IMF expects RBI to confront inflation challenge

The International Monetary T Fund expects the Reserve Bank of India to effectively deal with the challenge of inflation, noting that the initial food price driven inflation now appears to be generalizing.   “At one point, it (inflation) was thought to be a temporary factor, but apparently, that is not the case, and the initial food price-driven inflation is now somewhat generalizing,“ IMF's India Mission Chief Masahiko Takeda said, adding: “So the Reserve Bank of India is now very concerned about it, and we expect the RBI to stay vigilant and take necessary action.“  If combating inflation is the immediate job on hand, the medium term challenge for India will be to focus on maintaining its current high growth, Takeda said, noting: “There must be some appropriate environment for high growth to continue.“  India, he said, would have to address struc tural reform issues in order to give a boost to infrastructure sector, enhancing foreign direct investment, boosting agricultural productivity and increasing the level of human capital.  Looking at the whole Asian region, the IMF reckons that inflation and overheating are the twin risks now confronting several key economies. Even while lauding the region for its sound growth performance and weathering the global downturn, it wants action to deal with the two dangers.  “Headline inflation has accelerated in the last six months and initially that reflected commodity prices, but we do see these pressures now spilling over into core inflation and inflation expectations,“ said Anoop Singh, Director of IMF's Asia and Pacific Department, providing an Asian perspective to the media at the just-concluded IMF-World Bank spring meetings.  The IMF expects inflation in many Asian economies to increase further this year before slowing modestly next year as global commodity prices stabilize and macroeconomic policies are tightened. “But the inflation risk for Asia is clearly on the upside,“ said Singh.  Overall the Asian region is expected to grow at 7 per cent in 2011 and 2012 (India is projected to grow at 8.25 per cent this year and 7.75 per cent next year), but the economies of the region have to stave off the danger of overheating. According to Singh, pockets of overheating pres sures have emerged across Asia in both goods and asset prices. The rising commodity prices pose an added risk, Singh said, noting: A more proonged disruption of industrial production n Japan could have effects on o t h e r economies n the region, and elsewhere in the world, that are linked to a pan through the global supply chain.“ The prescription for the whole region as it combats inflationary pressures will be “certainly further monetary tightening“. Exchange rate appreciation would help tighten monetary conditions, while some economies in Asia needed more fiscal consolidation, he said.  While IMF expects foreign capital flows into the region to continue this year and next, although at a lower pace than last year, Singh said global tensions could cause more volatility in inflows. “Macro prudential measures targeted at reducing the risks from volatile capital flows can be helpful, and they are being taken forward. They are complements to macroeconomic policy adjustments, but of course they are not substitutes,“ he said.

J&K Bank-RBI pact a sellout, says Drabu

Sacked chairman of Jammu and Kashmir Bank Haseeb Drabu has termed the State Government's decision to shift banking operations with the Reserve Bank of India (RBI) as an act of demolishing the only vital pillar from under the edifice of autonomy of Jammu and Kashmir. The agreement signed last fall, came into effect from April 1, 2011.  He has predicted that the Jammu and Kashmir Bank would be nationalised in near future and the State would be at the mercy of North Blockbased bureaucrats.  Drabu was asked to resign on August 26, 2010 by Omar Abdullah-led coalition Government after heading the State's lone listed company for five years. After his resignation, the State Government entered into agreement with the RBI. Describing the agreement as “Machiavellian politics and Shylockian economics“, Drabu has first time gone public on the impact and outcome of the agreement that the State Government has described as “win-win situation“ for the State Government, the J&K Bank and the people of the State. The Finance Ministry and the J&K Bank have not reacted to Drabu's observations.  In an article in prominent monthly magazine The Honour, Drabu has said that the J&K Bank has ceased to be State's banker. “It (J&K Bank) will cease to be lender of last resort to the Government, which it has been since its inception,“ he says.  He says that the RBI's previous role in J&K was related to the Government's securities market involving floatation of Government loans and preparation of calendar for issuance of dated securities. The new agreement has, however, brought the RBI on centre-stage of fiscal management of the State and prmoted its status from “regulatory oversight“ to “operational control“.  “For the purpose of the Government finances, J&K Bank is nothing more than branch of the RBI,“ he said. He says that the new agreement is benef icial to Government of India but neither to the State nor to the J&K Bank.  He says that the State has lost its financial independence.  “A financial crisis can be created by even an un-biased but stickler of a bureaucrat sitting in North Block. Not to speak of what a hostile political party at the helm can do,“ he writes.  “The decisions will now be taken on Mint Street in Mumbai instead of Maulana Azad Road in Srinagar,“ he says.  Referring to the agreement as “disempowerment of the J&K Bank“, Drabu states that it is akin to the political disenfranchising of the institution of the Head of the State.  “When the position of Sadar-e-Riyasat was converted into that of a Governor it was more than the name that changed,“ he says.  Drabu was economic adviser to Mufti Muhammad Sayeed during the latter tenure as Chief Minister in 20022005. He was shown the door by the Omar Abdullah Government a few days after Mufti's People's Democratic Party blamed Abdullah for financial misappropriation and leaked some confidential details on the Government's financial transactions.

Bank holds soiled notes, coins exchange mela

BHUBANESWAR: The Indian Bank organised a Mela for the exchange of soiled, cut, mutilated notes and also coins in collaboration with the RBI here in the premises of Saheed Nagar Branch on Friday. RBI Deputy General Manager K.R.Padmanabha Rao inaugurated the Mela with distribution of coins to the public. It was conducted in the presence of DGM and Zonal Manager OP Ambasht, Assistant General Manager of Zonal Office HS Patro and Assistant General Manager of Bhubaneswar branch A Bhimeswar Rao with participation of staff members from different branches of the city here. All arrangements were made for the smooth conduct of the Mela that continued from 11 am to 3 pm.

RBI warns against ads on foreign exchange trading

The Reserve Bank of India (RBI) has noticed advertisements issued by electronic/internet portals offering trading or investing in foreign exchange with guaranteed high returns are illegal and the people should beware of the risks, said Chief General Manager Alpana Killawala in a press release here on Thursday.  The advice has become necessary in the wake of many residents falling prey to such tempting offers and losing money heavily in the recent past, she added. Many companies even engage agents who personally contact gullible people to undertake forex trading/ investment schemes and entice them with promises of disproportionate / exorbitant returns, said the press release.  The Reserve Bank of India cautions the public not to remit or deposit money for such unauthorised transactions. The advice has become necessary in the wake of many residents falling prey to such tempting offers and losing money heavily in the recent past.  The Reserve Bank of India on Thursday clarified that remittance in any form towards overseas foreign exchange trading through electronic/internet trading portals is not permitted under the Foreign Exchange Management Act (FEMA), 1999.  Residents are, however, permitted to trade in currency futures and options contracts, traded on the stock exchanges recognised by the Securities and Exchange Board of India (SEBI) in India, subject to the conditions specified by the Reserve Bank from time to time.

Red beacon for RBI Governor withdrawn

In a seemingly major embarrassment for the Reserve Bank of India (RBI) Governor D Subbarao, the Road Transport and Highways Ministry has directed the Maharashtra Government to withdraw the permission granted to him to use the red beacon atop his car. “The State Government of Maharashtra should immediately withdraw the permission for allowing the use of red beacon light on the vehicle of Governor, Reserve Bank of India,” said a letter from the Ministry earlier this month. In November last year, the Maharashtra Government granted permission to the RBI Governor to use the coveted red dome light on his vehicle. The permission came from that State Government as RBI’s central office is situated in Mumbai. The RBI Governor’s office had requested the State government to grant the status. The State Government informed the Transport Ministry here about the decision. On its part, the Transport Ministry referred the matter to the Home Ministry, which has the authority to decide the issue. Replying to the Transport Ministry’s letter, the Home Ministry, in its letter dated January 14, said, “The Governor of Reserve Bank of India has not been included in the Table of Precedence issued by the Rashtrapati Bhavan.” The Home Ministry even attached a copy of the Table of Precedence dated July 26, 1979 but updated “till now” and including all amendments made so far along with its letter to the Transport Ministry.  The RBI Governor is included nowhere in the Table of Precedence, which lists 26 categories of dignitaries right from the President to joint secretaries, officers of the rank of major-general and equivalent rank.  In view of the Home Ministry’s decision in the matter, the Transport Ministry said, “The MHA has informed that the Governor of RBI has not been included in the Table of Precedence issued by the Rashtrapati Bhavan. Therefore, the RBI Governor does not hold the rank, status and privilege equivalent to the dignitaries specified in the notification.” As a consequence, the Transport Ministry, in its letter dated February 3, asked the Maharashtra Government to withdraw the permission granted to the RBI Governor to use the red beacon on his Government vehicle with immediate effect.

RBI holds district-level quarterly meet

The Reserve Bank of India General Manager Vikram S Bajwa presided over the quarterly meeting of the District level review committee. The District advisory committee was held in the Punjab National Bank zonal training centre in Dehradun on Friday. Addressing senior bank officials,  Bajwa said that banks should work to further improve customer services and ensure their full contribution towards facilitating financial inclusion. He said that banking services should be provided through POS machine/BC module in villages with a population of more than 2,000 and Atal Adarsh villages.  The PNB circle head V.K.Srivastav, officials of various banks in the District, heads and representatives of different departments concerned were also among those present.  

Star TV Talent Leadership and HR Awards at the World HRD Congress

Sandip Ghose, Regional Director, RBI, New Delhi distributing Star TV Talent Leadership and HR Awards at the World HRD Congress

RBI Governor holds talks with CS

Reserve Bank of India Governor D Subbarao and senior RBI officials held talks with the Chief Secretary Awani Vaish and senior officials of the State Government at Bhopal on Thursday. They expressed concern over the ratio reduction in loan deposit in tribal-dominated districts. It was informed at the meeting that there was 40 per cent depletion in loan deposit in eight tribal districts. The Reserve Bank of India Governor instructed the banks to come up with improvement in this regard. There should be 65 per cent loan deposit in the state and 40 per cent in tribal districts. The banks assured that they would extend the figure in next financial year. Welcoming the visit of Reserve Bank of India Governor to Madhya Pradesh, the Chief Secretary said that the regional office of Reserve Bank of India was working actively. The Reserve Bank of India Governor said that he was very much impressed with the State Government for designing joint agenda, which could not be seen in other States. At the meeting, the State Government drew the attention of the Reserve Bank of India Governor to State Government grant to set up hand held device, smart card and bio metric ATM by banks. Subbarao was informed that banking facility at the village more than 2000 population needed in Madhya Pradesh. Subbarao appreciated this initiative and said it would be decided only after positive results of financial audit in next financial year. E-kiosk is being used by State Bank of India that should be conducted by other banks too. The RBI Governor was apprised of education loan for the education of poor children under Government guarantee. Subbarao asked the banks to provide educational loan of Rs 4 lakh without guarantee so as to benefit maximum people. The security to banks was also discussed at the meeting. 

RBI Governor highlights five dilemmas in regulatory role

Reserve Bank of India (RBI) Governor D Subbarao and four Deputy Governors addressed a gathering of bankers in a meeting organised by Bankers' Club, Bhopal on Wednesday at Hotel Noor-us-Sabah Palace. Executive Director of Central Bank of India RK Dubey was also present on the occasion.  Speaking on the occasion, Subbarao highlighted the five dilemmas being faced by the RBI in its regulatory role. He also underlined the fact that unless the commercial banks, which are the conduit to implement various policy decisions, do not understand the underlying concerns, such policies will not be effective.  Elaborating on the five dilemmas, he stated that the first issue is how to balance the demands of growth and inflation management. Food inflation and commodity price inflation, as is well known, are the two main drivers of inflation. Changing food habits, especially in rural areas, due to increased consumption capacity, is causing structural inflation. Rise in commodity prices, such as oil, is resulting in commodity price inflation. Credit growth is another factor contributing to inflation. The challenge before the RBI is to balance the demands of growth and inflation, and ensure that the relevant policies result in expected outcomes. Deputy Governor Shyamala Gopinath explained the importance of financial stability reports which enable Reserve Bank of India to foresee different scenarios and undertake remedial measures. Developments in the recent past show that even in developed financial economies having well developed market, systemic risk is significantly higher than under adverse market conditions. Deputy Governor KC Chakrabarty exhorted banks to activate all their field controlling offices and branch offices so that banking facilities reach the entire population. At present, bank credit is not available to a majority of the population and almost a half of the population is bereft of banking services. Thus the need for activating the field units, Chakrabarty explained. Deputy Governor Subir Gokarn made an assessment of the state of the economy and the rapidly changing global environment. It is difficult to predict about emerging scenarios. Rising oil prices is causing greater concern. Deputy Governor Anand Sinha explained the need for collective behaviour of the system. He also underlined the need for bringing non-banking system under some kind of regulation, similar to the banking system. Executive Director of Central Bank of India RK Dubey spoke about the declining CD ratio in the State and pointed out that financial tie ups for big industrial units are mostly finalised outside the State and do not get reflected in the CD ratio of the State.