‘No quick fix solution for lowering inflation

Reserve Bank of India Governor D. Subbarao on Monday said it was unrealistic to expect the central bank to deliver on an inflation target in the short-term. “In an emerging economy like ours it is not practical for the central bank to focus exclusively on inflation oblivious of the larger development context. The RBI cannot escape from the difficult challenge of weighing the growth-inflation trade off in determining its monetary policy stance,” said Dr. Subbarao while addressing the meeting of Central bank governance group in Basel. The drivers of inflation in India often emanate from the supply side, which are normally beyond the pale of monetary policy. In particular, given the low income levels, food items have a relatively larger weight in the consumption basket in India compared to advanced economies and even many emerging market economies. India has three consumer price indices each covering different segments of the population with the weight for food ranging between 46 and 70 per cent. “Monetary policy, as is well known, is an ineffective instrument for reining in inflation emanating from supply pressures.” “An alternative that is put forward is that we could target core inflation rather than headline inflation. That is not a feasible solution either.” An inflation index, with half the basket excluded from it, hardly reflects reality. Moreover, the exclusion of food from the core index can be justified if average food inflation is the same as the average non-food inflation. “If food inflation is higher, as is typically the case in many low income countries including India, then we would be underestimating inflationary pressures on a systemic basis. That would mislead policy prescriptions,” he added.  Further Dr. Subbarao said India had a problem about which inflation index to target. The headline inflation index was the Wholesale Price Index (WPI), and that did not, by definition, reflect the consumer price situation. However, getting a single representative inflation rate for a large economy with 1.2 billion people, fragmented markets and diverse geography was a formidable challenge.  “The recent introduction of CPI-Urban and CPI-Rural is welcome, but it still does not solve the problem of heterogeneity.” “A necessary condition for inflation targeting to work is efficient monetary transmission. In India, monetary transmission has been improving but is still a fair bit away from best practice,” Dr. Subbarao pointed out. There are several factors inhibiting the transmission process such as an asymmetric relationship between depositors and banks, administered interest rates on postal savings that are not adjusted in line with prevailing interest rate trends and rigidities in the financial markets. All these factors dampen the efficacy of monetary signals and complicate the adoption of an inflation targeting regime in India. Given the compulsions of democracy and the large population of poor, any government in India had always to be, and indeed had been, sensitive to price stability even if it means sacrificing output in the short-term, said Dr. Subbarao, adding, both the government and the RBI had to factor in the short-term growth-inflation trade off in their policy calculations.

RBI team studies mobile banking scheme

PALAKKAD: The Reserve Bank of India (RBI) has deputed a team to study the mobile banking scheme of the Palakkad District Cooperative Bank, introduced last year, to take banking to the remote tribal villages of Attappady. The scheme is part of financial-inclusion programmes of the bank. In the Agali-Attappady area, banking facility is available only at the Agali town now. The mobile bank visits each village once in a week. The people living in the 187 tribal hamlets had no option but walk 20-30 km to reach Agali. Those employed under the MGNREGS in Attappady have benefitted (from the scheme) as the payment is made only through bank, District Cooperative Bank president K.V. Ramakrishnan said.

The right priority

It is heartening that the Reserve Bank of India, in consultation with the Centre, has picked up enough courage to bite the bullet and take up the issue of tackling inflation as its main priority. So far, it was taking mere baby steps by way of a 25 basis point hike eight times since March 2010 to ensure that GDP growth does not falter. This time, the central bank surprised the market and a section of economic analysts by turning hawkish and raising its short-term lending (repo) rate by an unanticipated 50 basis points to 7.25 per cent and leaving the borrowing (reverse repo) rate to float lower by one percentage point at 6.25 per cent. Even as the bank rate and the cash reserve ratio have been left unchanged so as not to affect the flow of liquidity, the net effect of the annual credit policy action is that short-term funds the banks borrow from the RBI will be available at a higher rate and, as a result, housing, auto, and consumer loans will cost more to the consumer. The policy move, which will mean marginally lower GDP growth in the short term, has come as a disappointment to India Inc. owing to the negative impact on investment. But the higher-than-expected increase in key policy rates should be viewed as a chemotherapeutic dose to combat the cancer of inflationary expectations.  As it is, while food inflation has been ruling high through almost all of the past year owing to seasonal and other factors and a solution lies in easing the supply bottlenecks and increasing production and productivity, the more worrying factor is the headline inflation that has remained at a high of near nine per cent, belying even the scaled-up projection of the RBI at eight per cent for 2010-11. With prices of most commodities, especially oil, skyrocketing in global markets and with the external environment not exactly benign, the apex bank expects overall inflation to stay in the higher regions during the first half of the current fiscal and, in the absence of any further downside risks, moderate to more reasonable levels of about six per cent by the end of the year. It is clear that the reining in of demand pressures to contain inflation will have a negative impact on overall growth. While the government projected a GDP growth of nine per cent for 2011-12 as against 8.6 per cent achieved in 2010-11, the RBI has scaled down the estimate of overall expansion to eight per cent, which is in line with the realistic projections of various think tanks and multilateral financial institutions. Clearly, the country will have to bear the short-term pains if the long-term gains are to be achieved.

Govt, RBI working to lower banking costs, expand reach: Pranab

Expressing concern over high costs and limited reach of banking services, Finance Minister Pranab Mukherjee today said that the government was working in collaboration with RBI to address these concerns. “The cost of banking intermediaries in India is high and bank penetration is limited to only a few customer segments and geographies,” Mr. Mukherjee said here today. “We are trying to address this in collaboration with the Reserve Bank of India, and with the active participation of the banking and non—banking financial entities,” he added. Mr. Mukherjee also said that there was a need to “reflect upon possible flaws in our system and address them to withstand adversities. We need to make our financial sector more competitive by enhancing efficiency and transparency.” “While greater competition is welcome, we have to guard against the competitive race to the bottom,” he said, while expressing hope that this perspective would guide the growth of Indian banking system in the coming years.  Mr. Mukherjee was speaking at Sir Sorabji Pochkhanawala Memorial Lecture 2011 as part of the centenary celebrations of Central Bank of India. The PSU bank was set up by Sir Sorabji Pochkhanawala.  The Finance Minister said that PSU banks were playing a very important role in India’s economic growth and they constitute over 72 per cent of the banking sector assets in the country. “While they are expected to improve their outreach and scalability for sustaining high growth of the economy, they are second to none in retail banking practices and profitability.  “There are, however, several concerns that need to be fully addressed,” Mr. Mukherjee said, in reference to the issues like high costs and need to expand the banks’ reach to more customer segments and geographies.  The minister said that most of the financial sector policies in the past few decades were aimed at accelerating the penetration of the banking and financial services.  “However, as I said, the outcomes of these efforts are yet to show the desired results. Newer perspectives and approaches towards financial inclusion are the need of the hour.  “There is a case for the policy makers and other stake holders to re—strategize the financial policies that are meant to reach the un—reached and the unbanked sections of our country,” he added.  To address the issue of capital constraints faced by the PSU banks, Mr. Mukherjee said the government had provided over Rs 20,000 crore towards recapitalisation of public sector banks during 2010—11.  “An additional amount of Rs 6,000 crore is also being provided for 2011—12. This will enable the PSBs to meet the credit requirements of the growing economy,” he added.

Credit-counselling centre opened at Perumbavoor

The Union Bank of India, the lead bank of Ernakulam district, has set up the first financial-literacy and credit-counselling centre in the district at Perumbavoor. D. Subbarao, Governor, Reserve Bank of India (RBI), recently visited the centre, accompanied by Suma Varma, Regional Director of the apex bank in Thiruvananthapuram. M.V. Nair, Chairman and Managing Director of the Union Bank, and Mayank Mehta, Regional Head, were present. Such centres, recommended by a high-power committee headed by Usha Thorat, former RBI Deputy Governor, on the lead-bank scheme, are being set up in every district to provide counselling through face-to-face interaction or e-mail, mobile phone, fax and other media. Special stress is being laid on educating people in rural and urban areas on various financial products and services available from the formal financial sector and making them aware of the advantages of connecting with the sector. Ideas are disseminated for formulating debt-restructuring plans for borrowers in distress and recommending them to formal financial institutions, including cooperatives, for consideration and taking up such activity that promote financial literacy, awareness of banking services, financial planning and amelioration of debt-related distress of individuals.

Financial inclusion programme held

VISAKHAPATNAM: A ‘Financial inclusion and literacy programme' was held as part of the platinum jubilee celebrations of Reserve Bank of India (RBI) at Chintalaveedhi village of Paderu mandal in the district on Thursday. The village was adopted by the RBI and attached to Union Bank of India, Paderu branch, to cater to all the banking needs of the villagers of that village. The objective of adopting the village was to save the villagers from the clutches of money lenders and micro financiers, according to a statement issued by the bank. Regional Director of RBI, Hyderabad, A.S. Rao inaugurated the programme. General Manager of State Bank of India T.S. Ramaswamy, Assistant General Manager of UBI, Visakhapatnam region, D.V. Gupta and Project Officer of ITDA, Paderu, S. Satyanarayana participated in the inaugural programme. In his report, the Branch Manager of UBI Paderu N. Subba Rao said that there were 210 households in Chintalaveedhi and ‘no frills' accounts were opened in the names of the householder and his wife. They were given an ATM card, cheque book and passbook. He said that SMART cards were issued to 50 per cent of the eligible beneficiaries. The speakers stressed the need for timely repayment of the loans taken for availing more facilities from the banks. Assistant General Manager, RBI, Hyderabad, Krishna Kumar proposed a vote of thanks.

Financial inclusion to be Syndicate Bank's priority

Udupi: Chairman and Managing Director of Syndicate Bank Basant Seth inaugurated the Financial Inclusion Resource Centre at the founder's branch premises of the bank, here on Saturday. The Financial Inclusion Resource Centre gives the public all the necessary information about the importance of financial inclusion. It tells them why they should open bank accounts, various types of banks accounts, loan provisions and details of other banking services. The resource centre is like a museum. All the information is available in a pictorial format in three rooms of the centre. It is manned by a counsellor, who will answer any question people might have about the banking services. He said that financial inclusion was of utmost importance. The Centre and the Reserve Bank of India (RBI) were giving priority to financial inclusion. “We would like children to visit this place so that competitions could later be held on the topics depicted here,” he said. Executive Director of Syndicate Bank Ravi Chatterjee said that besides the Centre, a van would be pressed into service to propagate the importance of financial inclusion in villages. The bank would open two more Financial Inclusion Resource Centre at Kumta in Uttara Kannada and Mangalore. The Financial Inclusion Resource Centre in Mangalore would be opened by the end of this month, he said. A.S. Rao, Regional Director of RBI, Hyderabad and D.T. Pai, former Chairman and Managing Director of Syndicate Bank, were present.

Experts complain of deprivation of consumer rights in finance sector

Financial experts and bankers who assessed the status of consumer protection in the financial sector have termed access and affordability of financial services as still a dream in the country. In this modern era, when the global economy adds around 1.5 crore new consumers of financial services every year, awareness of their rights was awfully low, it was pointed out. Speaking on the occasion of World Consumer Rights Day, Jaipur circle Reserve Bank of India General Manager S.N. Panda conceded that the problem of poor awareness and lack of accessibility exists among consumers of the banking sector. “There is need for better terms and conditions in services for customers in the financial sector,” Mr. Panda said. The RBI has been taking various initiatives in creating financial literacy and better accessibility for consumers, he added. The event, “Consumers for Fair Financial Service”, was organised by consumer advocacy group CUTS. Calling for financial inclusion of poor, the migrants, disadvantaged and marginalised people, CUTS International director George Cheriyan said these segments often struggle even to open a bank account in the absence of proper identification or address proof.  Mr. Cheriyan added that a study in 2009 had found that only 13 per cent people used ATM and debit cards in the country, and only 10 per cent possessed life insurance.  Jaipur Office of Banking Ombudsman (BO) Deputy General Manager K. Sundari sought RBI intervention in cases of serious financial abuses. Talking about fairness in financial services, Ms. Sundari presented an overview of the BO and the mechanism of seeking redressal through it. The former Rajasthan State Consumer Dispute Redressal Commission chairman, Justice Vinod Shankar Dave, shared his personal and professional experience in the legal field and emphasised behavioural aspect of consumer and service-provider relationships and constraints due to ignorance.  The banking sector needs to show more responsibility towards consumers, and digitalisation was taking away the personal touch from banking services, he noted.  BO AGM S.N. Senapati said consumers should take advantage of the existence of many regulatory bodies like the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the RBI existed. On the part of the banks and financial companies, they should ensure fairness and transparency in contracts, he felt.  CUTS programme officer Deepak Saxena and project coordinator Amarjeet Singh threw light on consumer protection in the newly emerging financial areas.

Pay tax dues early, says RBI

The Reserve Bank of India (RBI) has appealed to the income-tax assesses to remit the tax dues sufficiently in advance of the due date for avoiding last minute rush. In a release, the bank said that the remitting income tax dues at the RBI would be too heavy towards the due date and it would be difficult for the bank to cope with the pressure of receipts although additional counters to the maximum extent possible are provided. Further, the RBI also appealed to the assesses to take advantage of the facility available for payment of tax at the branches of public sector banks and designated private sector banks.

Change at the till

A generation that enjoyed the value of paisa coins will feel a tinge of nostalgia as they shed their hoard of small change over the next four months. The call-in of coins with a face value of 25 paise and less and their planned demonetisation with effect from July 1, 2011 only reflects the changed currency use pattern across all sections of society today. With rupee losing its purchasing power, commerce was already beginning to cold-shoulder the paisa; for the government, the cost-benefit factors involved in minting and keeping them in circulation were strong enough to push for their demonetisation. It is unclear how many of the coins are still actually around. According to the Reserve Bank of India's books, at the end of March 2010, there were 54,738 million “small coins” (which, by definition, include the 50 paisa), adding up to Rs.1,455 crore. The demonetisation of what is virtually “dead money” will enable the RBI to issue currency notes or coins for an equivalent amount as replacement in the monetary system. Should a significant amount of the coins tumble out of jars and piggy banks, the handling of the mountain of small change will turn out to be a challenge for the banking system. But how much of it will surface is a moot question.  There has been concern over whether the consequent rounding off of bills to 50 paise or a rupee at the till would add to inflationary pressures. It will, but its effect can only be marginal. It is for the first time since India shifted to the decimal system in 1957 that coins are being demonetised on such a scale. In the past decades, the worth of the metal content in coins has often surpassed their face value, encouraging their melting for other uses. The ferritic stainless steel coinage of contemporary issue and the aluminium-magnesium coinage introduced in 1964, in place of the nickel and cupro-nickel ‘naya paisa' series introduced in 1957, faced the same risk eventually. The minting of 1, 2, 3 and 5 paise coins was phased out in the 1970s, and they have virtually disappeared from currency — even as 10, 20 and 25 paisa coins have become scarce. And rupee coins of 1, 2, 5 and 10 denominations have come since the 1990s in growing numbers. So, time is finally running out for small change. Only four months are left for people to rustle up their coins and take them to the bank for exchange. It is possible that the exercise will excite more interest among coin collectors than the general public.

RBI to issue new Rs. 5 coin

Hyderabad: The Reserve Bank of India (RBI) will shortly put into circulation new coins of Rs. 5 with the ‘C. Subramaniam Birth Centenary' theme. RBI Assistant General Manager Vinod P. Appa Rao said the face of the coin will bear the Lion Capitol of Ashoka Pillar in the centre with the legend ‘Satyameva Jayate' inscribed below The reverse of the coin will bear the portrait of C. Subramaniam in the centre.

RBI Governor for stepping up farm productivity to fight food scarcity

Lively interaction :

Reserve Bank of India Governor D. Subbarao being greeted by students at a meeting on the IIT campus in Bhubaneswar on Saturday.

BHUBANESWAR: Reserve Bank of India Governor D. Subbarao here on Saturday emphasised on the need for stepping up agricultural productivity to fight food scarcity and rising food prices. Addressing students of Indian Institute of Technology, Bhubaneswar, here Dr. Subbarao said, “we need to increase production in order to manage prices. In poor country we need to keep food prices low.” “We cannot import food as we have to feed 1.2 billion people. Our food prices are lower than that of world prices. You cannot import food and sell them here unless you subsidise. You cannot expect to subsidise food on a large scale,” he said.  “RBI is responsible for management of inflation. But responsibility for food inflation is slightly lower because food inflation arises because of supply side constraints,” he said. “If you have supply shortages, it is not clear that RBI policies are most effective response. You have to have supply side response that you have to produce more,' Dr. Subbarao said. The RBI Governor, however, said, “monetary policy becomes the first line of defence, so if inflation persists for a long time, people think inflation is going to be high, and that becomes a self-fulfilling prophecy. To break that inflationary-expectations psyche, RBI has to act, which is why we have been acting over the last year.”

RBI to hold financial outreach programme

VILLUPURAM: The Rural Planning and Credit Department (RPCD) of the Reserve Bank of India will organise a “financial outreach programme” at Karuvachi near here on Saturday. A statement from the Chennai RPCD said during the current financial year (2010—2011), RBI has proposed to conduct the programme in four villages in Tamil Nadu and one in Puducherry. Of these, already two in Tamil Nadu, including Paluvanchi in Tiruchi and Seelapandiankalam in Dindigul, and, Mangalam in Puducherry, had been covered. The objectives of the programme are to create awareness among rural people about RBI in general and banking activity in particular so as to include them in the mainstream financial system by opening no frills or savings accounts, extending small credit and issuing smart cards. At the Karuvachi programme, Principal Secretary to Tamil Nadu Finance Department K.Shanmugam, Collector R. Palanisamy, Indian Bank executive director Rajeev Rishi, General Manager (RPCD) M.M.Majhi, deputy general manager S.Selvarajan and assistant general manager M.A. Nasser will participate

Obituary

MR.R.V.VARADARAJAN (88 years) Rtd. DCO, RBI, Mumbai expired on 24.02.2011 at Chennai. May his soul rest in eternal peace.