Further rate hike will destabilise growth: Ficci

On the eve of credit policy review by the Reserve Bank of India (RBI), industry body Ficci today warned that any further hike in interest rates would "destabilise" industrial growth and weaken the economy. In a letter to RBI Governor D Subbarao, Chairman of Ficci Finance Committee Udayan Bose has said that recent evidence of slowdown in cement sales, dip in steel imports and increasing inventories of automobile, have all created a negative perception. With a "depressed" confidence level, the Corporate India is looking for clear direction and signposts that highlight growth measures. While successive interest rate hikes by the RBI since March 2010, have not been able to control inflation, "aggressive monetary tightening is having an adverse bearing on economic and industrial growth of the country". Another worrisome trend is the slowdown in growth of gross fixed capital formation. "The pace of investments is a key determining factor for overall growth, and once it loses momentum, it is difficult to bring it back," Bose said. Ficci's comments come in the wake of expectations of a rate hike by the RBI tomorrow, for the tenth time in the last 15 months, without much success in taming a stubbornly high inflation, recorded at 9.06% in May.

BS

3 lakh Mahila Agents against cut in commission

Thiruvananthapuram: About 90 per cent women members of three lakh national saving agents in the country were dissatisfied with various suggestions of the 'Committee on Comprehensive Review of National Saving Fund.' According to State National Savings Agents Association here today, ''recommendation of the 'Committee on Comprehensive Review of National Saving Fund' to reduce commission payable to Mahila Pradhan Agents from four to one per cent will affect lives of about three lakh agents in the country.'' A panel report in this regard was submitted by RBI Deputy Governor Shyamala Gopinath to Union Finance Minister Pranab Mukherjee a few days ago, they said.

Newspolitan

Bank deposits grow faster than advances

Higher interest rates on bank deposits continued to attract funds, as the deposit base of banks grew by around Rs 58,000 crore in the fortnight ended June 3. Banks disbursed loans worth around Rs 28,000 crore in the same period. According to data provided by the Reserve Bank of India (RBI), deposits grew 18.2 per cent annually, up from 17.37 per cent a fortnight ago. The data reflects the fact that the focus of banks has now shifted to strengthening the base of deposits. “At the moment, deposit growth is very important for banks, as the credit deposit ratio is already high, and going forward, banks would need a strong deposit base if they want to continue to lend,” said Hatim Brochwala, research analyst, Fortune Financials. Bank credit grew by 21 per cent annually as on June 3, down from 22 per cent a fortnight ago. “This reflects the impact of higher lending rates on credit demand has started to show,” Brochwala said. Most banks had increased their base rates after RBI’s policy rate rise of 50 basis points on May 3. The country’s largest lender, State Bank of India, had raised its base rate by 75 basis points, effective May 12. This was the second rate increase by the bank in a month. The base rates of most commercial banks currently range between 9.5 per cent and 10 per cent. With inflation still hovering above the comfort level, RBI is expected to continue the rate rise cycle longer than expected. Wholesale price index inflation stood at 9.06 per cent in May, up from 8.66 per cent in April. As a result, it is widely expected RBI would raise policy rates by 25 basis points in the mid-quarterly review on June 16. Additional rate increases are expected to hamper credit demand. “Credit growth would slow down further and would remain at around 19 per cent for the current financial year,” said Brochwala. RBI has projected a growth of 19 per cent in bank advances and 17 per cent in deposits by the end of the current financial year. In the last financial year, bank advances, at 21 per cent, exceeded RBI’s expectations, while deposits lagged at 16 per cent.

BS

RBI Governor Grapples With ‘Horror Show’

After India announced that headline inflation for May had reached 9.06%, economists were appalled. Credit Suisse bank, in a research note, called India’s May inflation print a “horror show.” Will this force Reserve Bank of India Governor Duvvuri Subbaro to spring for a larger interest rate increase at the central bank’s monetary policy review on Thursday?........

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'Reforms in skill development and training are crucial' - Narendra Jadhav, Member, Planning Commission

India’s growth story is supposed to scale a new high, with annual GDP growth of 9-9.5 per cent during the 12th Plan — provided skilled development and reforms in the education sector go hand in had. Edited excerpts of an interview by Sanjay Jog with Planning Commission member Narendra Jadhav on the subject:

India’s record in education, especially vocational education and skill development, is dismal compared with other countries. What is being done to address this?

We are on a high growth path and for this to be sustainable, skill development and reforms in the education sector are crucial. If we do not put our house in order, the demographic dividend will turn into a nightmare. There is a three-fold framework in the form of a National Skill Development Council headed by the Prime Minister, a National Skill Development Coordination Board to coordinate 17 ministries engaged in skill development, headed by the deputy chairman of the Planning Commission, and the National Skill Development Corporation, a public-private partnership (PPP). This apart, state-level skill development missions have also been launched. Seven regional conferences have been held and there is widespread awareness at state level. The focus of the 12th plan is on faster, more inclusive and sustainable growth. The manufacturing sector, currently growing at around eight per cent, needs to grow at 11-12 per cent each year, so that there would be creation of at least two million jobs annually. For large employment generation, certain sectors such as textiles, gems and jewellery, food processing, leather and garments will have to be focused on. During the 12th Plan, it is expected that 1.2 per cent of GDP investment would be made in health, education and skill development. In addition 0.7 per cent GDP investment is expected in infrastructure, which includes irrigation, urban infrastructure and transportation. The total investment in infrastructure is expected to be even larger, with increased emphasis on PPP.

India’s track record of vocational education is also poor.

Emphasis is being given on massive vocationalisation of secondary education. Instead of the present format of such a training in 11th and 12th standards, consideration is being given to provide vocational education early on, say from the 9th and 10th standards. In 2007-08, a paltry two per cent went into formal vocational education and eight per cent was accounted for by on-the-job training and other informal ways. This is certainly not enough when compared with other countries; in Korea, it is 93 per cent. Just last week, at the meeting with state education ministers, the government has presented a draft National Vocational Education Qualification Framework, to provide horizontal and vertical mobility in vocational education. The government is also in the process of setting up a committee to look into provision of credit support from the banking sector for skill training. This is crucial, since the construction sector (real estate and infrastructure) has a potential to create as many as 35 million jobs during 2012-22. In addition, 11.8 million in health, 9.6 million in tourism and hospitality, and 9.2 million in information technology and IT-enabled services during the same period. Accordingly, the sector-wise plans for these sectors are being prepared by National Skill Development Corporation.

We also lack attention on apprenticeship programmes, compared with other countries. How are the government and the Commission looking at this?

The proportion of apprenticeship is merely 0.02 per cent, which means only 240,000 of the total population of 1.2 billion get an apprenticeship. In Germany, it is 75 per cent, Australia has 66 per cent and Singapore, 60 per cent. The apprenticeship programme is a spectacular failure. A committee headed by me had suggested amendments to the Apprenticeship Act of 1961. The amendments, when done, will give a much-needed fillip to apprenticeship. Further, we have 1,300 modular employment skills against 4,000 in China. We need to streamline funding. Besides, cluster-specific modular skills will be set up across the country. For example, an auto cluster could be planned in Chennai and a textile cluster in Surat.

What is the government doing on skill development for the excluded?

This is a critical issue. Incidentally, the National Advisory Committee chaired by Sonia Gandhi has recently set up a working group on the issue. A consultation with community-based organisations or non-government organisations is being arranged in July to discuss the issues and prepare a national policy for consideration of the government.

BS

Rate rise remains a done deal

Inflation remained elusive and stubborn at near double-digit levels for several months. Inflation in May, at above nine per cent, turned out to be yet another upside surprise. Pressures remained widespread, with food, energy and manufacturing prices all contributing in large quantum. Non-food manufacturing inflation – a commonly tracked proxy for core inflation – remained elevated at above seven per cent. The glimmer of hope was the relatively smaller revision in headline inflation in March. The Reserve Bank of India (RBI) has clearly said it would accord the highest priority to rein in rising prices and if required, it would do so at the cost of near-term growth. Of late, there has been a renewed bout of uncertainty and risk aversion in the western world. However, RBI currently does not have an option, but to focus on domestic concerns. A rise of 25 basis points (bps) in policy rates should be a done deal after the latest wholesale price index print. A 50-bps rise, however, would be a bit too harsh. The tone of the policy is likely to stay ultra-hawkish as well. However, in my view, it is almost impossible for the central bank to match the combination of ultra-hawkish action and tone, as was the case at its last month’s policy meeting (ultra-hawkish statement, 50-bps rate rise, 50-bps rise in savings bank rate, the introduction of marginal standing facility at 100 bps above the repo rate). Beyond June, we expect RBI to deliver another repo rate rise of 25 bps in the third quarter of 2011 before taking a pause.

BS

Enough is enough, India Inc tells Reserve Bank

Most expect a 25 bps rate hike today, but want pause

If India Inc has its way, tomorrow should be the last of the interest rate rises by the Reserve Bank of India in this current cycle. Most are treating a 25 basis point increase in key policy rates in the mid-quarter review of the monetary policy as given, but say any further hike will just kill growth. Enough is enough”, said Videocon Chairman and Managing Director Venugopal Dhoot, adding a rate rise beyond this would slow down investments. Dhoot argued high interest rates in India as compared to other countries will lead to capital inflows into India. “That will mean appreciation of the rupee, which will hit exports. I think RBI will have to be mindful of that,” he said. In a letter to RBI Governor D Subbarao, the Federation of Indian Chambers of Commerce and Industry (Ficci) said further rise would affect business sentiment adversely and further dampen the pace of investments. According to Ficci, the GDP growth figures in the fourth quarter of 2010-11 have confirmed the slowing in sectors such as manufacturing and mining. “The pace of investments is a key determining factor for overall growth, and once it loses momentum, it is difficult to bring it back,” Ficci said. The country’s business leaders argued that inflation is being primarily driven by supply-side factors, for which monetary policy plays a limited role. On the other hand, a secular rise in the interest rates over the last 15 months has adversely affected industrial output and growth. Since March 2010, despite RBI raising interest rates on nine occasions, inflation stayed stubbornly high. Inflation, measured by the wholesale price index, was 9.05 per cent in May and what has worried analysts is the sharp increase in manufacturing prices which implies pick up in core inflation. “If the cost of borrowing goes up, they pass it on to us and that will affect investments. The last rate hike itself was very steep and it is already having an effect, as there has been a slowdown in investments,” said V Ashok, Group CFO, Essar. Representatives of the realty sector also want RBI to press the pause button. Says Pradeep Jain, Chairman, Parsvnath Developers, “Too many rate hikes will not augur well for the economy. It makes funds expensive, which hurts profitability of companies. Real estate sector supports 270 other industries. So, if this sector is affected other industries will also be impacted.” In its financial stability report published on Monday, the central bank had said while inflation is likely to stay at elevated level more moderation in growth may take place. But, industry captains also argue that rising rates is not a permanent solution. Anil Sureka, director (finance), Ispat Industries, said, “Raising interest rates is not the solution. RBI should look at some other solutions to control inflation as clearly, this isn’t working out,” he added.

'Our balance sheet has been cleaned up fully' - H S Upendra Kamath, CMD, Vijaya Bank

Though the Reserve Bank of India (RBI) has extended compliance time to September from March (for provisioning on bad loans), we completed the process by March. Our balance sheet has been......

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Close the Casino

The efforts of regulators to cool India's real estate market seem to be paying off finally. Recorded home sales are down in Mumbai , Hyderabad and Bangalore; there's substantial oversupply - and softening prices - in the outskirts of Delhi.  Prospective homebuyers, repelled by the astronomical costs of real estate, are choosing to rent rather than buy. Smaller agents and brokers are being driven to other businesses to stabilise incomes. Many will read this as a sign of an impending slowdown, but that would be incorrect.  What's happening in the real estate market is the beginning of a slow process of realigning prices to meet real demand. The first institution to start worrying about India's sky-high real estate rates was the RBI , which cracked down on the sector three years ago with a series of steps, including curbs on overseas investments, higher risk weights and increased scrutiny for loans to the sector.  Rate hikes have followed, closing the gusher of easy money which lubricated the realty casino. Yet, there's a lot more that policymakers can do. Today, a series of archaic rules and regulations curtail the supply of urban land. This creates an artificial scarcity, forcing up land values.  Developers, in turn, price property according to the inflated underlying cost of land, rather than quality of construction. State governments and municipalities must quickly rewrite land use rules to make better use of land, bring prices down and reduce graft. Haryana, for example, has rules that allow for farmland to be reclassified for commercial or residential development if the owners so want. Reclassification, however, calls for more persuasion than just the negligible official fee. Neighbouring Delhi , now India's largest city, has vast tracts of land classified as farms or villages but is yet to notify land reclassification rules.  There are plenty of people waiting to develop their holdings willingly, yet we have the spectacle of governments in states like UP and Bengal trying to acquire land forcibly from unwilling farmers. Governments must stop coercive acquisition, and make it easy - and cheap - for willing sellers to convert land to whatever use they want to.

ET

A consumer’s guide to battle likely rate hike

The monetary policy announcement by the Reserve Bank of India (RBI) on Thursday is likely to impact the economy as well as your wallet. Financial Chronicle suggests the smartest thing you can do..................

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Reserve Bank of India (RBI) guidelines on Information security to Banks

Cyber Society of India (CySI), a non-profit organisation formed to create cyber law/security awareness organised an one-day workshop on cyber crimes and cyber security at University of Madras premises, Chennai. Mr N. S.Vishwanathan, Regional Director, Reserve Bank of India, Chennai inaugurated the workshop and also explained in brief the guidelines given by 'Gopalakrishna Commitee Report' to the banks on information security. Immediately after the inauguration, we interviewed Mr N.S.Vishwanathan, Regional Director, Reserve Bank of India in the corridors of the University on the 'Gopalakrishna Committee Report'. For the information of readers, Reserve Bank of India set up a working group in April 2010 under the chairmanship of Mr G Gopalakrishna, presently Executive Director of Reserve Bank of India to look into the various aspects of Information security and suggest guidelines to all the banks in India. Accordingly, the Committee submitted its report to RBI, who accepted the report. The Committee report was circulated to all the banks on 29th April 2011 for impelmentation. This 174 page report gives more responsibility on the banks to implement information security systems and also to educate the customers on ebanking.

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RBI says financial system stable; cautions on growth risks, inflation

The country’s financial system remains stable in the face of some fragilities observed in the global macro-financial environment, the Reserve Bank of India said in its Financial Stability Report (FSR) released here on Tuesday.  However, there are “downside risks to GDP growth” on account of some domestic and global factors and “inflation is likely to continue facing upward pressure”, it said. Sounding optimistic on the banking system, the RBI said, “a series of stress testing in respect of credit, liquidity and interest rate risks showed that banks remained reasonably resilient though their profitability could be affected significantly.”  Hinting at the possibility of a rate hike in June, it said growth is likely to moderate while inflation is likely to remain firm due to rising commodity prices. “This is expected to have an adverse impact on the fiscal consolidation process. Current account deficit is likely to remain elevated due to rise in imports resulting from higher oil and commodity prices, along with challenges of financing, as global conditions increase volatility in capital flows,” it said.

FE

RBI swoops down on wealth managers

Financial sector regulators are looking to up their ante against the mis-selling menace prevalent in the financial services and advisory space, and RBI’s list of 29 questions to scheduled commercial banks and their subsidiaries on wealth management services (WMS) and private banking is a first step in this direction.............

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Decoding financial stability report

Most economists expect a 25 basis points hike in the policy rate, because wholesale price inflation stubbornly refuses to come down, in spite of the helpful impact of a high base

One of the objectives of making monetary policy announcements more frequent was, as the Reserve Bank of India’s December 2010 Financial Stability Report puts it, “to help manage expectations and reduce uncertainties”. That doesn’t seem to have helped on both counts. Inflationary expectations among households have kept on rising and, as for reducing uncertainties, the central bank added to it when it surprised the market by raising the policy rate by 50 basis points during its last monetary policy meeting. This time too, most economists expect a 25 basis points hike in the policy rate, because wholesale price inflation stubbornly refuses to come down, in spite of the helpful impact of a high base. But what is RBI’s thinking about the macroeconomy at present? Several clues are available in its latest, or June 2011 edition, of its Financial Stability Report. It’s pretty blunt and concise about its view. Here’s what it says : “On the domestic front, growth is likely to moderate while inflation is likely to remain firm because of rising commodity prices. This is expected to have an adverse impact on the fiscal consolidation process. The current account deficit is likely to remain elevated because of rise in imports resulting from higher oil and commodity prices, along with challenges of financing, as global conditions increase volatility in capital flows. High input prices and interest costs may result in downward pressure on margins of corporates. The aggregate impact of moderately paced global recovery, domestic growth moderation, upside risks to inflation and higher interest rates on the financial sector is likely to remain somewhat adverse during the year.” In a few simple words, the optimistic view in a section of the market that the second half of the year is likely to be better than the first has been effectively scotched. Growth is going to slow, while inflation is going to remain high. It won’t be stagflation because growth is still going to be pretty high, but we could call it “stagflation with Indian characteristics” or, perhaps more appropriately, moderate-growth-flation. The report says that inflation will face upward pressure from “fuller pass-through of oil and coal prices, higher subsidy expenditure of the government and rise in wages and raw material prices.” Add to that, the stickiness in food prices as a result of the masses, for the first time, being able to afford some decent food, thanks to the social security measures announced by the government. To be sure, RBI had said that inflation would remain high in the first half of the year and the 9% print in May would not surprise it. We could even argue, it’ll be pleased that growth is finally slowing, which is what it wanted. But what it wouldn’t be pleased about is the rise in inflation in non-food manufactured products, its proxy for core inflation. That suggests pricing power among firms is strong and so is demand. And it’s interesting that non-food manufacturing inflation is up at a time when commodity prices had fallen. The financial stability report contains what the central bank calls a “macroeconomic risk map” with six points. These risks are global, capital flows, inflation, fiscal, corporate and household. The difference between the June report and the December 2010 one is that while global risks have declined, inflation risks have increased. The rest of the factors have seen no change. But then, the June report also says that the fiscal deficit for the current year is likely to be much higher than projected this year, because of higher oil and fertilizer prices and consequently higher subsidies, a belief it shares with most of us, except the finance minister. That means higher borrowing by the government and, combined with RBI’s monetary tightening and the already high credit-deposit ratio with banks, it will result in even higher interest rates. What’s more, the financial stability report also mentions a few risks to the corporate sector, which has been borrowing cheaply abroad, without much thought about hedging its exposure. Companies had also raised money through foreign currency convertible bonds (FCCBs) during the boom years and it’s now time for payback, since many of their share prices are well below the conversion price. Says the report, “More than a few firms potentially face severe funding problems in the next two years which may not remain confined to their industries.” The accompanying chart shows the amount of FCCBs coming up for redemption in the next few years. So there we have it—slowing growth, high inflation, a squeeze in margins, high interest rates and risks from foreign borrowing—and there’s little reason to be optimistic about corporate earnings or about equities. As if that was not quite enough, the RBI also sees the risk of a further slowing of capital inflows. The report says, “Financing of CAD (current account deficit) is going to be a challenge as advanced countries begin exiting from their accommodative monetary policy stance. This could slow down capital inflows to EMEs (emerging market economies), including India, as investors rebalance their portfolios.” The only positive is that most of these fears have already been baked into equity prices.

RBI’s non-performing asset projections for march ’12

RBI projected banks’ balance sheets for 2011-12 and finds that at end-March 2012, the level of gross non-performing assets (NPAs) will rise to 2.92% of advances, assuming the tighter provisioning requirements made by the central bank and 30% of standard restructured assets turning into NPAs

The June Financial Stability Report of the Reserve Bank of India (RBI) has a section on stress testing of banks. RBI projected banks’ balance sheets for 2011-12 and finds that at end-March 2012, the level of gross non-performing assets (NPAs) will rise to 2.92% of advances, assuming the tighter provisioning requirements made by the central bank and 30% of standard restructured assets turning into NPAs. While the profitability of banks is adversely affected under this baseline scenario, capital adequacy remains high. As the chart shows, it is only when NPAs rise by 50% or so that capital adequacy is affected.

Mint

OK, the stage is set for credit default swaps, but will/can they take off?

Ideally, the RBI and the FIMMDA must jointly constitute a standing committee, which can meet once a fortnight, to resolve market related issues to deepen the market......

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Food Bill could unleash new wave of inflation: Raghuram

Despite the Reserve Bank of India raising key policy rates nine times in just over a year, the headline inflation number remains stubbornly high. However, according to........

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Ahead of crucial RBI meet, Govt says inflation not alarming !!!!!!!!

25 bps rate hike most likely but will RBI squeeze more?

The Chairman of the Prime Minister's Economic Advisory Council, Dr. C Rangarajan, later said the figures were " upsetting" and more monetary and fiscal policy measures were needed to contain in inflation................Continue reading..................

FM calls for global action to end era of secretive banking

Finance minister Pranab Mukherjee called for creating a multi-lateral cooperation mechanism to prevent banking secrecy laws to deal with menace of black money. "While countries have accepted to end bank secrecy in general, some countries have agreed to do so only from a prospective date and are not willing to exchange past banking information," Mukherjee said, while addressing a seminar on international taxation jointly organised by his ministry and the Organisation for Economic Cooperation and Development (OECD). Mukherjee said transfer pricing poses problems with increase in cross border trade. Under transfer pricing mechanism, money is transferred from one jurisdiction to the other at a specified rate for goods and services exchanged between related entities. Multinational companies use transfer pricing to minimise their worldwide taxes, duties and tariffs. "The variety of inter-company transactions, increased global business restructuring and location of companies in various tax jurisdictions have brought several challenges to the tax administration on transfer pricing rules," he said. Under attack for inaction over black money allegedly stashed away in secret overseas bank accounts, the government has announced setting up of a panel to suggest ways to trace tax defaulters, reveal their identity to the public and recover taxes.

HT

Banks' reliance on market borrowings could impact liquidity: RBI

This increased reliance on borrowed funds raised concerns about the liquidity position of banks arising from growing maturity mismatches, in conjunction with a reduction in the share........

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RBI mid quarterly review needs to change policy to control inflation

Mocking the repeated assurances of the Finance Minister of the country to control inflation, India has seen its headline inflation in May rise to 9.06 per cent. This high rise is driven by an increase in prices of manufactured goods such as edible oil, textiles, sugar, paper products, etc. The rise has made it evident that the Reserve Bank would once again go for another round of raising interest rates at its mid-quarterly review slated for June 16. The RBI has in fact raised key policy rates nine times since March 2010.However it is mentionable that the wholesale price index (WPI) stood at 10.48 per cent during the same period a year ago while it was 8.66 per cent during the last month, as per the government data. The International Monetary Fund has already revised the growth projection of Asian countries, forecasting a downward trend of Indian’s growth. For 2011, the IMF has projected India’s growth to dip down to around 8% owing to high inflation and overall global economic turmoil created due to rising prices of commodity goods and oil. Though Finance Minister Pranab Mukherjee has repeatedly stated that the government is keeping a close watch on developments, both domestic as well as international and that they are keen in taming down inflation, the actual scenario shows the Reserve Bank and the Indian Finance Ministry has failed so far in controlling inflation. As understood, the lower growth projection of the country is due to RBI’s step of excessive increase in interest rates, that too repeatedly in the last fiscal. It is an absolute necessity for the Reserve Bank of India to undertake additional policy changes to tighten its grip on the economy. All eyes are now on the mid-quarterly review of the RBI scheduled on June 16.

Times of Assam

RBI should send suggestions on FHC model to FSLRC: Experts

Banks should not own mutual funds or insurance companies as subsidiaries. Instead, an RBI panel has recommended that financial conglomerates be structured so that a holding company is created with 3 distinct arms - the bank, the insurance company, and the mutual fund. CNBC-TV18’s Latha Venkatesh and Gopika Gopakumar report that while experts welcome this proposal; they disagree on who should regulate the holding company. Recent suggestions to convert financial conglomerates to holding company structures have received kudos from the industry. Experts feel this move will help in regulating them better. JR Verma, professor at IIM Ahmedabad, said, “What the FHC model does is that each of companies, which are running an insurance business or asset management business or a banking business, each of them is separate. They are not in a parent subsidiary relationship to each other. They are all subsidiaries of the same parent. So that really allows you to resolve a conglomerate very easily.” On the other hand, AK Purwar, former chairman of SBI, said, “As far as banking space is concerned, it is extremely well regulated. If you ask the insurance space, again it is regulated; mutual fund is again well-regulated. But if you ask me that anybody is regulating the conglomerate today, I think there is huge gap there.” Experts are divided over who should regulate these holding companies. The report suggests that the RBI be the chosen one and some agree. “If you see the present set of regulators, perhaps RBI, because of his history, because of its very long track record, because very eminent people who are getting into RBI and managing it, it has a very good credentials to look at this as an aggregate,” added Purwar. Narayanan, former secretary, Finance Ministry, said, “Only Finance Ministry will be in a position to be able to bring in people from all the other regulatory to sit together and to sort out the problem.” Hence, to prevent the report from gathering dust, experts say RBI should send these recommendations to the financial sector legislative reforms commission (FSLRC), which is looking to redraft laws governing the financial sector.

CAB First – Workshop on First Aid Training





After facilitating “Aadhar” UID card registration camp recently, yet another novel initiative envisioned by Ms. Kamala Rajan, Chief General Manager & Principal was taken. A day long workshop on First Aid Training was organized on June 13, 2011 at the College of Agricultural Banking, Pune for the members of staff and their families.  Dr. Gajana Kulkarni and Dr. Aruna Kulkarni of St. John Ambulance Association, Mumbai conducted the workshop.  At the inaugural address, Ms. Kamala Rajan related an anecdote from her childhood to drive home the importance of learning first aid training. During the workshop various areas such as managing wounds and hemorrhage, respiration and asphyxia, fracture and unconsciousness, dressing and bandage, precautions during and immediately after earthquake were covered. The participants were also provided hands-on experience on various first aid techniques. The children and family members enthusiastically participated in the programme. Shri Manas Ranjan Mohanty, Deputy General Manager/MoF co-ordinated the programme. Shri R.L.Sharma, General Manager & Vice Principal alongwith other officers were also present.      

Industry & Economy / Economy : RBI sets up committee on forex facilities to individuals

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Big push to deregulation of savings rate

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Financial inclusion to get more focus: RBI governor

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Karnataka Bank opens RO in Kolkata

Mangalore, June 14: To expand its presence in north-eastern part of the country, the Mangalore-based Karnataka Bank Ltd has opened a regional office in Kolkata in West Bengal. Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer of the bank, told Business Line that the new regional office of the bank at Kolkata helps the bank to meet the requirements of the customers in north-eastern belt of the country. The Kolkata regional office was created after hiving off branches from Delhi and Hyderabad regions, he said. The new regional office covers West Bengal, Assam, Chattisgarh, Orissa, Jharkhand, and Bihar. Mr P.K. Jena, Chief General Manager of RBI, inaugurated the 10th regional office of the bank at Kolkata on June 13. Asked about the expansion plans in Kolkata region, Mr Bhat said the bank is planning to open branches in Rourkela, Joda and Bhubaneshwar in the coming days. “We will be applying for more licenses to open branches during the year,” he said.  At present, West Bengal has nine branches, Orissa five, Chattisgarh four, Jharkhand two, and Assam and Bihar have one branch each. The bank is planning to take the total number of branches in the country from 481 to 500 by the end of this financial year, he added. 

Business Line

RBI hints at another rate hike, inflation high

Mumbai: Reserve Bank on Tuesday said inflation would continue to face upward pressure in the months ahead, indicating that it could further raise key interest rates to check rising prices in its mid-quarterly policy review on Thursday. "Global commodity prices, particularly oil, and performance of the monsoon are the key risk factors to inflation management in the months ahead", RBI Governor D Subbarao said in the foreword to the central bank's Financial Stability Report. Inflation, according to the latest data, rose to 9.06 per cent in May, much above the central bank's comfort level of 5-6 per cent. According to the RBI report, "inflation is likely to continue facing upward pressure". Experts have predicted that the central bank would raise key policy rates by at least 25 basis points in its mid-quarterly policy review on June 16 to curb price rise. Former Reserve Bank Governor and the present chairman of the Prime Minister's Economic Advisory Council (PMEAC) C Rangarajan too said, "I think the RBI will probably look at the inflation issue more seriously and will take some action...it will probably decide what to do in the context of the high level of inflation". Describing the inflation numbers as 'upsetting', he said, "We need to address the issue of inflation even more strongly. We need to use more monetary and fiscal policy to contain inflation". Inflation has continued to remain high despite the Reserve Bank raising the key lending (repo) and borrowing (reverse repo) rates nine times since March 2010.

IBN Live

Dr. Reddy at wedding reception....

Former RBI Governor, Y.V.Reddy (L) at the wedding reception of Infosys Chairman N R Narayana Murthy's son Rohan Murthy with Lakshmi Venu at Hotel Leela Palace in Bangalore on June 12, 2011

RBI: Downside risks to growth on local, global factors

India's Gross Domestic Product (GDP) growth has downside risks on account of some domestic and international factors, the Reserve Bank of India (RBI) said in the Financial Stability Report released on Tuesday. India's economy expanded 8.5 percent in the fiscal year ended March, and the central bank has forecast growth to moderate to about 8 percent in the current fiscal year

India’s banking sector well capitalized: RBI

Srinagar, June 14: The Reserve Bank of India in its Financial Stability Report (FSR) has said the banking sector in India remains well capitalized with both core capital adequacy and leverage ratios at comfortable level. The report which was presented today in New Delhi makes assessment of the health of India’s financial sector.  The report, the central bank in its website says, reflects its continuing endeavour to communicate its assessment of the incipient risks to financial sector stability. Pertinently, the first FSR was released in March 2010 and the second in December 2010. It said the FSRs will be released bi-annually in June and December every year. “The FSR holistically assesses, from a systemic risk perspective, disparate elements of the financial sector eco-structure – the macroeconomic setting, policies, markets, institutions,” it says.  “However, the tools and techniques used to assess the stability of the financial sector, the build up of systemic risks, if any, and the movements of various vulnerabilities between December 2010 and June 2011, have been considerably upgraded,” it said. The report says that credit growth rebounded amid improvements in asset quality. Certain specific sectors, however, may pose concerns, going forward. “Increased reliance of market borrowings could adversely affect the liquidity position of banks,” it said, adding that the robust growth in credit warrants tightening of individual underwriting standards to prevent slippages when credit growth slows. The FSR states that the Indian financial system remains stable in the face of some fragilities being observed in the global macro-financial environment.

Greater Kashmir

RBI: Funding current account deficit may be a challenge

India could see some slowdown in capital inflows going forward as advanced economies exit from the easy monetary policy

Mumbai: India could see some slowdown in capital inflows going forward as advanced economies exit from the easy monetary policy, making it tougher to fund a widening current account deficit, the Reserve Bank of India (RBI) said in its Financial Stability report. “Financing of current account deficit is going to be a challenge as advanced countries begin exiting from their accommodative monetary policy stance,” the Reserve Bank of India said in the report, released on Tuesday. If oil and commodity prices remain elevated, the current account deficit will remain significant, although higher growth in software exports and remittances may provide some cushion, the report said. India’s exports in May provisionally rose an annual 56.9% to $25.9 billion, while imports for the month rose 54.1% to $40.9 billion. The country’s trade deficit widened the most in nearly three years as the country’s demand for oil, gold and industrial machinery soared, prompting concerns the gap for the fiscal year could expand despite a strong rebound in exports. India’s trade deficit rose 67% in May from a month ago to $15 billion, the highest since September 2008.  The Reserve Bank said it is committed to use a prudential mix of policy instruments to contain any adverse impact of easy monetary policy by the advanced economies. India’s gross domestic product (GDP) growth has downside risks on account of some domestic and international factors, the report noted. “The slackening of global recovery, high oil and commodity prices, deceleration in domestic industrial growth, uncertainty about continuation of strong growth in agricultural sector and impact of monetary policy actions pose downside risks to India’s GDP growth during 2011-12,” the RBI said. India’s economy expanded 8.5% in the fiscal year ended March, and the central bank has forecast growth to moderate to about 8% in the current fiscal year. Inflation is likely to face upward pressure from higher subsidy expenditure of the government, rise in wages and raw material prices, RBI said in the report. “Management of government expenditure, especially subsidies bill, will pose challenges to the process of fiscal consolidation, which could be further accentuated by a tempered growth adversely impacting revenue collection,” RBI said. High interest rates has increased the attractiveness of overseas borrowing in terms of interest rate differential and availability of credit, it said. The high and growing net external liability position of residents exposes the country to the risk of a sharp fall in the currency, the report noted. The central bank also said increased reliance on market borrowing by Indian banks could adversely affect their liquidity position.

Mint

RBI should not pause now

Inflation is for real: if inflationary expectations have come down that is in no small measure due to the steps that it has taken until now. Given these signals, it is important that RBI continues to send a strong signal about its intention to quell inflation, at least....

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RBI interest rate increase worries CBDT

Officials say it will impact direct tax collections in current financial year. The Central Board of Direct Taxes (CBDT) is worried over interest rate rises by the Reserve Bank of India (RBI) to curb inflation impacting direct tax collections in this financial year. CBDT officials told Business Standard that companies had indicated the rate rise was raising their cost of borrowings and impacting their bottom lines, which would have a bearing on their tax payments this year. “This year’s target of collecting Rs 5.33 lakh crore is stiff and the rate rise is certainly putting pressure on collections,” said an official. He, however, said the board would devise its strategy to meet the target. The CBDT is now contemplating an enhanced focus on tax deducted at source (TDS) which constitutes around 38 per cent of the total direct tax collection of Rs 4.46 lakh crore in 2010-11. The official said a comprehensive strategy would be formulated soon for this purpose. Showing growth of 25.5 per cent, gross direct tax collection up to June 13 in the current financial year stood at Rs 69,551 crore as against Rs 55,420 crore collected during the same period last year. Net collections, however, witnessed a decline of 29.80 per cent at Rs 29,304 crore up to June 13 this year as against the figure of Rs 41,714.50 crore in the same period last year. The corporate tax collection during this period has been Rs 3,619.50 crore and personal income tax Rs 24,545 crore. Rest includes share transaction tax Rs 1,108 crore, fringe benefit tax Rs 8.50 crore and other taxes Rs 23.80 crore. Refunds during the period from April to June 13 in the current financial year stood at Rs 40,246.80 crore as compared to Rs 13,705 crore issued during the same period last year — a jump of 193.70 per cent. The interesting trend witnessed in the direct tax collection this year has seen second-tier centres like Chandigarh, Bhopal, Patna and Lucknow performing much better than Mumbai, Delhi and Chennai. Growth in direct tax collection in Chandigarh up to June 13 in the current financial year stood at 62.50 per cent over the previous year’s collection during the same period. Similarly, Bhopal, Patna and Lucknow witnessed growth of 57.80 per cent, 60 per cent and 86.50 per cent, respectively, during the same period this year. In comparison, growth rates of direct tax collections declined in Mumbai, Delhi and Chennai by 54 per cent, 99.80 per cent and 5.4 per cent, respectively. The CBDT official said the reason behind better performance by smaller centres over major ones was improving TDS collections.

BS

Muthoot Finance faces RBI probe on gold bonds

Muthoot Finance's method of raising money through gold bonds has been questioned by its competitors, including a few public sector banks. This has resulted in a probe by the Reserve Bank of India (RBI). According to a few banks, the bond issues by Muthoot Finance were not in strict compliance with norms relating to raising money from the public, and this gave Muthoot Finance an advantage over its competitors, said two people familiar with the development. “The complainants have, in their detailed report to RBI, said how the bonds were being issued to walk-in clients at any Muthoot Finance office in the country,” one of the sources said. An RBI spokesperson confirmed the probe. When asked whether there were concerns over the debentures, the spokesperson said, “We are examining the books of gold loan companies. This will probably cover everything.” Muthoot Finance, which is registered as a non-deposit taking non-banking financial company (NBFC), is regulated by the central bank and had raised about Rs 3,900 crore through non-convertible debentures. For gold loan firms, these debentures are an important source of funds, since RBI had, in February, taken the sector off the priority sector list. According to company officials, this money is raised through private placement in several tranches. The terms of these debentures can be found in the forms available in any of the Muthoot outlets, the officials said. Company officials also said the RBI audit was a routine one and nothing untoward was found. A senior Muthoot Finance official said, “The company has followed all applicable rules and regulations, and the bonds are in the form of secured debentures, which are privately placed.” He added these debenture sales would not amount to a public issue, as there was no invitation or an advertisement inviting the public to subscribe. Provisions in the Companies Act allow NBFCs governed by RBI to raise money from more than 50 people, without attracting the public issue provisions of the Act. However, such efforts should not, directly or indirectly, be aimed at raising money from members of the public or from people to whom the offer is not made directly, say experts. According to these rules, “The offer for shares or debentures made by an NBFC or a public financial institution, should not be calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by people other than those receiving the offer or the invitation.” “In short, an NBFC can send named invites to even 1,000 people. But if it keeps blank forms and takes deposits from walk-in customers, that would amount to a public issue and would attract the relevant provisions,” said a company secretary. Gold finance companies, including Muthoot Finance, have been raising money through non-convertible debentures at an interest rate of around 12 per cent per year. However, being a non-deposit taking NBFC, it is not subject to restrictions like liquidity reserves and cash reserves, conditions banks are subject to. “This makes their cost of funds much lower than their competitors and margins much better. However, it exposes them to that much more risk, since there is no protection against depreciation in gold prices or liquidity risks,” said one of the sources.

BS

RBI admits monetary policy actions may pull down growth

The Reserve Bank of India (RBI) today admitted that its own tight monetary policy, besides rising crude oil prices and uncertain global environment, poses a threat to India's growth momentum in the current fiscal. "The slackening of global recovery, high oil and commodity prices, deceleration in domestic industrial growth, uncertainty about continuation of strong growth in agricultural sector and impact of monetary policy actions pose downside risks to India’s GDP," the RBI said in a report. The slowdown in growth momentum may affect the quality of the assets of financial sector, according to the RBI's Financial Stability Report-June 2011 released here today. The central bank, which has raised key interest rates nine times since March 2010 to check price rise, has pegged India's gross domestic product (GDP) growth rate for the current fiscal at 8%, down from 8.6% recorded in FY11. The report, however, said India's macroeconomic fundamentals continue to remain strong, notwithstanding the prevailing inflationary pressures and concerns on the fiscal front. The RBI said the recent decline witnessed in international oil prices "may not help in inflation management as complete pass-through of previous escalations is still to be affected". The international prices of food, energy and commodities are expected to remain high during 2011-12, it added. Moreover, inflation is likely to face upward pressure from higher subsidy expenditure of the government and the rise in wages and raw material prices, according to the report. Referring to the recent growth in India’s exports, the RBI said it may off-set, at least partially, the expected increase in the import bill due to elevated oil and commodity prices. On the current account deficit (CAD) front, the RBI said, "there does not seem to be an impending pressure on the financing of CAD". The central bank, however, cautioned that "as the advanced economies exit from the accommodative monetary policy, there could be some slow down in capital inflows". It said concerns over the global economic environment and the uncertainty revolving around the path of global recovery, are the "main underlying factors behind global imbalances that remain largely unaddressed". Referring to the the sovereign debt crisis in European countries like Greece, Portugal, and Ireland and the ballooning government debt in some advanced countries, the RBI said these "remain threats to global stability".

BS

More of the same

The latest headline inflation data should queer the pitch for the Reserve Bank of India (RBI) as it makes up its mind on the end-quarter monetary policy action this week. The wholesale....

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RBI: Growth to moderate, inflation to remain firm

High inflation and the consequential policy rate increases are likely to impact domestic growth in the future, said the Reserve Bank of India (RBI) in its Financial Stability Report released today. A slowdown in investment demand and the slackening global recovery also pose downside risks to growth. The central bank said inflation was likely to remain high, as the entire impact of the rise in oil and coal prices was yet to be felt. The government's higher expenditure on subsidy and rise in wages and raw material prices would prevent inflation from declining. “Growth is likely to moderate, while inflation is likely to remain firm due to rising commodity prices,” RBI said in the report. Rising commodity prices are expected to have an adverse impact on the fiscal consolidation process, it said, adding there were risks to the fiscal deficit projections of 2011-12, since subsidies were likely to exceed budgetary provisions, owing to higher international commodity prices. Headline inflation numbers again picked up in May on the back of higher prices of food and non-food manufactured goods. While the wholesale price index stood at 9.1 per cent in May, up from 8.7 per cent in April, food inflation rose to 8 per cent in May, compared with 7.6 per cent in April. Non-food manufactured inflation rose to 7.2 per cent from 6.3 per cent in April. Higher oil and commodity prices may also led to widening of the current account deficit, though higher growth in software export and remittances is likely to provide cushioning. According to the central bank, financing the current account deficit would be a challenge, as advanced countries exit their accommodative monetary policy stance. “This could slow down capital inflows to emerging market economies, including India, as investors rebalance their portfolios,” RBI said. There is considerable uncertainty in the global financial recovery, owing to recent developments like the eurozone debt crisis, the earthquake in Japan and the geopolitical turmoil in major oil producing countries, RBI said. It added these developments may hit the confidence of investors and the spending decisions of corporations and households. The central bank also cautioned against uncertainties in the West Asian and North African (Mena) countries. “If tensions in Mena continue, or spill over into bigger economies in the region, the impact on Indian financial markets would be difficult to contain, particularly because India’s fiscal improvement is expected to slow this year,” it said.

BS

Low provisioning poses systemic risk: RBI

The Reserve Bank of India, in its Financial Stability Report, today said banks should create adequate reserves to deal with pension liabilities and avoid approaching the regulator for privileges. The directive comes in the backdrop of revised pension liabilities eating into public sector banks’ fourth quarter earnings in the last financial year. RBI said under-provisioning and non-compliance with accounting standards could pose systemic stability issues. RBI, which has taken up the issue with the Indian Banks’ Association, said, “Banks are also being advised to make a proper assessment of their superannuation liabilities and provide for them from the year in which the periodical wage settlements fall, and not from the year in which such settlements are signed.” The additional liability for State bank of India (SBI) stood at Rs 11,707 crore, for which the bank had requested for RBI's approval to spread additional costs evenly over the future working lifetime of the employees. The regulator, however, did not agree, since the rise in the liability was linked to the wage revision and could have been reasonably anticipated. “However, from a purely systemic stability point of view, the impact on SBI’s profitability being very significant, regulatory dispensation allowing adjustment against reserves to meet the additional pension liability, the net liability for the current year was allowed,” RBI said. Hence, SBI provided for Rs 2,473 crore to the profit and loss account and Rs 7,927 crore was charged to the reserves. As a result, SBI’s net profit declined 99 per cent in the fourth quarter of the last financial year. RBI said going forward, it was necessary that banks build adequate provisions for such liabilities in a phased manner since regulatory dispensation is not sought. This would also prevent burdening in the year the settlement was signed.

BS

RBI for closer look at linkages of insurance firms to financial system

The insurance sector’s linkages with the rest of the financial system needs better monitoring, to avert any possible systemic shock triggered by its core activities, the Reserve Bank of India (RBI) said.....

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RBI bars NBFCs from opening branches abroad

Non-bank financial companies (NBFCs) will not be permitted to open branches abroad, the Reserve Bank of India said today. However, NBFCs which already have branches abroad, will be allowed to continue those operations, subject to their compliance with the revised guidelines. The regulator has allowed NBFCs to set up representative offices and subsidiaries abroad. It said subsidiaries established abroad by an NBFC should not be used as vehicles to raise resources Indian operations. NBFCs would also be barred from investing in non-financial activities and their total investment should not exceed 100 per cent of the net-owned funds. “The overseas investment in a single entity, including its step-down subsidiaries, by way of equity or fund-based commitment, shall not be more than 15 per cent of the funds owned by NBFCs,” RBI said.  Direct investment in activities prohibited under the Foreign Exchange Management Act or in sectoral funds will not be allowed and the level and an NBFC's net non-performing assets should not be more than five per cent of its net advances, for NBFC’s planning to set up offices abroad. While deposit-taking NBFCs would have to maintain a capital adequacy ratio of 15 per cent after investing in a subsidiary, non-deposit taking NBFCs would have to maintain a 10 per cent capital adequacy ratio.

BS

High rates, rising NPAs may erode banks' profits: RBI

The Reserve Bank of India (RBI) today said high interest rates and a rise in non-performing assets (NPAs) may erode the profitability of banks in the coming quarters. “The SCBs’ (scheduled commercial banks) profitability showed an improvement in 2010-11. Going forward, increasing interest rates, a rise in the savings account interest rate, amortisation of pension and gratuity liabilities and the potentially enhanced provisioning requirements for NPAs may hit the profitability of banks,” RBI said....................

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Obituary

SUSEELA KASTURI 69 Retd.Manager,RBI,Bangalore expired on 13-06-2011 at Chennai. Ph:044-24725718/9381258947

Hindu

Post office ATMs to be set up before March 2012

India Post had first announced this project in February this year, but had been awaiting the Reserve Bank of India's approval to start the project in full swing. "It's all done now. We recently received RBI's permission to set up ATMs," said the.....

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Caught in apolicy bind

The initiative for price stability and growth has to move from Mint Street to Parliament Street

If the RBI thought the last fiscal was a trying one with its set of intertwining parameters such as growth that is not fast enough, soaring inflation and exuberant policy makers, it has yet to reckon with the current year's dilemmas. These dilemmas emerge from growth that is slowing down on account of falling industrial output, especially in the capital goods sector, persistently high inflation, and policymakers who would like the RBI to reverse its tight money policy. It is against this backdrop of cross-eyed reality that the central bank will be delivering its mid-quarter review of the monetary policy today. Most bankers expect the Reserve Bank of India to raise its key rates by at least 25 basis points; others think that after nine spikes, it should loosen interest rates a bit. The third view is that markets have factored in the tight monetary policy — a euphemistic way, perhaps, of saying that the RBI measures matter little — and would, therefore, want the central bank to stay the course. There is merit in all of these views. After 15 months, interest rates have climbed considerably and the common view among corporates is that it is beginning to weigh heavily on investment plans and their order books. The RBI itself had noted in April, in its monetary policy for the current fiscal, that investment was dipping and that the business sentiment was not as roseate as it used to be. It is on account of these reasons that it had moderated its growth forecast. In retrospect, its tight money policies had worked in reducing prices, but only of those in the manufacturing sector, not those of food. In fact, all through the 15 months of consistent increases in its key rates, food or primary inflation stayed stubbornly high. All that one can say at this juncture about the RBI's tight money policies is that they have moderated manufacturing growth and, perhaps, that is why officials in the North Block would like it to reverse course. It is possible that the RBI will continue to abide by its faith in its capacity to bring about price stability and so raise key rates by 25 basis points; or perhaps, it may not. But in either case, not only will markets remain unconcerned, but so will food inflation. Yet, the RBI must be seen to be acting on the inflation front. Unfortunately, as experience has shown, its initiatives will be as futile in their objectives as New Delhi's inaction has been. Clearly, the initiative for price stability and growth has to move to New Delhi.

Business Line

SBI invites applications for chief economist

State Bank of India (SBI) on Tuesday advertised the vacancy for a new chief economist offering an annual package of Rs 60 lakh

Country’s largest lender, State Bank of India (SBI) on Tuesday advertised the vacancy for a new chief economist offering an annual package of Rs. 60 lakh, nearly triple to that typically drawn by a State Bank chairman. The appointment will be on contract basis for an initial period of three years, the advertisement appeared in news papers, said. “We have to offer competitive salary packages for the candidate in line with the industry standards,” a top SBI official, who did not want to be named, said. This is not the first time SBI is appointing a chief economist but the post has been lying vacant for quite some time. In 2009-10, State Bank’s former chairman O.P Bhatt got a total remuneration of Rs. 26.5 lakh. Traditionally, salaries of public sector bank chiefs and top executives are much lesser compared with their counterparts in foreign and private sector space and even less than some of the heads of miccrofinance firms. In September, 2010, Reserve Bank of India governor, D Subbarao had said that in the absence of suitable compensation package they would lose talent to private sector lenders. “The executive compensation in the public sector, as is well known, is lower than that in the private sector...If public sector banks are required to compete with private sector banks on a level playing field, there is a good case for compensating them too on a competitive base” Subbarao said.

Mint

RBI, ministry differ on FDI limit, capital in new banks

The central bank wants to cap it at 49% in the initial stage, the finance ministry is not averse to the idea of 74% FDI in such banks even at an early stage....

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