crisis in Europe and the slack US economy could keep everyone on tenterhooks. If the financial crisis in Europe worsens, then there will be calls for cuts in rates. But any cut here, to tackle liquidity issues, could trigger a fresh round of price rises. Also, if, as widely expected, the US decides to have another round of quantitative easing, there could be further pressure on commodity prices as evident from the previous rounds of easing. If European banks flounder and tighten purse strings, then the overall cost of borrowings for corporates will rise. That could also have a spillover effect here, with many turning to local banks, thus putting pressure on rates, even if the RBI wants to pause.
Fiscal Slippage Continues
A new factor to contend with this year is fiscal deficit. Everything seems to be going wrong, making calculations difficult for the Governor. Borrowing limits have already been raised once and investors don’t believe it to be the last. The treasury will borrow . 53,000 crore more than it budgeted for, breaching the fiscal deficit target of 4.6% of GDP. Disinvestment is in disarray and that means possibly there will be a revenue shortfall of . 40,000 crore more. The government’s initial fiscal deficit target had assumed a 12.5% cut in subsidies. But the story is different, as usual. This has a multi-fold impact on monetary policy-making. Revenue growth is slowing as tax collections falter due to sluggish rise in corporate profits. If the government keeps tapping the market for funds, as Goldman Sachs forecasts the yield on 10-year bonds could rise to 9.25%, which is not a good sign and may negate the positive impact of the Governor’s desire to pause rate hikes. This government has been particularly generous with welfare schemes. With elections due in many states, including Uttar Pradesh, the desire to throw away gifts at voters could further challenge the financial position.
Flip Side of the Depreciating Rupee
The rupee has depreciated more than 10% against the US dollar since the US sovereign debt downgrade in August this year. That’s a blessing in disguise for Indian exporters. But bad for those praying for inflation to cool — India imports more than threefourths of its crude oil requirement. Prices of other imports such as machinery and equipment also get costlier, which will inevitably reflect in domestic prices. Going purely by the market forces, currency supplies may be constrained if capital inflows dry down, while the demand pressures are likely to continue with demand not only from oil companies, but also from firms that have borrowed from the overseas market. Overseas debt, worth $137 billion, is due for repayment within the next one year. This is unlikely to be matched by equivalent inflows over the period. Though long-term capital inflows like FDI and external commercial borrowings are buoyant this year, portfolio inflows have almost dried down. With the Governor declaring that he won’t use currency movements to tackle inflation, higher prices could begin to pinch consumers. Despite moderation, crude oil is still 25% higher than its average for FY11. Oil marketing companies, which are bleeding due to flawed government policies, have ruled out any easing of prices even if crude prices fall.
ET
'Focus on exports necessary'
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| RBI’s Deputy Governor concerned about current account deficit |
Calling the widening current account deficit a “major concern”, the Reserve Bank of India’s Deputy Governor, H R Khan today asked for a focus to drive up exports. India is among the countries having a current account deficit (CAD). It is an area of concern, he said, addressing a late night award function of Engineering Export Promotion Council here. Being a country where balance of payments is under stress, India has to promote exports to see this does not go out of hand, he added. The country’s CAD hit 3.1 per cent of gross domestic product (GDP) mark at the end of the first quarter ended June. The Prime Ministers’ Economic Advisory Council has pegged CAD at 2.7 per cent for this financial year. Last year, it was 2.6 per cent of the GDP. It rose to $14.5 billion from $12 billion in the same quarter of 2010-11, due to an increase in trade deficit and continued net outflow on investment income. RBI, in its macroeconomic and monetary development report, said the country’s external situation was expected to remain manageable. But overall the balance of payments outlook for 2011-12, although stable, warrants close monitoring, RBI said. Khan also termed the $300 billion foreign exchange reserves as “borrowed money” kept for times of “extreme distress”. Improving the exports, he added, would allow a greater flexibility to imports as well, which would in turn give access to the best of goods and services. Units have flexibility to import quality material, machinery and things which would smoothen bottlenecks in the system. This has implications for the entire economy, he noted.
BS
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