MUMBAI: Indian banks could see higher provisioning for bad loans unless they get better at managing their portfolios, RBI deputy governor KC Chakrabarty said on Thursday. Expressing concern about the growing non-performing assets of lenders, he said: "If we do not see NPAs coming down, we may even increase provisions." Recently, finance minister Pranab Mukherjee also sounded a word of caution on the rising bad loans of public sector banks. Speaking at a summit, Mr Chakrabarty said banks have not yet started lending to microfinance companies . The regulator had urged banks to finance MFIs and restructure their loans. Banks are in talks with MFIs to restructure loans worth about 10,000 crore. "The ground reality is that banks have not begun lending to MFIs. They say if MFIs have to confirm the conditions stipulated in the Malegam Committee report, banks have promised to lend to MFIs. But then you know how banks' promises are," he said. The central bank may revisit the cap on interest rate charged by MFIs if inflation and interest rates in the banking system decline, he said. In its monetary policy on May 3, the central bank said MFIs that charge up to 26% interest would be eligible for priority lending status. Speaking at a seminar on inclusive growth, Mr Chakrabarty said banks should provide four minimum services in no-frill accounts. The services are savings and overdraft facilities, remittances products, pure savings products such as recurring deposits , General Credit Card and Kisan Credit Card. According to estimates that banks have furnished to RBI, about 3.50 lakh villages would get formal banking services by 2013 compared with 99,000 now. He said banks should not depend entirely on the business correspondence model to provide banking services. "It cannot happen that 99% of villages are covered through the BC model and only 1% by bank branches. That is why we have asked banks to open at least 25% of new branches in rural India," he said. Interest rates have been deregulated, giving banks the opportunity to make the model profitable.
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Friday, June 3, 2011
Don't delay monetary tightening - S.S. TARAPORE
The inflation rate is still uncomfortably high. The status of the monsoon will not be clear by June 16. Rather than wait till the end of July, the safer option for the RBI will be to raise the repo rate this time around.
The next mid-quarter Reserve Bank of India (RBI) review of Monetary Policy for 2011-12 will be on June 16, 2011, followed by the Quarterly Review on July 26. The May 3, policy was a landmark in that, after a prolonged period of baby steps of 0.25 per cent increases in the repo policy rate, the RBI opted for a big step by way of a 0.50 per cent increase. The inflation rate, based on the Wholesale Price Index (WPI), is still uncomfortably high and the political economy commitment is to give priority to inflation control, even at the cost of a marginal drop in real growth. While the relentless rise in international crude oil price appears to have slowed down, a sharp reversal does not appear to be on the cards. This leaves India in a very vulnerable position. The present domestic prices of petroleum products imply an unmanageably large subsidy and there is a strong possibility of large price increases for kerosene and LPG. The status of the monsoon is still uncertain and by June 16, the authorities would not have a firm assessment. One policy option would be to wait till July 26. The hazard of this option is that the economic situation could worsen by then and political economy considerations may not be conducive to monetary tightening. The present year-on-year incremental credit-deposit ratio of 87 per cent is unsustainable. Banks are in deficit mode and borrowing about Rs 75,000 crore from the RBI (about 1.5 per cent of the banking system's resources). If the present trends continue, shock measures would be necessary. The market fear that a 0.50 per cent increase in the repo rate would be disruptive has been belied. The present repo rate of 7.25 per cent and the Marginal Standing Facility at 8.25 per cent (without collateral) are both very low. Banks are raising deposits, at the margin, at 10 per cent, which, with reserve requirements, raise the cost of funds to 11 per cent. In other words, drawing on RBI facilities is cheaper than raising high cost deposits. With the continuing high inflation rate (8.5 per cent), the pressure of international commodity prices and banks being in deficit in the early part of 2011-12, the window of opportunity may not be available if measures are not taken on June 16. An unchanged repo policy rate on June 16 would make it that much more difficult to step up measures on July 26. The safer course would be to take pre-emptive action on June 16, with an increase in the repo rate by 0.50 per cent; this would give RBI greater manoeuvrability. In response to the RBI measure, raising the savings bank deposit rate from 3.5 per cent to 4.0 per cent, banks are contemplating raising service charges particularly for small depositors in an unfair manner. For instance, there are cases of banks imposing punitive charges for correcting an error by the bank on an account holder's address! Penalising small depositors, when there is a conscious policy of encouraging no frills accounts, goes against the grain of overall policy on financial inclusion; such responses should invite adverse regulatory action by the RBI. In the 1970s and 1980s there was considerable controversy on the interest application rests (or the duration for which the rate would apply) and the Karnataka High Court had taken up this issue. The RBI then clarified that the quoted interest rate refers to a quarterly application. The rate could be lower if the interest application is monthly or higher if the interest application is at longer rests. The RBI should insist that the rate set for savings bank deposit accounts should relate to quarterly application. This issue would become important when the savings bank deposit rate is fully deregulated. Unless interest application is on uniform rests, banks could mislead depositors. It would be best to initiate the first step in deregulation of the savings bank deposit rate by prescribing a range, say 4.0-4.5 per cent. This would give banks some discretion. They would have to use the discretion with good judgement. Banks would need to be cautioned that they can offer a rate above 4.0 per cent, but they would have to ensure that this is not at the cost of reducing their net interest margin. Banks could take in more savings bank accounts and perhaps reduce their high cost deposits. While RBI may not find it appropriate to take all the measures on savings accounts in the June 16 mid-quarter review, it should push through at least some measures, before banks subvert the whole objective of a fair remuneration for depositors.
Business Line Sahara group under ED scanner for Fema violation
The Enforcement Directorate (ED) is investigating the Sahara group for alleged violation of the Foreign Exchange Management Act (Fema) for purchasing the Grosvenor hotel and another property in the UK. According to sources, the Directorate has officially communicated to the Reserve Bank of India (RBI) in this regard for getting more information after investigators questioned officials of two banks — the ICICI and the Axis Bank. Sources allege that these two banks were involved in transferring of funds to Mauritius in December last year. The Sahara group has dismissed the charges. Sahara spokesperson Abhijit Sarakar told PTI that both the ICICI Bank and Axis Bank had done their complete due diligence while transferring the funds overseas, which were used to invest in the hospitality sector overseas. “At every stage, there has not been a single incident of violation of any regulatory or legal requirement. The flow of funds is very much in accordance of the objects of the respective companies and we have been very open right from the beginning about the entire transaction and there is nothing to hide from the authorities concerned,” the spokesperson added. The ED suspects “contravention” of the Foreign Exchange Management Act (FEMA) in this deal as the funds were allegedly routed through Mauritius — a tax haven. Sources also said the ED would now issue notices to the Sahara group under FEMA laws.
Hindustan Times
Making financial inclusion work
Ever since the Reserve Bank of India (RBI) issued guidelines on no-frill accounts in 2005, over 39 million such accounts have been opened. No-frill accounts are with nil or low minimum balances and charges, and have limited facilities. .........
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Rangarajan stresses need to curb inflation
India must use all measures to rein in inflation and such steps do not necessarily harm growth, said C. Rangarajan, chairman of the Prime Minister’s economic advisory council. “We must use all of our policy instruments to bring down the current inflation and reanchor inflationary expectations to the 4-5% comfort zone,” Rangarajan said in Mumbai on Thursday. “We must remain committed to maintain inflation at a low level. High growth does not warrant a higher level of inflation.” Although wholesale price-based inflation moderated to 8.66% in April from 9% in March, it’s still high and much above the Reserve Bank of India’s comfort level. In its annual policy, RBI said it was committed to lowering the inflation rate even though this may slow growth in the short term. RBI recently raised the policy rate by 0.5 percentage point to 7.25%, a departure from its usual practice of a 0.25 percentage point increase. “I do not think that by taking action on inflation, we are necessarily hurting growth,” Rangarajan told reporters. While RBI expects growth in fiscal 2012 of around 8%, Rangarajan put it at 8.5% and said it could expand as fast as 9-9.5%. But “pushing the economy beyond its capacity” would result in “strong inflationary pressures re-emerging.” The government has pegged growth at 9%, although finance ministry officials, including minister Pranab Mukherjee, have said this may not be achievable. Rangarajan argued that India can continue to grow at 9% rate on a sustainable basis. This is indicated by the savings rate having crossed 34% of gross domestic product (GDP) and the investment rate having exceeded 36% of GDP. However, two elements—low yields from the farm economy and inadequate physical infrastructure, with electricity being key—have the potential to crimp growth. “We have large science and technology establishments for agricultural research,” Rangarajan said. “But the results in terms of productivity gains leave much to be desired.” Agriculture is vital for food security and farm income and must respond to the shift in demand on the part of consumers, Rangarajan said.
Mint
Getting inflation to toe RBI line
The Indian central bank is trying to engineer a soft landing, by increasing interest rates to cool down the economy without annihilating growth
Past household surveys have shown that ordinary Indians have been more worried about inflation than policymakers. But inflation has now moved to the top of the policy agenda. The Indian central bank is trying to engineer a soft landing, by increasing interest rates to cool down the economy without annihilating growth. “The emphasis now is on checking inflation by restraining demand and anchoring inflation expectations and to navigate a soft landing,” RBI governor D. Subbarao told analysts and economists in the course of a conference call on 4 May. Meanwhile, the latest estimates for Indian economic output, released by the government statistics agency on Tuesday, show how the inflation virus spread in the fiscal year ended March. The initial assumption among many economists in the government and private sector was that inflation was being driven by food prices, and that the problem would dissipate after a good monsoon. These assumptions are now known to have been off the mark. Mint has calculated the deflators implicit in the new gross domestic product (GDP) data—for economic output as a whole, specific sectors of the economy and consumption expenditure. The inflation rates implied in these deflators provide a far more comprehensive view of the inflation problem than the more popular Wholesale Price Index and Consumer Price Index, because deflators provide information on important sectors such as construction, as well as financial and government services. The data on inflation measured by deflators shows that even while the overall rate of price rises went up by 2.2 percentage points between FY10 and FY11, inflation was far more generalized in the latter year. In the 12 months to March 2010, most of the inflation in the non-services sectors was concentrated in agriculture. Inflation in sectors such as mining, manufacturing, electricity generation, construction and trade was below 5%. In comparison, the deflators for FY11 indicate that inflation soared in each of these sectors, even as there was no let up in the rate of price increases in agriculture. Inflation in services is another matter, since it reflects wage pressure rather than the cost of services. Has inflation now peaked? The new data shows that the implicit inflation rates for the economy as a whole, specific sectors and consumer expenditure in the fourth quarter are below their annual FY11 levels. It is perhaps one indication that higher interest rates are doing their job after the usual lag. The official RBI expectation is that inflation will start falling in the second half of the current fiscal, or after October. That seems quite likely.
Mint
Beam mobile financial service making forays into villages
Claimed to be first of its kind in the new age payment methodology, Beam mobile infrastructure, that provides a complete set of financial products on cell phone devices for banked and unbanked population, has reached 5 million customers in less than two years of launch. After acquiring Reserve Bank of India's certificate of authorisation in November 2009, Beam has made a major foray especially in rural areas. Subscribers not having bank account can purchase Beam pre-paid cards to load money in their beam subscriber account and perform a variety of transactions. It is available in the denomination ranging from Rs 1 to Rs 10,000. It has currently spread its business in 27,000 villages across the country, Anand Shrivastav, Chairman & Managing Director of the Rs 200 crore company, told PTI. "We aim to cover the entire 6 six lakh villages of India by the end of 2013," he said adding the company hopes to enlist 25 million people for its services by that duration. Giving details of the service, Shrivastav said Beam is a mobile payment system that reaches millions of unbanked Indians through the most convenient mobile platform. It helps in mobile, DTH recharge, travel tickets booking, paying utility bills and movie tickets among others, he added. Shrivastav said "we plan to add services in insurance and micro-pension subject to approval from RBI and PFRDA (Pension Fund Regulatory and Development Authority)". Catching up with the modernisation trend, Shrivastav said 60% of its customers are in the age group of 16-24 years. Besides, a large numbers of elderly people are also availing its services mainly for kirana (grocery) purposes. He said Beam services can ba availed via two modes of delivery, Tech Savvy subscribers and non savvy walk-in-customers. Stating that the aim is to empower rural unemployed, Shrivastav said the company recruits 'sahayaks' who have at least secondary level of education besides working knowledge of english. "Presently we have appointed 10,000 sahayaks in 305 districts in 13 states," Shrivastav said. "We aim to appoint one sahayak in each of the 6 lakh villages of the country by 2013 end," he added. "According to the RBI's own assessment out of 6 lakh villages in the country at present only 30,000 of them are serviced by banks," he said adding "we are including this huge mass of unbanked people to simplified money servicing". Shrivastav said this mode of M-commerce services are popular in Kenya in the name of "M paisa", Philippines "G cash" and Europe "Luup".
RBI proposes PIN for credit cards
MUMBAI: Credit cards which moved from being embossed pieces of plastic to magnetic swipe cards a decade back are set for another transformation as the Reserve Bank of India moves to the next level of card security. An RBI panel has said that all credit cards issued three years from now should have a electronic chip and transactions should be authenticated by a personal identification number (PIN ). These recommendations have been made in a report by a working group set up by RBI to increase the security of transactions where credit cards are present (unlike online transactions). The report suggests that an alternative to PIN could be a biometric verification of the cardholders identity using data from Aadhar - the project by the Unique Identification Authority of India. The move is expected to bring down the level of credit card frauds. But it would increase costs for banks and could also increase the time taken in some retail transactions because of the additional level of security in the form of a PIN. Some card issuers and banks have been proactive on this front. SBI, ICICI Bank, Citibank and HDFC Bank for instance has started replacing plain magnetic swipe high-end cards with dual cards having both the chip and the magnetic swipe. According to the report, one of the weaknesses of the magnetic swipe card is that it is susceptible to cloning. Fraudsters who get hold of a card are able to copy information in the magnetic strip and create an identical card. Such 'cloning' of cards is more of a problem for cardholders who travel internationally. Given the higher risk for cardholders who travel abroad, the panel has said that banks should first replace cards of those who have used their credit cards for at least one international transaction. These replacements need to be done within two years. Secondly, all new and renewal card customers should be issued chip cards with PIN by the beginning of the third year. Besides, 70% of all cards should move to chip card and PIN by end of year four. The panel proposes that by the fifth year every credit card in India should be chip-based and the cardholder should possess a PIN.
TOI
Farther from double digit
The central bank’s attempts to bring prices to heel are adding to the ebbing momentum as government spending has not slowed enough. And although the trade gap has shrunk appreciably between 2009-10 and 2010-11, it continues to be above 5% of GDP as ..........
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Council set up to promote RTI Act - Aims For Better Implementation In State
Pune: Right to information activists from different parts of the state have come together to form the ‘Maharashtra Right to Information Council’. Addressing a press meet on Thursday, the activists said the council aims at better implementation of the act in the state. “The act has completed five years. Though it has managed to deal with various issues, there is a lot of scope. People from all strata of society should be able benefit from this act. The council will work for spreading awareness of the act among the people,” said Vivek Velankar, RTI activist and founder of Sajag Nagrik Manch. The council will work towards streamlining the processes under the RTI act and will study the way the act is followed in government offices and schemes, including the employment guarantee scheme, public distribution system. “RTI coordinators will be appointed at district level. The council will work as an informal forum for activists and orgnisations working for the RTI,” said Vijay Kumbhar, coordinator of Surajya Sangharsha Samittee. Kumbhar said organisations should come forward to be part of this council. The activists said the process of selecting chief information commissioners should be more transparent. It has been observed that only ex-bureaucrats are made chief information commissioners. Those who have made remarkable contributions to the society should be also given opportunities, they said.
TOI
India must employ all tools to curb inflation
We must remain committed to maintaining inflation at a low level," Chakravarthy Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said ..........
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RBI Plans a Purity Test on Gold Fincos
Central bank is probing the books of some gold financing cos to assess the concentration risk on a single asset. The Reserve Bank of India (RBI) is examining the books of some gold financing companies to assess the implication of concentration risk that could make the non-banking sector shaky in the event of a sharp fall in gold prices, as it happened with silver recently. The banking regulator may also probe whether these companies followed the know-your-client (KYC) norms, which the central bank is very keen on to prevent money laundering, said two people familiar with the development. “We are examining the books of select non-banking finance companies (NBFCs) involved in gold financing,” an RBI spokesperson said, confirming the development. Muthoot Finance (MFL) and Manappuram General Finance & Leasing (MGFL) are the largest gold financiers that are listed on the Bombay Stock Exchange.
ETThursday, June 2, 2011
RBI organises outreach programmes
District Collector P. Umanath (second left) releasing Thanjavur Brihadeeswarar Temple commemorative coin of Rs. 5 denomination at a function held in Coimbatore on Wednesday. General Manager of Reserve Bank of India (Issue Department) - Chennai G.P. Borah (left) is in the picture
COIMBATORE: The Reserve Bank of India (RBI) organises several outreach programmes to create awareness on the banking schemes, banking ombudsman, and fake notes. Speaking at the inaugural of the RBI stall at the Government exhibition here, its General Manager (Issue Department), Chennai, G.P. Borah said that as part of the outreach effort, the RBI puts up stalls at government and private exhibitions, and organises exchange melas in association with other banks. He said that this year, it was participating at the Government exhibition in Chennai, Madurai, Coimbatore, Tiruchi and Tirunelveli. The objective was to create awareness about rural planning credit, non-banking finance, and foreign exchange, distributing coins, and exchanging soiled notes. Awareness was also created on fake notes, and lottery emails. The RBI was conducting training for Government departments on detecting fake notes. Releasing the commemorative coin on Thanjavur Big Temple, District Collector P. Umanath said there was a need to be alert on fake notes. The public, traders and large-scale institution representatives should visit the stall at the exhibition and know more about the RBI initiatives.
The Hindu
RBI sees regional languages as bridge between banks, common man
Mumbai: Reserve Bank Governor D Subbarao today said aversion to the use of regional languages in banking has resulted in a majority of the population staying out of the formal banking system. The use of Hindi will help banks achieve the goal of financial inclusion, he said. "If, during the last 60-years, banking has not been able to reach every corner of the country, it is because the language of the common people and that of the banking (industry) is different,"Subbarao said before distributing the Rajbhasha Shield awards to banks at the RBI headquarters here. Subbarao said financial literacy is crucial for the success of the financial inclusion programme and people will pick up on the subject only if taught in Hindi and other regional languages. "There is a gap between the two (common people and banking industry) which is resulting in the advantages of one not reaching the other. We have to reduce this gap and Hindi and other regional languages will play the role of a bridge,"he said in his address delivered in Hindi. "We are confident Hindi alone will help us achieve our target. Through the use of Hindi will we be able to achieve financial inclusion,"he said, outlining the efforts taken by the RBI in adoption of Hindi. A majority of the country's population continues to be out of the formal banking system which resulted in the Government announcing an ambitious financial inclusion drive through its budget in February 2010. Under the scheme, banks have been asked to reach out to 73,000 villages across the country having a population of over 2,000 people by March 2012.
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RBI employee's residence burgled of 9 L ornaments
MUMBAI: The Santa Cruz (W) residence of a Reserve Bank of India (RBI) employee was burgled of gold ornaments worth Rs 9.1 lakh on Tuesday. Ujwala Dhakras (53) and her husband Anil were at work while their two teenaged daughters had stepped out for shopping when the burglary took place between 12 noon and 3.25 pm. "The couple stays with their daughters at the RBI officers' quarters. The burglars smashed open the door latch and made away with gold necklaces, rings, bangles and other ornaments from the cupboard," senior inspector Madhukar Chaudhari said. When the girls returned from their shopping trip, they found the house ransacked and immediately informed their mother. The police were yet to make any arrests. Meanwhile, a row house in Juhu was burgled of valuables and cash worth Rs 70,000. The complainant, Napoleon Misquitta (56), was out on a trip with his family when the incident occurred. Misquitta runs a garage and stays in Irla gaothan. "The family was away between 8 pm on Monday and 10 am on Tuesday when the burglary took place," a police officer said. The burglars broke open the door latch and decamped with a gold chain worth Rs 60,000, a cellphone worth Rs 5,000 and Rs 5,000 in cash. Misquitta discovered the burglary on returning home and informed the Juhu police.
TOI
Balance enquiry at ATMs to cost from July 01
All non finance transactions at ATMs other than the home bank of the customer would come for a fee from July 01, 2011. Thus, apart from the five free transactions allowed to every customer at non bank ATMs, all non finance transactions would also come at a cost from now. Regulator Reserve Bank of India has taken this decision after seeing excessive usage of non bank ATMs by customers for checking account balance, mini statement and other purposes. The step has been taken to put some discipline in the customer. The month of April saw 28% of the total transactions occurring on the National Payments Switch due to balance enquiry and mini statement. This led RBI to come to a strong decision in this regard. In the meanwhile, RBI has also taken steps in favour of the customer. Now all complaints from customers regarding faulty ATM transactions need to be redressed by the concerned bank within 7 days of the complaint. Else for every additional day, the customer will receive a compensation of Rs 100 per day from the bank.
Rupee Times
Bank of Baroda - Change in Directorate
Bank of Baroda has informed BSE that, in exercise of the powers conferred by of clause (c) of sub-section 3 of section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 read with sub clause (1) of clause 3 of The Nationalised Banks (Management & Miscellaneous Provisions) Scheme 1970, the Central Government vide its notification dated May 30, 2011, has nominated Shri. Sudarshan Sen (Regional Director, RBI, Ahmedabad) as Director of Bank of Baroda, vice Shri. R Gandhi with immediate effect i.e. May 30, 2011 and until further orders.
http://utvmoney.mangopeople.com/companies/bank-of-baroda/BANKBARODA/announcements/2011-05-31/bankofbaro/178994RBI objects PSU banks' hiring process
Reserve Bank of India is not happy with the process banks adopt in hiring employees through campus recruitments, reports CNBC-TV18’s Gopika Gopakumar. RBI wants Indian banks to give equal opportunities to every employer. Hence, it has asked to slowdown on campus recruitment and look at other avenues of hiring. This will give candidates from rural areas a better chance at acquiring a job. Therefore, RBI is promoting the traditional method of written tests as selective criteria. According to RBI deputy governor KC Chakraborty, “When financial inclusion is a major national objective being partnered by banks; don’t we need people who would be closer to the ground realities on the Indian country side? If yes, then why should we be rushing to the B-school campuses for recruitment? How many of the people recruited from such campuses will have empathy towards the poorest of the poor? I don’t say that none of them will fit the bit, but are we looking for the right traits in the recruitment test?” This concern seems to be the major worry of the RBI. On the other hand, banks are defending their current hiring process by saying that the campus recruitment is only meant for specialized positions. However, one needs to ask a question that since RBI itself is opting for campus recruitment, is it giving itself a better chance of picking up the best in the litter.
Money Control
Is Hasan Ali fibbing?
HYDERABAD: The police are still in the dark whether the alleged money launderer Hasan Ali’s claim of stashing the precious jewellery of the Nizam in the Union Bank of Switzerland (UBS) is true or not. And the information provided by the Reserve Bank of India officials that the Nizam’s jewels are still intact with them only adds to the confusion. Hasan Ali had earlier confessed to the Enforcement Directorate officials that he had stashed away Nizam’s jewellery along with some other artifacts at the UBS. But during the investigation police found that all the 173 jewellery items belonging to the Nizam were intact with the RBI. “There is a lack of clarity since the Enforcement Directorate officials had not quizzed Hasan Ali further about the Nizam’s jewellery and its source of access to them. ED officials only concentrated the investigation on the allegations of money laundering,” sources said. As reported by Express on Tuesday, Central Crime Station (CCS) police had moved a petition in the Nampally criminal court to permit them to question Hasan Ali, who is presently lodged in Mumbai jail, so as to obtain further details. The decision of the court on the petition will be known on June 3. In 1979 some of the Nizam’s family members had decided to sell the jewellery through an international auction. But the Supreme Court had to interfere after a petition was moved against the auction citing that the Nizam’s jewellery were antiques and should be declared as national wealth. The central government then decided to buy the jewellery by fixing a price as suggested by an arbitrator. “Initially the family members demanded Rs 225 crore for the 173 items. But later the selling price was fixed at Rs 180 crore. Since then the jewellery is kept in the RBI locker,” sources said. Whenever the jewellery is kept for display either at Salarjung museum or any other part of the country, unprecedented security is provided by central forces. Even the senior officials of Salarjung museum are not spared and have to undergo frisking before gaining entry. Sources said that the missing gaps in Hasan Ali’s confession can be filled only after the police questions him regarding the case. This makes the June 3 decision of the court all the more critical.
Banks need to raise capital: Subbarao
Reserve Bank of India (RBI) Governor D Subbarao said banks would need to increase their capital going forward to meet rising credit demand. “Our banks are well capitalised, at the aggregate level somebanks might have to bring in more capital. But the problem is going forward as credit demand will go up. And as banks will be required to meet that credit demand you (banks) will have to increase the capital,” he said. Subbarao made these comments at a Conference of Chief Executive Officers of Banks organised by the Centre for Advanced Financial Research and Learning last week. The RBI put up a video of the lecture on its website today. Banks’ loans in the fortnight ended May 6 stood at `39.57 trillion, up `383.84 billion from the previous fortnight. On Basel III norms, Subbarao said the cost of implementing them would drive up the cost of credit and hurt the competitiveness of banks. He said the implications of the second quantitative easing by the US for the rest of the world are not clear. In its second quantitative easing programme, the US Federal Reserve is set to buy bonds worth $600 billion by June. “It is doubtful to what extent QE2 (second quantitative easing by the US) has been good and bad for the rest of the world,” Subbarao said. On emerging markets, he said the concerns of these economies are seldom discussed at international level meetings, mainly because of limited research. Subbarao said the Centre for Advanced Financial Research and Learning can play a key role in helping India take an important position at the international level and making the countrys financial sector more knowledge-based. “I have been saying over the last two-and-a-half-years, the Reserve Bank of India must become a knowledge institution. But, I think the financial sector at a larger level must become a knowledge-based financial segment. That’s how we will thrive in this competitive globalising environment,” Subbarao said. On the global financial crisis, the RBI Governor said India was largely unaffected by the crisis but the changes it brought about have relevance for India. So, banks must take another look at their business strategies in the context of the evolving regulatory, macroeconomic and socioeconomic architecture, Subbarao said. “Although we believed that we remained healthy before, during and after the crisis even then I believe that whats happening around the world the new reforms have relevance for us. Hence, there is a need to revisit the business strategies in the emerging regulatory architecture,” he said.
BS
Why microfinance needs the Bill
It is not surprising that the Microfinance Sector (Development and Regulation) Bill has gone back into cold storage. Critics would even question whether this stillborn Bill had ever come out of deep freeze in the first place. After all.......
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Sunil Mitra appointed Finance Secretary
Revenue Secretary Sunil Mitra on Wednesday took charge as the Finance Secretary in place of Sushama Nath, who superannuated on May 31 following the completion of her extended tenure. A 1975-batch IAS officer (West Bengal cadre), Mr. Mitra will continue to hold charge as the Revenue Secretary as well, a Finance Ministry statement said here. Since Ms. Nath was also Secretary, Department of Expenditure, in the Ministry, Disinvestment Secretary Sumit Bose has been appointed as the new Expenditure Secretary in her place. A Madhya Pradesh cadre IAS officer (1976 batch), Mr. Bose will also continue to hold dual charge till his replacement is found as Secretary, Department of Disinvestment.
Hindu
Wednesday, June 1, 2011
Public sector banks will recruit big-time this year too
(from left) Mr K. Ramakrishnan, Chief Executive, Indian Banks’ Association, along with Dr K. C. Chakrabarty, Deputy Governor, RBI,and Mr M. Balachandran, Director, Institute of Banking Personnel Selection, at a seminar in Mumbai on Tuesday
Institute of Banking Personnel Selection to offer ‘jobs-ready’ candidates
Public sector banks will continue their big-time recruitment drive this financial year. They will be recruiting by the thousands. Last year, the Institute of Banking Personnel Selection (IBPS) helped public sector banks fill 48,000 vacancies and this year the scenario is going to be no different, according to Director of the Institute, Mr M. Balachandran. Given the huge demand for manpower over the next few years, the Institute is planning to offer ‘jobs-ready' candidates for the banking system. The Institute will take care of pre-placement training of the selected candidates on behalf of banks. The manpower crunch in the banking system, depending on productivity improvements, is estimated to be anywhere between 4 lakh and 7 lakh over the next 10 years, according to Mr M. V. Nair, Chairman and Managing Director, Union Bank of India. Banks are facing manpower crunch as thousands of employees who were recruited in the mid- to late-1970s will be superannuating in the next few years. There was a recruitment freeze for the better part of the 1990s. Hence, there is a fear of vacuum at the mid-management level.
HR challenges
“Public sector banks face a host of HR challenges, such as right manpower recruitment, training, retaining talent, succession planning, and leadership development… “Banks have to respond to the needs of the tech-savvy gen-next customers as well as the loyal old customers,” said Mr Nair, who is also the Chairman of IBPS. Union Bank of India is planning to recruit about 3,400 personnel in FY12 to take care of separation due to superannuation and attrition. According to Bank of Baroda Chairman and Managing Director, Mr M. D. Mallya, banks should build competencies based on six pillars: buying (source the right manpower); building (provide training and development); borrowing (bring in specialist resource persons from outside); bounding (provide the right environment); bouncing (weed out non-performers); and binding (retain talent). BoB is planning to augment its workforce by about 4,500 in the current fiscal, said Mr Mallya, who is also the Chairman of the Indian Banks' Association. State Bank of India, according to its Chief General Manager Mr A. K. Garg, is planning to boost its workforce by about 7,000, against 23,000 last year. “Since banking is becoming technology intensive, we need not necessarily replace every candidate who superannuates,” said Mr Garg.
Business Line
Don't `bank' on B-school graduates alone: RBI Deputy Guv
Reserve Bank Deputy Governor K C Chakrabarty questioned lenders' fascination with hiring B-school graduates and said that with concepts like financial inclusion being the driving theme, the banking sector needs personnel connected to the ground realities. "When financial inclusion is the major concern of Indian banking, don't we need people who would be closer to the ground realities of the countryside? How many of these people recruited through B-schools will have empathy towards the poorest of the poor? Why should we be rushing to the B-school campuses for recruitments?" he asked. Chakrabarty strongly favoured the conventional pattern of recruiting through competitive exams so that everyone gets afair chance of getting employment and the banks find the right talent. By going to the campuses, banks will get the "skills and knowledge" but not "talent" which comes naturally to an individual, he said, pointing out to his own personal experience of getting into a bank through a competitive exam. Chakrabarty also questioned the practice of online job applications, which is gaining currency among banks, saying that given the low Internet penetration, how many people would actually apply for the job? Because of the increasing thrust on financial inclusion, Chakrabarty said a greater stress should be also laid on hiring and training the right business correspondents who will act as a bank's representatives in villages.
FE
The Subbarao years - a defence : Abheek Barua
The criticism of the RBI Governor's handling of inflation is fraught with an oversimplification of the current inflation dynamics
As the Pepsi tag line went, “Nothing official about it.” However, if the rumour mills are to be believed, these are the last few months of Reserve Bank of India (RBI) Governor D Subbarao’s tenure at the helm of the central bank. I am not going to add to the speculation over who is likely to succeed him. Instead, I would like to put in two bits on what the “ideal” successor would be like. First, we need someone who has a feel and regard for the financial markets. Unlike the government’s fiscal arm, the central bank has a real-time relationship with the financial markets — be it the bond, equity, foreign exchange or credit market. The markets take every little sound bite from the RBI extremely seriously and trust the central bank to provide stability. This trust needs to be reciprocated. Second, we need someone who can find the right balance between two very different forces that are currently impacting the economy. One, it is imperative for a domestic policy maker to have a first-rate understanding of what is happening in the rest of the world. This is particularly important since we are going through a phase in which there is a deep disconnection between economic policy in the developed and developing world. I would argue that it is much easier to manage the business cycle when trends across the world move in the same direction. On the other hand, when there is a divide, the likelihood of a domestic policy decision boomeranging on our own financial markets is far more acute. The interest rate-exchange rate nexus is an obvious example. In a scenario where all central banks are raising rates, the risk of currency appreciation – and an erosion in competitiveness – on the back of arbitrage-driven capital inflows is low. In a situation where the RBI is raising key policy rates but the Fed and the European Central Bank are desperately pumping in liquidity, the decision to raise rates becomes far more complex. However, despite the global system’s obvious influence, there is something unique about India’s current imbalances and problems. Since 2004, for instance, there has been a massive shift in terms of trade in favour of agriculture, which has had an impact on inflation. Schemes like the National Rural Employment Guarantee Act (NREGA) have paid off in term of raising rural incomes. At the same time, they have involved a massive reallocation and skew in resources, which have been manifested in acute shortages in the labour market. Thus, going by the NREGA experience, more large-scale social welfare programmes – like the right to food – are likely to breed imbalances and impact the way things like inflation behave. Therefore, monetary policy, or any macroeconomic policy for that matter, has to factor in this complex interplay of global influences and domestic trends. This brings me to what I had initially planned to do in this article: assess Dr Subbarao’s legacy. It has become a fashion now to take potshots at the governor based on his inflation management record. The argument is that he fell “behind the interest rate curve” and let inflationary pressures take root. The assumption is that if he had indeed raised policy rates a couple of times more or a little earlier, inflation would have come under control. While some of this criticism might appear legitimate considering that inflation is actually very high, it involves a gross oversimplification of the dynamics of the current inflation. More importantly, it shifts focus from what was, in my opinion, Dr Subbarao’s principal mandate — to manage the impact of the global financial crisis on India. Public memory tends to be short and people seem to have forgotten how bad things were in the last few months of 2008. Banks were winding up credit lines at a great speed, short-term interest rates had soared, the trade credit market had dried up and Indian industry was just days away from a shutdown. Yet there seemed to be utter confusion among both policy makers and professional economists about how aggressive the monetary response in India should be. Quite a few of them were still arguing that inflation should get top priority (remember that oil prices had gone through the roof in the first half of 2008) and that the Indian economy was reasonably insulated from the rest of the world. This was dangerous advice that Dr Subbarao rejected, opting instead to go in for massive monetary easing. I think we owe the RBI and the governor a debt of gratitude for the fact that the economy bottomed out at a growth rate of 5.6 per cent in the third quarter of 2008-09 and did not plunge any further. Dr Subbarao not only managed the crisis well, he also ensured that Indian markets did not fall prey to the post-crisis anti-market dogma. The fact that his regime actually stepped up the process of market development (the currency and interest futures markets, the steps towards making the credit default swap market operational and reinvigorating the corporate bond market) gives us a sense of the lessons that Dr Subbarao took away from the crisis. He clearly – and correctly, if I may add – did not believe that the collapse in global markets did not constitute a compelling case against financial deepening in a relatively underdeveloped market. India stood to gain a lot by creating new financial instruments, and the risk of a local crisis was minimal given that the degree of complexity of instruments was in no way comparable to those in the developed world. I have a feeling that Dr Subbarao understood at some stage that given the massive structural changes that the economy had gone through (I have referred to the terms of trade shift and the tightness in the domestic labour market earlier) and the asymmetry in global policy that bred things like commodity bubbles, domestic monetary policy alone would fail to stem inflation. If there is a legitimate criticism of the governor, it is the fact that he failed to communicate this to the market early enough. I think this was partly because of his natural reticence. Markets tend to like uber-confident, alpha male central bank governors. Dr Subbarao was certainly not one. In retrospect, that could turn out to be his biggest flaw.
The author is chief economist, HDFC Bank
BS
Savings account rates should have a floor rate set
The All India Bank Depositors Association (AIBDA) wants a floor rate to be set for savings account rates by regulator Reserve Bank of India. With deregulation of the savings account interest rates on the cards, the depositors' body wants healthy competition to prevail along with protection of interest of customers and thus is insisting on the apex bank determining a floor rate. "The RBI must complete the reform of deregulating deposit interest rates by extending the deregulation to SB deposits...This would strengthen the process of financial inclusion as well as ensure market-based returns to the depositors due to competition among banks," said the AIBDA in a statement. The association has also suggested that the interest rates set by a bank should be the same for all depositors. It also suggested that a reasonable service charge should be levied by banks. "SB deposit rate still continues to be regulated by the RBI. This has resulted in SB depositors being deprived of market-determined returns even in a liberalised framework of our economy," said the AIBDA.
Rupee Times
India’s gross domestic product rose 7.8%
MUMBAI (MarketWatch) — India’s gross domestic product rose 7.8% in the January-to-March quarter from the year-earlier period, driven by agriculture and the service sector of the economy, government data showed Tuesday. That was below the average forecast of economists surveyed by Dow Jones Newswires, who expected GDP to be up 8.2% in the latest quarter. However, growth for the October-to-December quarter was revised up to 8.3% compared with an earlier estimate of 8.2%. The market has been concerned after the Reserve Bank of India recently said it is willing to sacrifice short-term growth to curb inflation. The RBI earlier this month hiked interest rates by a bigger-than-expected 0.5 percentage point. In April, year-on-year wholesale inflation came in at 8.66%. However, a slowing economy might reduce the need for further aggressive hikes in interest rates by the central bank. “The rate hike has been successful in impacting investment demand, and we are now more confident that we would be close to the interest-rate-tightening cycle peaking,” said Jay Shankar, chief economist at Religare Capital Markets. Year-on-year growth in the finance, insurance and real-estate portion of the economy slowed noticeably to 9% in the January to March quarter from 10.8% in the previous quarter. According to HSBC’s chief economist, Leif Lybecker Eskesen, the slowdown reflects both the impact of monetary tightening on those sectors, along with reduced investment due to global risk aversion in markets from turmoil in the Middle East. The agricultural sector also slowed to year-on-year growth of 7.5% from a revised 9.9% in the previous quarter. Mining also grew at a slower rate, with the approval of new projects that have met local resistance delayed ahead of recent elections in five states. However, continued robust growth in overall consumption and export growth, along with the government allowing state-run energy firms to pass on higher fuel prices at the retail level, should continue to put upward pressure on inflation, HSBC’s Eskesen said. “It is too early to jump to the conclusion that an end to the RBI’s tightening cycle is just around the corner,” he said.
http://www.marketwatch.com/RBI cancels licence of Chopra Urban Co-operative Bank Ltd
MUMBAI: The Reserve Bank of India has cancelled the licence of Jalagoan-based Chopda Urban Co-operative Bank Ltd as it had ceased to be solvent and depositors were being inconvenienced by continued uncertainty. The banking regulator delivered the order cancelling the bank's licence after close of business on May 24, a release said here today. The Registrar of Co-operative Societies, Maharashtra, has also been requested to issue an order for winding up the bank and appoint a liquidator for it, the release said. On liquidation, every bank customer is entitled to repayment of his/her deposits up to a monetary ceiling of Rs 1 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under usual terms and conditions. Consequent to the RBI order, the Chpda Urban Co-operative Bank Ltd is prohibited from carrying on 'banking business' as defined in Section 5(b) of the Banking Regulation Act, 1949 (as applicable to co-operative societies), including acceptance and repayment of deposits, it added.
ET
Why Subbarao went easy on inflation for so long
The Governor’s baby steps on inflation may have been the result of TAC’s doves
The Reserve Bank’s Technical Advisory Committee (TAC), which advises the Governor on his monetary policy options, seems to be a manned more by inflation doves than hawks. Till recently, one presumed that the RBI was going slow on raising rates because of political pressures. But now it seems like even TAC preferred to bark on inflation rather than bite. According to the recently released minutes of a TAC meeting held on 27 April, most members were calling for a 25 basis-points hike in the repo rate, the rate at which the RBI lends to banks in need of short-term funds. (100 basis points make 1 percent). Governor D Subbarao, however, ignored the advice and opted for a stiffer hike of 50 basis points in its 3 May monetary policy. Only two members had favoured a 50 basis-points hike, and the Governor came down on the side of the minority hawks this time. “While four members of the committee were of the view that the repo and reverse repo rates be raised by 25 basis points each, two members suggested a 50-basis point increase each…, The Economic Times says, quoting from the minutes. This is not very different from what transpired at the 19 January meeting of the TAC, where too members talked about the need to “contain inflation and anchor inflation expectations.” The committee said that the “main challenge before the Reserve Bank was to manage inflation,” but would not go beyond recommending homoeopathic doses of repo rate hikes (25 basis points at a time). This raises the possibility that the Governor’s baby steps on inflation may have been the result of TAC’s doves. According to the minutes of the 19 January meeting that provided policy inputs for the 25 January monetary policy statement, only “one member suggested a 50 basis points increase in the repo rate and 25 basis points increase in the reverse repo rate.” But some members were clearly becoming worried even then. “In addition to the increase in policy rates by 25 basis points each, one member was of the view that the statutory liquidity ratio (SLR) could be increased to reduce the borrowing capacity of the banks and the repo facility could be linked with the credit-deposit (CD) ratio of banks to bring in discipline.” What stands out is the fact that the doves outnumbered the hawks in the 17-member TAC, and it was only after the 27 April meeting – when inflation was clearly seen as going out of control and heading towards double-digits – that the Governor took the hard decision of going with the minority view on raising interest rates by 50 basis points. Apart from Subbarao, who is Chairman of TAC, the committee has the Deputy Governor, Subir Gokarn, Shyamala Gopinath, KC Chakrabarty, Anand Sinha, Shankar Acharya, YH Malegam, Sanjay Labroo, Sudipto Mundle, Samir K Barua, A Vasudevan, Dilip M Nachane, Deepak Mohanty, Janak Raj, KUB Rao, Pardeep Maria and Amitava Sardarwere as members.
First Post
Soon, merchant transactions too can be paid via mobile
The National Payments Corporation of India has got approval from the RBI to extend mobile payment to merchant transactions. The process will become operational within the next three months, said Mr A. P. Hota, Managing Director and CEO, NPCI........
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Microfinance Bill goes into ‘cold storage' - Govt feels RBI's policy covers problem areas
The much-hyped Microfinance Institutions Bill, proposed to be introduced in Parliament, has gone into cold storage. “For all practical purposes, the MFI Bill is not on the priority agenda of the Government. The draft work on the proposed Bill was also not fully completed… ,” a senior Finance Ministry official told Business Line. The idea of introducing a Central law on MFIs came in the wake of the MFI (Regulation of Moneylending) Act brought in by the Andhra Pradesh Government in October 2010. The AP Act had introduced stringent norms on MFIs, including getting the permission of Government before disbursal of fresh loans, to check multiple lending, and collection of dues only in public places. “There is a feeling that the ground realities of the sector are now different, especially after the announcement of an MFI policy by the Reserve Bank of India early in May,” the official said. The Finance Ministry had ‘found' overlaps in the draft Bill and the Malegam panel recommendations, which were accepted by the apex bank almost in totality.
Under RBI control
“Some grounds on which the Bill has been put on hold are the caps on interest margin and rate of interest, and the redundancy of a central law when the RBI is the sole regulator for nearly 92 per cent of NBFC-MFIs,” he added. Further, except in Andhra Pradesh, which accounts for 30 per cent of the MFI business in the country, not many markets in other States warrant a separate central law in view of the “low” volume of business. “Microfinance in Karnataka, for instance, is about Rs 2,000 crore while in many other States, the microfinance portfolios are lower still. So, any urgency (for legislation) is not seen by the Government of India,” he explained.
Dual regulation
There is also no ‘immediate likelihood' of the Centre interfering with the situation in Andhra Pradesh arising out of dual regulation of MFIs by the State government and the RBI, he added. The disbursal of fresh loans and collection of old dues had almost come to a halt in AP since October 2010. The MFIs, however, feel that a central legislation is better for the industry as it would spell out rules of the game clearly. When contacted, Mr Alok Prasad, Chief Executive Officer of Microfinance Institutions Network (MFIN), said: “Even as I speak now, the AP Govt says its law prevails over the RBI policy. Having a central legislation will solve the problem of dual regulation.”
Business Line
Greater Bombay Co-op Bank on automation drive with e-lobby launch
Grocery shop-owners, vegetable vendors, owners of small restaurants, neighbourhood paanwallas, among others, can walk into this bank's lobby, deposit their day's cash earnings into a machine and get immediate credit for the amount deposited. Recently, the Greater Bombay Co-operative Bank opened an e-lobby with seven electronic machines, including one for cash deposits, at its Khargar branch, on the fringes of Mumbai, to facilitate 24x7 banking. A customer can walk into the lobby of the branch at his own convenience, even after the bank's business hours, for conducting any of the seven routine transactions — deposit cash; withdraw cash; deposit cheque; update passbook; print account statement; make utility bill payments and get coins. There's a machine installed to handle each of these functions at the branch. As transactions of Rs 50,000 and above require PAN number and supervision of the bank's staff, the bank has restricted cash deposits to up to Rs 49,000 in any denomination at the cash deposit machine. The machine is equipped to reject counterfeit and soiled notes.
‘Do-it-yourself' strategy
The bank gives a common personal identification number (PIN) to customers to access the seven machines. “The bank hit upon the ‘do-it-yourself' automated banking strategy as 80 per cent of the customer transactions are routine in nature. We have suggested to our vendors to compress all the seven identified routine transactions into a single machine so that the lobby space can be utilised optimally,” said Mr B. V. R. Sarma, Chief Executive Officer, Greater Bank. The seven machines, which are linked to the core banking platform of the bank, are installed in a 150 sq.ft area in the lobby of the branch. The total cost of these machines works out to around Rs 15 lakh. Plans are afoot to carve out up to 150 sq.ft of lobby space in each of the bank's 20-odd branches in the city to install machines that will enable automated banking, said Mr Narendrakumar Baldota, Chairman, Greater Bank.
Business Line
New trends in financial inclusion
Universal financial inclusion, talked of for decades by policymakers, finally may be coming to fruition. All the requisite pieces have been coming together, some rather rapidly in the past few years, and some of the most dramatic changes to sweep the economy have happened in the payment and settlement system...........
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Money plant: Clever farmers borrow at 4%, invest at 8.5%
When finance minister Pranab Mukherjee brought down the effective interest rate on crop loans to 4% in this year's budget, it was to encourage farmers to grow more food and address the supply side issue of food inflation. But canny farmers in some states have discovered an arbitrage opportunity in this — they avail of the loans from banks at 4% and then invest them in fixed deposits at 8.5%. A senior executive with an old-generation private bank told TOI that the bank was seeing an increase in short-term deposits from farmers. "We understand that several of these borrowers are availing of the special farm loan schemes from public sector banks," he said. Asked about this, Indian Banks Association chairman M D Mallya said that all banks exercised due diligence to make sure that farm loans were used for agricultural purposes. "We ensure that the farmer owns agricultural land and that the land is being used for growing crops," he said. However, it is impossible to prevent anyone from taking undue advantage of the scheme, as the funds are handed over to the borrower. The story of the 4% interest goes thus. A couple of years ago, the Reserve Bank of India introduced a scheme where short-term farm loans of up to Rs 3 lakh were made available to farmers at a rate of 7%. This year, Pranab Mukherjee announced that those farmers who repaid their dues in time would get an interest subsidy of 3%. This subsidy brought down the effective rate of crop loans to 4%. Combine this with the recent rise in interest rates on short-term deposits, and many finance-savvy farmers figured that they could make a neat packet on their loan without taking any risk. Some private banks offer as much as 8.5% on short-term 180-day deposits with half a percentage point more for senior citizens. In southern states, where most families have at least some gold holdings, it is easy to avail of loans against gold jewellery. Farmers are discovering that banks are quite willing to extend a farm loan if the borrower is willing to offer security in the form of jewellery. A loan against gold is considered risk-free because banks maintain a significant margin between the loan amount and the value of gold. Although these loans are not very profitable for banks, even with the interest subvention of 3%, they are keen on extending them since they form part of priority sector lending. For many banks, meeting priority sector lending is a challenge since the RBI has stripped the priority sector tag from other loans, which include refinancing of loans against gold extended by finance companies.
Phishers promise early tax refund to lure people
Doing the rounds in the cyber space are e-mails from phishers that promise early and assured income-tax refund to payers. Significantly, this time, phishers have spoofed the Reserve Bank of India's website as a ploy for a tax refund scam.....
Read more........Economists for, Industry against rate increase
"Despite the (growth) moderation in the offing, we expect the Reserve Bank to hike rates by another 50-75 basis points as its recent rhetoric has clearly indicated its willingness to accept some pruning in growth, in its attempt to bring down inflation," said Shubhada Rao.........
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GDP slows, all eyes on RBI
Interest rate critical for industry and investment
Thanks to yet another hike in estimates for agriculture growth, taking it to a whopping 6.6%, the CSO has beaten all expectations to come up with a 8.5% GDP growth for 2010-11. This is heartening since it suggests the growth momentum has not been hit by the series of interest rate hikes, but keep in mind the numbers for the full year hide the fact that the growth momentum has been slowing for four quarters now, from 9.4% in Q4 2009-10 to 9.3% in Q1 2010-11 to 8.9% in Q2 to 8.3% in Q3 and finally to 7.8% in Q4. If the overall GDP number holds in 2011-12, there is reason to be satisfied. But, with inflation still being high, RBI will be focused on interest rate hikes. Industrial growth and investment has proved to be quite resilient to higher interest rates. But, for how much longer will this hold? Manufacturing growth has declined continuously over the four quarters—from 15.2% in Q4 2009-10, it fell to 12.7%, 10%, 6% and finally 5.5% in Q4 2010-11. Agriculture growth could be a saviour, but keep in mind we have never had two successive years of high agricultural growth, which means that getting a number of 5%-plus in FY12 will be a challenge; indeed, FY11’s growth comes on the back of just a 0.4% growth in FY10—the sharp growth in cotton and maize, thanks largely to the introduction of better seeds, is a good sign though. The government’s budget shows that expenditure will be only marginally higher this year and, therefore, there will not be too much support coming from this sector. This turns the onus on industry (manufacturing and construction) and services (trade, transport and finance) to propel the economy. The financial sector’s growth is linked with that of the rest of the economy and cannot independently grow. The focus will hence be a lot on industry and construction to provide a fillip and this is where interest rates will play a major role. Both manufacturing and construction have grown by a little over 8% in FY11 and will have to grow even faster in FY12. Going back to the rudimentary textbook formulation of GDP, it comprises consumption, investment, government and trade. High inflation will affect consumption and we will have to look at investment to bridge the gap, given that government expenditure will increase only marginally and the trade balance will be in the negative zone. The coming year will hence be the ultimate test for the relation between interest rates and investment. To borrow an analogy from the tennis court, which is the current flavour, so far it appears to be deuce, with advantage to investment. The serve in FY12 will be for the game and it needs to be seen whether it will be ‘game’, or reversion to ‘deuce’.
FE
India Aims to Reach Unbanked by Selling Prepaid Cards Through the Postal System
More people are expected to begin using prepaid cards in India in the coming years due to the launch of the white-label prepaid cards by the Indian Postal Department and also the rising number of online transactions that have been made possible due the increase in Internet penetration. Prepaid cards gained even......
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