RBI cannot be ‘indifferent’ to Govt’s borrowing plan

Dr D. Subbarao, Governor, RBI (left), along with Mr Martin Wolf, Chief Economics Commentator, ‘Financial Times’, at the Second International Research Conference organised by the RBI in Mumbai on Thursday

Mumbai, Feb 2: The Reserve Bank on Thursday said that it can not work as inflation targeter, as it will not serve the best interest of macroeconomic management. “The Reserve Bank can’t be an inflation targeter, or a core inflation targeter. That will not serve the best interest of the macroeconomic management of the country,” said Mr Duvvuri Subbarao, RBI Governor at the two—day Second International Research Conference, organised by the Bank, here. He also maintained that central bank, which hiked policy rates a record 13 times last year to tackle inflation, cannot pursue a policy completely oblivious to growth. Mr Subbarao, however, said that in the past 60 years no government was insensitive to inflation, and inflation management usually takes precedence over growth concerns. RBI had come under criticism in the last one—and—a—half years for aggressive monetary stance on inflation. “If supply side constraints affecting inflation are not managed, is it realistic to expect RBI to contain inflation?” Mr Subbarao asked, and added that the central bank too was confused as to which index of inflation should be targeted as there are many indices. About the rising government borrowing, Mr Subbarao said it may not be possible for the monetary policy to remain “indifferent” to government borrowing programmes.

HBL

Pulling every lever

India’s central bank is one of its best institutions. It is also complicit in a government-borrowing binge

..... The uncomfortable question for the RBI is whether it is partly responsible for the slowdown, albeit indirectly. If you have a central bank that always gets you home safely at the end of the night the temptation for politicians may be to go crazy. The RBI’s position is especially delicate on the fiscal deficit. The central bank oversees a financial system that is a conduit for funnelling savings into government bonds, 70% of which are owned either by the central bank or by the banking system, which remains dominated by state-owned lenders.......

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RBI can't work as inflation targeter: Duvvuri Subbarao

.... "The Reserve Bank can't be an inflation targeter, or a core inflation targeter. That will not serve the best interest of the macroeconomic management of the country," Governor Duvvuri Subbarao said at the two-day Second International Research Conference, organised by the Bank.......

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RBI: Best to be Unpredictable in Currency Management

India's central bank Governor Thursday said it is best to be unpredictable in tactical currency management, reiterating the bank's policy of not disclosing details of intervention in the foreign exchange market..........

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Private sector banks to handle government business – How about a level playing field?

.....However, this notification issued by RBI, though not very clear, hopefully will include payment of pension to employees of the central and state governments and those of the defence forces, who now get their pensions only through the PSBs. It would be of great help to these pensioners, if both the governments start disbursing of pensions through any public or private bank according to the choice of the pensioner, thereby helping the retired employees, especially the senior citizens in their old age.......

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We can’t focus only on inflation, says Subbarao

Governor says it is unrealistic for the central bank to target inflation while being oblivious to growth

The Reserve Bank of India (RBI) cannot focus only on inflation and leave growth and sovereign debt management to the government, governor D. Subbarao said on Thursday even as he insisted the banking regulator should continue to remain autonomous........

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RBI asks banks to evaluate risk of unhedged forex of companies

.... "In view of the importance of prudent management of foreign exchange risk, it has been decided that banks, while extending fund based and non-fund based credit facilities to corporates, should rigorously evaluate the risks arising out of unhedged foreign currency exposure of the corporates and price them in the credit risk premium," the Reserve Bank said in a circular on Thursday......

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Gorkan Says Visible Price Drop in India Will Trigger Cut in Interest Rate

..... “The stance now is that we have reached the peak and any further action will be toward easing,” Gokarn, said while discussing the rupee, the budget deficit and bond repurchases in an interview in his office today. Once the central bank has confidence that the “direction will continue, that’s really going to be the trigger. The visibility of the decline, I think, is the most important indication.”.....

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Got breast milk?

....For a new mother, Smita has a tough daily grind. After taking care of the chores at home, she rushes to work at the Reserve Bank of India (RBI) dispensary from 9 a.m. to 11 a.m., after which she goes to SDMH, and around 2 p.m. returns to the RBI dispensary for an hour. She also sees patients at her home clinic between 5.30 p.m. and 6.30 p.m.......

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Broader role for Monetary Policy : K Kanagasabapathy

....Keeping these post-crisis developments in view, the Reserve Bank of India (RBI) has aptly chosen the theme of Monetary Policy, Sovereign Debt and Financial Stability: The New Trilemma for its second two-day international research conference opened on February 1. The RBI Governor Mr Duvvuri Subbarao has eloquently brought out in his keynote address at the conference the rationale for the choice of the subject and several issues associated in dealing with this new trilemma.............

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Who’s funding growth?

When the RBI Governor talks of the growth momentum decelerating in the context of the sharp deceleration in gross fixed capital formation and, barely a week later, the Chief Economic Advisor says there are reasons to believe India is on a path of cyclical upswing, it’s time to read the data carefully.............

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On buybacks of RBI

This refers to the report “Subbarao says there is need to cap public debt” (February 2). Reserve Bank of India (RBI) governor has acknowledged the undesirability of the central bank buying back old government securities to keep down yields for new bonds. The main objective of a separate public debt office being set up is to resolve the conflict of interest in the central bank functioning as a monetary authority and also as a banker to the government. In a recent interview to the press, a deputy governor of the central bank indicated that it would continue to engage in buyback operations even after it was relieved of the function of public debt management. He made the point that only the portfolio management (yield and so on) will be taken away, while the financing part will be retained. Is this how it works in western central banks? The continuance of buybacks will defeat the purpose of a stand-alone debt office. Would it not be better to go back to the old transparent arrangement under which RBI took the securities on its books in the first instance and unloaded them on the market later at favourable times?

-  A Seshan Mumbai (BS)

Banks not sure of meeting priority sector lending target

..... The RBI also said total credit disbursement to the agriculture and allied areas grew by only 5.6 percent to Rs 4.60 lakh crore in December, which was as high as 25.4 percent in the same period last year, indicating a sluggish growth in priority sector lending. However, some of the bankers also said though they are hopeful of meeting the target.......

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Govt scraps release of weekly inflation data

.... “People used to react to numbers which the data generators had no confidence in,” Sen said. “The finance ministry and RBI wanted the weekly numbers, as these had their analytical models tied to the weekly data. The finance ministry and RBI had argued strongly for holding up the numbers, as otherwise, they would have to alter the whole model,”.....

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Court wants special law to protect SHGs from usury

The State government can enact a special law to protect self help groups (SHGs) from falling victim to “unfair and illegal” practices of microfinance institutions (MFIs), which collect “usurious” rate of interest under threat and coercion, the Madras High Court Bench here has suggested. A Division Bench of Justices Chitra Venkataraman and R. Karuppiah was disposing of a public interest litigation petition filed by All India Democratic Women's Association (AIDWA) State General Secretary U. Vasuki, levelling various charges against MFIs. The judges said that the proposed special law for the SHGs could be modelled on the lines of the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act 1997, which was enacted to protect people who had invested huge sums of money in financial institutions that turned out to be dubious. Petitioner's counsel U. Nirmala Rani had sought a direction to the Reserve Bank of India (RBI) to take appropriate action against MFIs in the State under Banking Regulations Act 1949 and evolve a mechanism to redress the grievances of affected members of SHGs. However, RBI counsel K.R. Laxman submitted a copy of the Micro Finance Institutions (Development and Regulation) Bill 2011 in the court and said that it was now in Parliament for discussion. Once passed, it would help in regulating the MFIs. After recording his submission, the judges said: “It is no doubt that with all the provisions in the Tamil Nadu Protection of Interests of Depositors Act, we still have NBFCs (Non-Banking Financial Companies) cheating unwary public, a fact which cannot be denied by the petitioner herein too.”

HBL

More cities, cheaper land needed for affordable housing

....“The policymaker's dilemma is to whether make affordable housing or enable all to afford houses. In India, affordable housing is difficult. Rural to urban migration puts further pressure,” Mr H.R. Khan, Deputy Governor, Reserve Bank of India, said.......

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Open market operations can hurt price stability: Subbarao

Dr D. Subbarao, Governor, RBI (right), along with Mr Benjamin Friedman, William Josep Maier Professor of Political Economy, Harvard University, at the Second Internaional Research Conference organised by the RBI in Mumbai on Wednesday

Mumbai, Feb.1: The Reserve Bank of India Governor, Dr D. Subbarao, on Wednesday cautioned that conducting open market operations — buying and selling of government paper — for liquidity management could end up hurting price stability. If the motivation for central banks to conduct OMOs is to help out a fiscally vulnerable sovereign or reduce the cost of borrowing for the sovereign, then they could end up holding price stability hostage to sovereign debt concerns, said the Governor at the Second International Research Conference. In financial year 2012 so far, the RBI has conducted OMOs aggregating Rs 71,878 crore.  The OMOs are timed just a day before the auction of government securities, thereby ensuring that banks have adequate liquidity to subscribe to these securities. Out of the expanded borrowing programme of Rs 6-lakh crore (including 364-day treasury bills), the Government has completed 87 per cent of its borrowing programme in the financial year so far. The Governor observed that at times, OMOs could be motivated by the objective of providing liquidity to support government borrowing or of reducing the yield on treasury bonds and, thereby, enhance debt sustainability. It then becomes a case of acquiescence in fiscal dominance. “There is often only a thin line, and the interpretation of the motivation for outright OMOs could vary depending on the circumstances,” said the Governor. In the presence of large sovereign borrowing that makes the Government's fiscal stance unsustainable, central banks typically have little choice, explained the Governor. “If they (central banks) do not conduct OMOs to bring systemic liquidity within reasonable limits, they risk losing control over financial stability. If they do conduct OMOs, they risk losing control over price stability. “What this really says is that fiscal responsibility is much more than a question of whether monetary policy is independent or not. It is a question of sustaining macroeconomic stability,” said the Governor. Dr Subbarao said that in India, the question has been whether the OMOs conducted by the Reserve Bank to manage systemic liquidity are acting as a disincentive for fiscal discipline. The Governor underscored that there is a need to cap total public debt as a proportion of GDP even as he cautioned that excessive borrowing is bad. Emphasising that the quality of public expenditure is important, Dr Subbarao explained that if the Government borrows and squanders that money away on unproductive current expenditure, both fiscal sustainability and growth would be jeopardised. Governments need to spend on merit goods and public goods, in particular on improving human and social capital and on physical infrastructure, he emphasised.

HBL 

Talking heads

Stability mandate

Financial stability will be made an explicit mandate for the central bank by amending the Reserve Bank of India Act, said Mr Harun Rashid Khan, Deputy Governor.  The Financial Sector Legislative Reforms Commission (FSLRC) is considering proposing an amendment to this effect, he added. The RBI is already committed to price and monetary policy stability, Mr Khan explained. To secure the health of the country's financial sector, the term “financial stability” could be incorporated in the RBI”s Preamble. Currently, the Preamble describes the basic functions of the Reserve Bank as: “...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."

NPA provisioning

The RBI is not considering any proposal to give special dispensation for banks regarding provisioning, despite the rise in non-performing assets. The NPA situation, according to Dr K. C. Chakrabarty, is not a cause for concern. As announced by the Governor, Dr D. Subbarao, in the third quarter review of the Monetary Policy for 2011-12, Deputy Governors Dr Chakravarty and Mr Anand Sinha will have a meeting with about 10 large banks later this month to discuss the NPA situation. The meeting will also look into the measures that need to be taken by the banks, the Reserve Bank, the State governments, and the Central Government to ensure that the profitability and the viability of the banking system is intact as it is now. On the widening trade deficit, Dr Chakrabarty quipped that the rupee has appreciated by 6 per cent and the media should not focus only on the negative news.

Role reversal?

Referring to a meeting with the Finance Ministry, Dr Subir Gokarn, in a lighter vein, spoke about the role reversal between the Finance Ministry and the RBI. At the meeting, while Dr Gokarn spoke on food inflation, Dr Kaushik Basu, Chief Economic Advisor, Finance Ministry, held forth on monetary policy.

HBL

Rs 1,000 denomination banknotes to be issued non-sequentially: RBI

New Delhi: The Reserve Bank today said it will soon start issuing banknotes of Rs 1,000 denomination in non-sequential numbering. The packets of banknotes in non-sequential number will have hundred notes, the apex bank said in a statement. In June last year, RBI had started issuing Rs 500 denomination notes in non-sequential numbering.  "It has now been decided to issue banknotes of Rs 1000 denomination also on similar lines," the statement said. The bands of the packets containing the banknotes in non-sequential number will be superscribed with the words 'the packet contains 100 notes not numbered sequentially'.

FE

Business correspondent model to be changed to aid inclusion

The Reserve Bank of India (RBI) has in principle agreed to permit interoperability of business correspondents (BCs), aimed at helping customers in rural areas access banking services such as cash deposits, withdrawals, remittances and balance enquiries from anywhere in the country on the lines of ATM facilities available to customers in urban areas..............

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Rein in public debt, Subbarao tells Centre

With the Union Budget in the horizon, the Reserve Bank of India on Wednesday cautioned the government against “excessive borrowing” and called for a cap on total public debt as a proportion of GDP. “Like with the other two legs (price stability and financial stability) of the new trilemma, even in the case of sovereign debt, there is an inflexion point beyond which fiscal deficits militate against growth. Government borrowing is not bad per se, but excessive borrowing is,” RBI Governor D Subbarao said. The Thirteenth Finance Commission had recommended that the total debt of Centre and states as a percentage of GDP should be cut to 68 per cent in 2014-15 compared with 81.9 per cent in 2008-09. “What is equally important in respect of fiscal management is the quality of public expenditure. If the government borrows and squanders that money away on unproductive current expenditure, both fiscal sustainability and growth would be jeopardised. Governments need to spend on merit goods and public goods, in particular on improving human and social capital and on physical infrastructure,” he said at the International Research Conference of the RBI in Mumbai. This is the second time in the last two weeks the RBI voiced concern against fiscal slippages. “In the absence of credible fiscal consolidation, the Reserve Bank will be constrained from lowering the policy rate in response to decelerating private consumption and investment spending,” Subbarao said after announcing the policy review last week. The fiscal deficit in 2011-12 is expected to exceed the budget estimate of 4.6 per cent of the GDP on account of subdued receipts and overshooting of the subsidy bill by at least Rs 1 lakh crore. To bridge the receipt-expenditure gap, the government plans to exceed its borrowing target for the current fiscal by Rs 92,000 crore over budget estimate of Rs 4.20 lakh crore.

IE

'Thin line' in motive for open market operations, says Reserve Bank of India Governor Duvvuri Subbarao

MUMBAI: When central banks conduct open market operations (OMOs) driven by a need to provide liquidity to support government borrowing or reduce yields rather than for liquidity management, it "becomes a case of acquiescence in fiscal dominance," RBI chief said on Wednesday.  "There is often only a thin line, and the interpretation of the motivation for outright OMOs could vary depending on the circumstances," Reserve Bank of India Governor Duvvuri Subbarao told a conference.  On Tuesday, the RBI said it will buy up to 100 billion rupees ($2 billion) of government bonds via open market operations on Friday. "In the presence of large sovereign borrowing that makes the government's fiscal stance unsustainable, central banks typically have little choice. If they do not conduct OMOs to bring systemic liquidity within reasonable limits, they risk losing control over financial stability," he said. 

ET

RBI urges Govt to cap public deficit

Mumbai, Feb 1: Cautioning the Government that excessive borrowing is bad, the Reserve Bank of India Governor, Dr D. Subbarao, has urged the Government to put a cap on public debt as it would hurt growth. “There is an inflexion point beyond which fiscal deficits militate against growth. Government borrowing is not bad per se, but excessive borrowing is. There is therefore a need to cap total public debt as a proportion of GDP,” Dr Subbarao said in an address at the International Research Conference here today. The Government’s fiscal deficit in 2011-12 is expected to exceed the budget estimate of 4.6 per cent of the GDP on account of subdued receipts and overshooting of the subsidy bill by at least Rs 1 lakh crore over and above the original projection. In order to bridge the receipt-expenditure gap, the Government plans to exceed its borrowing target for the current fiscal by Rs 92,000 crore over the budget estimate of Rs 4.20 lakh crore. The RBI had also flagged the issue of rising fiscal deficit at several occasions earlier, including in its third quarter monetary policy review in the last week of January. The Government, as indicated by the Finance Minister, Mr Pranab Mukherjee, is expected to announce steps to contain fiscal deficit in the budget for 2012-13 to be unveiled sometime in March.

HBL

RBI may not give one-time leeway on NPAs' provisioning

The Reserve Bank of India is not looking at giving banks a one-time leeway on provisioning towards non-performing assets at the moment, Deputy Governor K C Chakrabarty said on Wednesday. “At present, no,” Chakrabarty said, when queried if RBI would dole out the special dispensation, given the trend of rising non-performing assets and loan recast for banks. In the aftermath of the global financial crises in 2008, RBI had given some leeway to banks on provisioning for loans, which were advanced to companies that had been restructured once. It provided the one-time leeway to relieve companies from repayment pressure.

BS

India’s new impossible trinity

.....RBI will continue to seek what can clearly be called an ‘impossible trinity’ of three ‘expected outcomes’ – easing liquidity conditions, mitigating downside risks to growth and continuing to anchor medium-term inflation expectations on the basis of a credible commitment to low and stable inflation. And yet, as RBI Governor Duvvuri Subbarao has loudly decried for several years now, most recently in his quarterly monetary policy statement last month, fiscal expansion is inflationary and further complicating its monetary stance. Mr. Mukherjee, are you listening?

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Freeing up of savings A/c rates: No unhealthy competition, says RBI

... After interest rates on savings bank accounts were freed, the early signs are that there are no major shifts in preference on the part of account holders towards those offering higher rates or any big product innovations. None of the top banks has raised interest rates on savings bank accounts beyond the mandatory levels, but none seems to have been impacted either......

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Going Bottom Fishing

.... While the rupee has seen a rapid reversal to 51, the RBI’s intervention, however, is showing up in depleting foreign exchange reserves, which have fallen by $27 billion since October 2011 to $293 billion at present — the lowest in more than a year. This depletion of reserves might just play on the RBI’s mind and stifle an aggressive lowering stance if there is no visible resolution to the European debt problem......

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Platinum Jubilee Function - IOB Exclusive Interview

Indian Overseas Bank, ITC Kakatiya, Begumpet, Hyderabad, Andhra Pradesh. Indian Overseas Bank grandly celebrated its Platinum Jubilee Function. Dr. Y.V Reddy, Former Governor, Reserve Bank of India-RBI was the Chief Guest. Platinum Jubilee Commemorative Oration on “Development and Regulation of Financial Sector” By Dr. Y.V Reddy, Former Governor, RBI. Outstanding personalities, eminent speakers, legendaries & dignitaries attended the function. Felicitation was done by IOB staff to Dr. Y.V Reddy on this auspicious occasion. The inaugural lamp was lighted by the guests and the hall was crowded with good number of people’s gracious presence

Watch the video................

Lending rates may fall before RBI's rate cut, says SBI

.... “Rates are high and obviously it is hurting the industry. We are all hoping for that (lending rates to fall). In the long term, one of the things that will make industry viable and investment come back is to have lower lending rates,” Diwakar Gupta, managing director and chief financial officer of SBI, said on Wednesday....

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Chit Fund frauds on rise, RBI cautions public

KOCHI: The rising number of chit fund fraud cases reported in the past few months have become a cause of serious concern for the state Police. The Reserve Bank of India, which has come across numerous complaints with respect to chit fund frauds, has alerted the cyber police. The RBI has received complaints that some of the chit fund companies are operating using SMS and emails for propagation of their business, especially in the central part of the state. According to cyber cell officials, complaints have been pouring in day by day. “More than 30 complaints have come within two months from Ernakulam district alone. These companies generally make offers through letters, e-mails and SMSs. In addition to their usual practices, the fraudsters have now resorted to issuing certificates, letters and circulars on letterhead that look similar to that of RBI with forged signatures of its executives or senior officials,” an official added. Elaborating upon their modus operandi, the official stated that the fraudsters even resort to posing as senior officials of the central bank and lure the public into depositing money in their accounts which they have in branches of certain Indian banks. “Once the funds enter the account, they withdraw the money and vanish,” he said. Reserve Bank senior officials in Mumbai said that it has come to their notice that certain overseas organisations have been advising individual companies and trusts in India that huge sums of money for disbursal of loans in India at cheap rates has been kept in an account with the central bank and the funds, to be released after the RBI’s approval. To substantiate the claims, even copies of certificates and deposit receipts purportedly issued by the Reserve Bank are being produced by such operators, they said.“The RBI had cautioned the public against such fly-by-night operators. The losses that we have reported amount to lakhs of rupees. The RBI has never authorised any foreign lottery or chit funds that work through SMS and emails. People must ensure that the institutions where they invest money are authorised and they can seek assistance from the RBI officials to ensure safety of their deposits,” said a senior RBI official in the Thiruvananthapuram unit.

IBN Live

Social enterprises in microfinance

... All the big players who are in the microfinance space and who are in trouble are the ones who followed the route of starting charitable organisations; started by being social, but ended up becoming crassly commercial or tilted more towards enterprises. These are the ones which did above the line skimming by taking fancy compensation for the MFI employees, and below the line skimming through special purpose vehicles that invested in for-profit operations. Clearly they have lesser credibility and a poorer image than those who started as pure for-profit enterprises. The change of stripes has eroded their credibility and brought their intent into question. ......

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How “the crisis” changed microfinance and where we go from here…

.... The Reserve Bank of India implemented an interest rate cap and limits on margins. The subsequent proposed Microfinance Law brings microlenders under RBI control, and empowers it to set margin caps, repayment schedules and maximum interest rates. The world has been watching closely......

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Ombudsman at SKS Microfinance

SKS Microfinance, the country's only listed mirofinance entity, announced on Wednesday that it has appointed Verghese Jacob as its ombudsman, making SKS arguably the only Indian NBFC-MFI (non banking microfinance company- microfinance institution) to have such a structure in place for customer protection and grievance redressal............

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‘India must have distinct model of financial regulation'

Developing economies such as India should have their own distinct model of financial regulation without aping polices of advanced economies, according to Dr Y.V. Reddy, former Governor, Reserve Bank of India. Delivering Indian Overseas Bank Platinum Jubilee commemorative oration on regulation in financial sector, central banks and developing countries here on Tuesday, Dr Reddy said too much of global coordination was not good beyond a point. Referring the regulatory changes in the US, UK and Europe post-recession, he said: “They are reacting to their own mistakes. We can't have them.'' India should define its own strategy taking into account the need for growth, stability and equity, he added.  “In the global economy, diversity is important for survival,'' he said adding the current effort to have global coordination of financial sector regulation also had inherent ability to dilute diversity to impact stability adversely. A comprehensive treatment of the issue of global capital flows and public policy at a national level has not been addressed adequately. Terming the international banks as “most dangerous'', Dr Reddy said the challenge was to strike a synthesis between the national character of regulation and global nature of finance.  Mr M. Narendra, Chairman and Managing Director of Indian Overseas Bank, said his bank had crossed Rs 3 lakh crore mark in total business. “We are in seventh position among the banks and are aiming to occupy the fifth position going forward,'' he added.

HBL

All pvt banks to handle govt businesses as agents: RBI

The Reserve Bank of India (RBI) today said all private sector banks would now be eligible to handle central and state government business as agents of the central bank, at par with public sector banks. So far, the facility was limited to only three private sector -- ICICI Bank, HDFC Bank and Axis Bank. "...It has been decided that all private sector banks will now be considered eligible to handle any central/state government business [where RBI pays agency commission] at par with public sector banks," the RBI said in a circular. It said the decision is aimed at enhancing the quality of customer service in government business through more competition. The move will improve customer convenience by increasing the number of customer service outlets and broad basing the revenue collection and payments mechanism of governments, the central bank said. The new rule comes with immediate effect, the RBI said. 

BS

Now, a portal to resolve non-performing assets

In what is said to be the first of its kind initiative, globally, Atishya Technologies Pvt Ltd said it is investing Rs 10 crore in a new portal, NPAsource.com, a platform for buyers and sellers, to manage and resolve non-performing assets (NPAs) in India and abroad............

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Green Banking

This is with reference to the news report “Bye-bye cheques, hello electronic payments” (Business Line, January 23). It was indeed commendable that banks launched a “green banking” movement and encouraged paperless banking. This is more efficient, faster and safer. However, the RBI, in its wisdom, permitted the banks to charge Rs 6 per NEFT transaction; which the banks were very prompt to implement. This defeats the whole purpose of the “green banking” campaign. Customers in the high net-worth or wealth management category aren't charged for cheques.  In any case, even those who are charged for additional cheque books would find it more economical to use cheques rather than NEFT services, where they are charged for each transaction.  The only benefit of electronic banking is greater safety, when compared to outstation cheques sent by post and subjected to the vagaries of the postal system. It would be interesting to see if the imposition of the service charge for NEFT transactions has dampened the initial enthusiasm for electronic banking. The banks would do well to render this service free, or at a small one-off annual fee, if the spirit of electronic banking is to continue its rise in popularity.

- Gladstone D'Costa, Goa (HBL)

Volatile capital flows pose risk to emerging economies: RBI

Mumbai: Global capital flows are a two-way traffic between emerging and advanced economies, but the developing world remains vulnerable to volatility in such flows because they have limitations in borrowing in their own currencies in global markets, according to the RBI. Speaking at the Indian Institute of Technology-Kanpur (IIT) last week, Reserve Bank Executive Director Deepak Mohanty said even as availability of foreign capital alleviates domestic resource constraints, it could also destabilise the economy...........

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RBI autonomy - a myth??

The autonomy and independence of RBI is a myth. Not only in regard to Monetary Policy but also in every little matter, RBI is reigned in by the Government. It has no independence in any matter. The pity is that even the Central Board of the Bank is unable to assert itself and members of the Board while talking about the need for autonomy of the Institution, they do not take any concrete action while serving on the Board. Perhaps, the Board of the RBI is only for ensuring statutory compliance and not to serve any useful purpose as the late Shri Talwar( late most distinguished Chairman of SBI/IDBI) used to say about the Boards of various banks/ corporates! Readers may be interested to know that when Shri Talwar was approached some time in 1988/89 for a position in the Central Board of RBI, he informed the Bank that he is not interested in the position!! He did not perhaps want to waste his time sitting on the Central Board.

A. Chandramouliswaran, Former Executive Director

http://yecee.blogspot.in/

Gokarn hints at fresh CRR cut

New Delhi : The Reserve Bank of India on Tuesday hinted at the possibility of another cut in the CRR (cash reserve ratio) during its mid-quarter monetary policy in March in case pressure on the liquidity situation persists till then. Interacting with the media on the sidelines of a National Housing Board function here, RBI Deputy Governor Subir Gokarn said: “We are watching the liquidity situation ... I think that decision [another cut in CRR] will be taken when we do our mid-quarter review ... Having done one, I think the possibility of another is always on the table.” After raising the key policy rates over a dozen times since March 2010 to tame inflation by making bank credit costlier, the RBI effected a pause on rate hikes during its policy review on January 24 and instead went in for a cut in CRR by 50 basis points to 5.5 per cent so as to ease liquidity and spur growth.  The CRR cut with effect from January 28 released a part of the funds that banks are mandated to park with the apex bank and resulted in additional liquidity to the extent of Rs. 32,000 crore. However, with liquidity pressures still persisting, Dr. Subir Gokarn indicated that the RBI would undertake ‘Open Market Operations' (OMOs) to pump in more funds into the monetary system to meet the increasing demand.  Dr. Gokarn noted that the RBI's rate actions in future would depend on the trajectory of headline inflation in the coming months.

HBL

Policy row may delay private equity exit in real estate sector

Up to $5 billion worth of private equity funds, which had invested in real estate over the last five to six years and had planned an exit this year, now find themselves caught in a policy row between the Reserve Bank of India and the government..........

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Threats And Opportunities Of Interest Rate Cycle Reversal

RBI cutting CRR is being looked upon as the beginning of the interest rate cycle reversal in India. Investors ought to be cautious in ducking the losses and pouncing on opportunities Unlike a few shockers in last calendar year, the Reserve Bank of India (RBI) lived up to the expectations in terms of the monetary policy review and brought the Cash Reserve Ratio (CRR) down by 0.5 basis point. This has invited mixed reactions from the mutual fund industry which are largely positive and not-so-happy ones.  The positive reactions are obvious, but the industry is also considering the reduction in CRR as a mild policy measure. On the other hand, the RBI’s stance also sends a clear signal of interest rates cooling down in the future if things move as they have been in national and international economies.  The immediate impact of the RBI policy was temporary losses by debt mutual funds. The prices of the debt instruments go down when the yields go up and hence, as per the opinion of the fixed income fund managers, yields of long-term bond will come down though, there could be a temporary surge providing the much required opportunity to recover the losses by the debt mutual funds. This may mean that the temporary losses incurred by debt mutual fund investors on Tuesday may be reversed quickly.  Trading at 8.14%, 10 year bonds came down to 8.08% following the CRR cut. The benchmark 10-year yield to trade is expected to remain in the range of 8.15 to 8.30% per annum. There are fears of uncertainty in the debt markets in the short term which might hamper the investments in the debt instruments. But the investors must remain cautious as the interest rate cycle is expected to be reversed soon. The volatility always brings opportunity. Therefore, on the one hand, the investments in debt funds might look unattractive but at every interval of the reversing interest rate cycle will be laying the opportunities to park funds in the Fixed Maturity Plans (FMPs) to gain from the deferring rates of interest. 

Afternoon

Rates will rise slowly, and late : Abheek Barua

A close reading of the credit policy shows the RBI sees monetary policy as an offset to structural imbalances

...........The key message in the policy is that the RBI is not satisfied with playing the textbook role of a central bank that is concerned only with the dips and spurts in inflation drive by the business cycle. It views monetary policy as an offset to the myriad structural imbalances in the economy which ultimately manifest in rising prices. The persistence of these structural kinks is likely to mean that even if core inflation were to moderate in the near term, the pace of rate-cutting by the RBI is likely to be extremely slow. I do not see the benchmark repo rate coming down by more than a percentage point over the next 12 to 15 months. Thus, while the rate increases have been sharp, the winding down is likely to be far more sedate..............

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Time to go easy on monetary, tighten fiscal policy: Kotak

........"I see a 100-200 basis points cut in the policy rate of the RBI in this calendar year," .......

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Is the economy at an inflection point?

...Bhanumurthy felt mixed signals from some lead indicators and Reserve Bank of India's apprehension about inflation meant it was too early to confidently to conclude that the cycle has begun to reverse.....

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Rising NRI deposits add to RBI worries

.... "RBI is basically signalling Indian banks to learn to manage their profitability by setting their rates on commercial considerations,".....

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Urgent Need For Fiscal Consolidation - Deepak Sahijwala

“Considering the egregious implications of large fiscal deficits, which are well-known, there is an urgent need for decisive fiscal consolidation, which will shift the balance of aggregate demand from public to private and from consumption to capital formation. This is critical to yielding the space required for lowering rates without the imminent risk of resurgent inflation. The forthcoming Union Budget must exploit the opportunity to begin this process in a credible and sustainable way." This advice comes from Dr. D. Subbarao, Governor of the Reserve Bank of India.  So what does it mean? Reading between the lines it clearly hints that the forthcoming Budget is crucial in the sense that it would be directing the economic path of the nation and therefore policy choices could either hinder or help the nation’s progress. In fact, although the RBI believes that the economy will exhibit a modest recovery next year, with growth being slightly higher than during this year, it clearly understands that the economic risks have not mitigated totally. So what are the risks staring the economy in its face? In the Third Quarter Review of Monetary Policy 2011-12 presented last week, the RBI spelt out the risks factors that could affect its projections of growth and inflation for 2011-12 and listed seven of these. First, sovereign debt concerns in the euro area pose a major downside risk to the overall growth outlook. The second major risk emanates from the slowdown of capital flows in the face of a widening current account deficit. Third, global energy prices continue to pose a risk to growth and inflation due to geo-political factors and the global macroeconomic situation. Fourth on our list of risks is that there are signals of increasing risk aversion by banks, which could adversely affect credit flow to productive sectors of the economy. Fifth, inflation in respect of protein-based items remains high due to structural imbalances. In the absence of appropriate supply responses, risk to food inflation will continue to be on the upside. Next, there is a large element of suppressed inflation as domestic prices of some administered products do not reflect the underlying market conditions. Revision in domestic administered prices will add to inflationary pressures, although I should note that such revisions are necessary to maintain the balance between supply and demand.  And finally, the fiscal deficit of the government could potentially crowd out credit to the private sector. Moreover, slippage in the fiscal deficit has been adding to inflationary pressures and it continues to be a risk for inflation. The bottom line is that while the situation seems to be improving, we are not out of the woods… not yet. 

Afternoon

Karma is cruel, and Pranab-da has nowhere to hide

......... When inflation raged at close to double digits for much of last year, despite the muscular exertions of the RBI, which had the effect of slowing down growth, UPA-2’s All-Star Team of economic managers offered nothing more than pious platitudes that things will get better. With the result that even today, thanks to a rupee that went into free fall in the last quarter of 2011 and widening deficits all around, inflation hasn’t been well and truly vanquished. This constrains the RBI from undertaking any easing of interest rates – for fear of stoking inflation and undoing all the work it single-handedly did.......

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Creating a post office bank

.... It can be said that the post office savings bank does not get depositors out of its own effort. They walk in because of better (administered) returns and tax advantages. That is why collections fluctuate according to whether banks’ deposit rates appear more or less attractive at a given moment. This happens because, while banks and the entire financial sector have moved to market-determined rates which fluctuate according to the signals of monetary policy, small savings rates have been kept stable so as to encourage steady savings by common folks....

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In the name of the Governor

This article is not about the cut in the cash reserve ratio. It is not about the several thousands of crores of rupees unleashed in the system. This is about a much smaller sum. In fact, it is minuscule, relatively speaking — Rs 12,500 to be precise. On Friday, a mail from the ‘Reserve Bank of India’ asked me to remit this sum. It said, “The Reserve Bank of India (RBI) New Governor, (Dr D Subbarao), met with the Senate Tax Committee …and at the end of the meeting RBI Governor, (Dr D Subbarao) mandate the unclaimed funds to be release back to the beneficiary stating that it’s an unfair practice to withhold funds for government basket for one reason or the other for tax accumulations.” The mail went on to say: “Therefore, we are writing to inform you that your award (85 LAKHS INR) will be released to you as it was committed. (RBI) Governor said that Beneficiary will have to pay crediting fees only. So you are therefore required to pay 12,500 INR ONLY.” The shaky language, the reference to the Senate Tax committee, which does not exist in India, and a request for bank account details, will make it obvious for many of us that the mail is what the geeks have christened ‘phishing’ and is more popularly known as ‘the Nigerian scam’ after the country it originated from. Without going into the mechanics of the scam, it is best to press the delete button. The Reserve Bank of India will not send you any mail. Period. But, it may not be that obvious for the real targets of this email. And, the brands — RBI and Subbarao — are too powerful to create a doubt in the minds of even the level headed. That short, weak moment is what crooks bet their life on. A couple of years before, media reports had talked about how a senior central bank official herself was fooled by an imposter, who posed like the then governor. My friends say this mail is doing the round for months now and I got it again on Sunday morning. The persistence means either they believe I am a fool whose money needs to be parted or are confident from success elsewhere. Also, there is a site called www.rbi.org (The official RBI site is www.rbi.org.in), which says “Welcome to RBI Financial Services. Find sponsored goods and services on Option Trading, Financial Planning, Banks, Rates and more.” God knows what this site is up to. Are the Mint Road mandarins being possessive enough about their governor and their brand? It is easy to put up warning scrolls on the website and pass the buck to the police. Arup Patnaik, the Mumbai Police commissioner, had this to say at his annual press conference when asked about increasing banking-related frauds in Mumbai: “Bade bade bank... RBI, SBI... sab idhar (Mumbai) hi hai na. Phir fraud kya Chhattisgarh mein hoga?” His philosophy seems to be that as long as there are banks, there will be bank frauds, too. Does Mr Subbarao agree?

BS

RBI provides more leeway to banks for rupee vostro accounts

...... "With a view to give more operational leeway to the AD Category-I banks, it has been decided to dispense with the requirement of prior approval of the RBI for opening and maintaining each Rupee Vostro account in India of non-resident Exchange Houses in connection with the Rupee Drawing Arrangements (RDAs) that banks enter into with them,".......

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Housing finance may come under priority lending: RBI

New Delhi: The Reserve Bank Monday said it is considering categorising housing finance for weaker sections as priority sector lending by early next month to ensure adequate flow of credit. "We are trying to put housing finance for weaker section as a part of priority sector. There is a committee which is looking into it. Hopefully, by the first week of February this report will come," RBI Deputy Governor H R Khan told reporters here. The committee is headed by Union Bank of India Chairman and Managing Director M V Nair, was constituted by the RBI to look into various issues related to priority sector lending, including review of loan limits under the segment. The committee has sought to address issues like desirability of simplifying the approach to direct lending, inconsistencies or ambiguities in the existing guidelines, nature of activities presently classified as priority sector that need relook and new areas which should be incorporated. The terms of reference of the Nair committee is to revisit the current eligibility criteria for classification of bank loans as priority sector with reference to nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans. It will review nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans which can be brought under priority sector segment. The terms of reference of the panel include review of limits on loan amounts. It will also review appropriate documentation and due diligence thresholds to ensure that loans extended by banks are for the eligible categories of purposes and borrowers, which need special attention and treatment, the terms of the report state. Besides, the panel will consider the desirability, or otherwise, of capping interest rate on priority loans. The panel will also review the current allocation mechanism for Rural Infrastructure Development Fund (RIDF) and other funds. The RBI Deputy Governor further said the apex bank is also trying to coordinate with the government and market regulator SEBI for developing and broadening the corporate bond market. As much as 40 percent of the total bank lendings is for priority sector including agriculture and small sector industry.

Zee News

RBI Exploring Iran Payment Options

NEW DELHI – India is considering several options to settle its oil import bills with Iran, including paying in rupees, a top central bank official said Monday, as the South Asian nation maintained its stance of continuing oil trade with Tehran. "There are different [payment] options which are being evaluated," Reserve Bank of India Deputy Governor H.R. Khan told reporters in New Delhi, without disclosing the other possible options.  "Oil imports are continuing," he added. The Indian central bank in December 2010 disbanded a payment mechanism that the U.S. had said could be used by Tehran to finance its alleged nuclear weapons program. Since July last year, refiners such as Mangalore Refinery & Petrochemicals Ltd. and Indian Oil Corp. have been routing their payments through Turkey's Halkbank for supplies from Iran, which is the second-largest supplier of crude oil to India. The payments through Turkey could also now get disrupted as the U.S. and Europe have imposed sanctions on Iran to block its oil trade and deprive it of a key revenue source. New Delhi however says it will continue with oil imports from Iran as the terms of trade are favorable. India's oil minister said this month that the country will only abide by United Nations sanctions and not those imposed by any individual country.

WSJ

Cyber Society wants RBI to empanel info security auditors

In what is termed a significant suggestion, Cyber Society of India has asked the Reserve Bank of India (RBI) to raise a pool of ‘empanelled information security auditors' across the country. They could then be deployed or allotted to different banks like the RBI allots statutory auditors. “All the banks do not have a proper information security policy and audit system. They have their own internal audit. Or, they get audited through their own known auditors,” according K. Srinivasan, President of the Cyber Society of India. Mr. Srinivasan said the Cyber Society had asked the apex bank to empanel information security auditors based on specified minimum qualification and experience. “After auditing the banks, they could submit the report to the RBI and banks. This will improve the quality of information security audit,” he felt. From this year onwards, that is, March 2012, all banks are required to declare their information security status (IS) in their annual reports as per the Gopalakrishna Committee report. This is for the first time that the banking industry is going to declare such IS status. “Hence, an audit by competent RBI-nominated IS auditors may improve the quality of information security in banks,” he said. The Cyber Society of India also wanted RBI to issue a fiat to all banks, making it mandatory for them to send out mobile alerts to their clients on withdrawals. At present, mobile alerts are given by banks only on request. “Even educated customers are not aware of this facility. Many cyber crime police cases could have been avoided, if the customers had a mobile alert,” Mr. Srinivasan said. Customers should get mobile alerts by default. “Only if they do not want, they have to request the bank, like ‘do not disturb' model,” he pointed out. “We are in the initial stage. Customer awareness is very low. Even a remote rural person is having credit and debit cards. All these justify the importance of information security to protect the interest of the customers," he added.

HBL

“RBI looking at alternative methods to assess inflation”

The Reserve Bank of India is looking at alternative methodologies for a better assessment of inflation and inflation expectations that are the cornerstones of monetary policy formulation for the economy, RBI Deputy Governor Subir Gokarn said on Monday.................

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The RBI’s self-serving bid?

.....While there is a strong case for a unified regulator, the task of financial regulation should be separated from the job of conducting monetary policy. This would give an independent central bank doing monetary policy (and nothing else), and a unified second agency doing all financial regulation and supervision.......

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Inflation persistence: NREGA not the culprit, says Gokarn

The National Rural Employment Guarantee scheme is not quite the cause of inflation 

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Reserve Bank of India says open to more debt buybacks through OMOs

CHENNAI: India's central bank is open to more debt buybacks through open market operations to address the strain on liquidity, Reserve Bank of India Deputy Governor Subir Gokarn said on Monday. The RBI has bought back about 719 billion rupees ($14.44 billion) of government bonds from the secondary market since late November to reduce pressure on yields and ease a cash crunch after New Delhi's increased its borrowing plan for 2011/12. Bond yields fell on Monday, as traders picked up bonds on hopes of more debt buybacks from the RBI to infuse liquidity, as the cut in banks' cash reserve ratio had only a marginal impact at easing the cash shortage. The RBI had cut CRR, or the share of deposits banks hold with the central bank, by 50 basis points to 5.5 percent to infuse liquidity. The CRR cut is expected to have released about 320 billion rupees ($6.43 billion) into the banking system on Saturday.

ET

Rate cut by RBI is a matter of when, not if

.... Ambiguity still prevails on the timing and amount of repo rate cuts, but RBI is in no hurry and has conditioned a reversal to achieving a sustainable fall in inflation and fiscal consolidation......

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How microfinance creates poverty

....The beauty of microfinance is that it sucks out the income of the poor without causing much pain. Rather the poor thanks the lender for impoverishing him. Just as the drunkard thanks one who lends him money for buying a bottle of liquor or just as the bonded labour thanks the moneylender for giving him a loan, similarly the members of Self- Help Groups thank the microfinance institutions for providing loans. They forget that the same institution is also taking away their incomes......



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A push for women in backward districts

....“The NGOs will encourage women to form SHGsand start banking operations by opening a savings account. The financial transaction would also meet the objective of Reserve Bank of India (RBI) to have financial inclusion of every citizen,”.....

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Budget to focus on fiscal consolidation: Montek

....The job of reserve banks around the world is to be striking notes of caution. So what the RBI has done in the last policy is giving a clear signal that the period of monetary tightening is over and that is a genuine reflection on their part that the warning signals on inflation are certainly no longer red; they may even be changing from amber to green. "But obviously the RBI wants to hold back until it's absolutely sure,"....

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